Top 3 Most Volatile Cryptocurrencies

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Top 3 Most Volatile Cryptocurrencies

According to a publication by CNBC, the total crypto market value crossed the $2 trillion mark in April 2021. The major milestone marked the entry of the asset class as a worthy contender in the global financial market scene.

However, despite the impressive history and growth of cryptocurrencies, the issue of volatility still bugs this infant industry. Bitcoin remains the most volatile cryptocurrency as its prices swing with each waking day.

In this piece we will dig deep into the world of crypto volatility. We have compiled a list of the top 3 most volatile cryptocurrencies and how as an investor or trader, one can take advantage of the volatility to make a profit.

This ad promotes cryptocurrency within the EU (by eToro Europe Ltd. and eToro UK Ltd.) & USA (by eToro USA LLC); which is highly volatile, unregulated in some EU countries and the UK., no EU consumer protection. Investments are subject to market risk, including the loss of principal.
This ad promotes cryptocurrency within the EU (by eToro Europe Ltd. and eToro UK Ltd.) & USA (by eToro USA LLC); which is highly volatile, unregulated in some EU countries and the UK., no EU consumer protection. Investments are subject to market risk, including the loss of principal.
This ad promotes cryptocurrency within the EU (by eToro Europe Ltd. and eToro UK Ltd.) & USA (by eToro USA LLC); which is highly volatile, unregulated in some EU countries and the UK., no EU consumer protection. Investments are subject to market risk, including the loss of principal.

History of Bitcoin Price

Bitcoin, which is the largest cryptocurrencies in terms of market capitalization, rose from less than $700 to a high of slightly $20,000 in 2017 alone. That is a whopping 27,000% growth within a period of a year which compared to the S&P 500 which grew by only about 25% within the same period.

Experts and opinion makers agree that Bitcoin volatility makes it a high-risk investment which should be approached with caution. That said, there is no denying that cryptocurrencies are disruptive and boast of a sophisticated technology that has turned many into millionaires.

What’s the most volatile cryptocurrency in the market today? Let us take an in-depth look at crypto volatility and explore how this concept shapes the market.

What is Volatility?

In simplest terms, volatility is a statistical measure of how an asset’s price fluctuates or moves over time. Highly volatile assets such as cryptocurrencies have aggressive price movements that oscillate from extreme lows to highs within a short period. Understanding the volatility of an asset helps investors and market players assess its risk and evaluate price factors.

Usually, the asset with the highest volatility is dubbed a high-risk investment and often gives high returns (or losses). Investment options such as forex, crypto, stocks and derivatives are highly volatile while gold, bonds and a savings a/c manifest low volatility.

Pros and Cons of Crypto Volatility

The good thing about volatility especially for cryptocurrencies is that it keeps the market active which provides profitable trading opportunities, especially in markets like Dogecoin. Volatility also creates curiosity about cryptos which helps sensitize people and indirectly grows the market.

On the downside, the extreme volatility of crypto especially Bitcoin may make investors shy away. The uncertainty around crypto prices isn’t friendly to ‘traditional investors’ who are mostly risk-averse. However, there’s been an upsurge in institutional investors despite the high crypto volatility.

Factors Affecting Crypto Volatility

The crypto market exists in a highly unstable environment. The risk-return tradeoff for cryptocurrencies is extremely high. Some major factors that cause this high volatility include:

Infant Market

Bitcoin hit the market in 2009 and has seen a phenomenal growth over the years. The technology around crypto is still relatively new compared to traditional investment options and currencies that have been around for ages. At the moment, purchase of crypto is driven by hype and speculation of future disruption and adoption. There’s still minimal quantifiable metrics to provide a long-term outlook.

Low liquidity

Compared to other assets such as the U.S equities and treasuries that are easily tradeable, crypto still has very low liquidity. The infancy of the market and extremely slow mass adoption of cryptocurrencies have affected the volatility of the market. Even worse, a low-liquidity market is prone to serious market manipulation which leads to regular pumping and dumping.

Unregulated markets

The technology behind crypto is complex and open-sourced which has made it complicated and hard to regulate. Lack of regulation has made the market prone to manipulation since there’s no clear legal framework to deal with such dealings. Crypto exchanges have been accused of manipulating their trading volumes to show increased demand leading to sudden pumps/dumps into these platforms and consequent price swings in either direction.

Speculation

An asset’s value is pegged on its utility and rate of adoption. There are many questions about the utility of most cryptocurrencies and this has led to increased crypto volatility.  Most people dive into the crypto market due to the hype and ‘get rich quick’ aspects of crypto. Such emotive investing has contributed greatly to the market’s volatility.

Most Volatile Cryptocurrencies

While almost every crypto displays a certain degree of volatility, there are those that take the cake due to the sharp trading activity around them.

Bitcoin

As the king of the crypto market, Bitcoin also takes the crown of the most volatile cryptocurrency. As the earliest entrant into the market, its trading history provides a substantial number of metrics for a credible Bitcoin volatility index. Volatility based on the BTC/USD pair places the coin highly volatile.

Bitcoin Volatility Time Series Charts
Source: BuyBitcoinWorldwide

The above cryptocurrency volatility chart shows the historical prices of Bitcoin since 2013 where the coin was trading below $200 but shot to a value of above $13,000 in 2017 within a period of 4 years. In 2020, before its prices began to rally, BTC had hit a low of $3,869 in March. Fast forward to 2021, and Bitcoin hit an all-time high of $62, 000. Bitcoin price swings within such a short period make BTC the most volatile cryptocurrency out there. Hence, this affects when to hold or sell your Bitcoins.

This ad promotes cryptocurrency within the EU (by eToro Europe Ltd. and eToro UK Ltd.) & USA (by eToro USA LLC); which is highly volatile, unregulated in some EU countries and the UK., no EU consumer protection. Investments are subject to market risk, including the loss of principal.

Ethereum

Ranked second largest cryptocurrency in terms of market cap, Ethereum has also gone through a bumpy journey and experienced swings in its prices.

Ethereum Price
Source: Ethereum Price

From a price of $10 in 2016, Ethereum has experienced serious price swings hitting a high of $1450 in 2018 which was recently topped in 2021 when it hit a high of $1,943. The Ethereum market holds a lot of potential and if the words of its co-founder are anything to go by, it might be one of the altcoins that will survive.

This ad promotes cryptocurrency within the EU (by eToro Europe Ltd. and eToro UK Ltd.) & USA (by eToro USA LLC); which is highly volatile, unregulated in some EU countries and the UK., no EU consumer protection. Investments are subject to market risk, including the loss of principal.

Ripple

Created to provide a cheaper and faster payment option for international transactions, Ripple has been dubbed volatile as its price swings quite often. In November 2020, the coin’s price increased by 170% amid rising concerns of the SEC case against the network. Ripple may not be the most volatile cryptocurrency, but it continues to exhibit extreme price swings when trading.

This ad promotes cryptocurrency within the EU (by eToro Europe Ltd. and eToro UK Ltd.) & USA (by eToro USA LLC); which is highly volatile, unregulated in some EU countries and the UK., no EU consumer protection. Investments are subject to market risk, including the loss of principal.

Which Cryptocurrency Fluctuates the Most?

While Bitcoin may win as the most volatile cryptocurrency, Stellar (XLM) seems to portray significant swings in its price. With a yearly volatility rate of 1926%, the decentralized international money transfer platform is highly unstable. You can read more about Stellar and other penny cryptos here!

Stellar Volatility by Month
Source: takeprofit.org

Which Crypto Has Most Potential?

At the moment, Bitcoin still holds a lot of potential. Following the Bitcoin halving, the coin’s supply continues to diminish while its demand has escalated to immense levels. With wild predictions of the coin’s price hitting $100,000 by the end of 2021, it seems like a good asset to bet on.

This ad promotes cryptocurrency within the EU (by eToro Europe Ltd. and eToro UK Ltd.) & USA (by eToro USA LLC); which is highly volatile, unregulated in some EU countries and the UK., no EU consumer protection. Investments are subject to market risk, including the loss of principal.

That said, there are lots of altcoins that also have massive potential. As the DeFi movement continues to gain traction, Uniswap’s value is gaining big. The price of the governance token, UNI, exploded in February 2021.

Wrapping Up

There you have it – Bitcoin remains the most volatile cryptocurrency due to its rising demand and speculative interest from investors. Volatility is necessary for any financial market. Without it, there would be no growth since the desired returns would be slow. However, before pouring money into the cryptocurrencies, it’s vital to assess the risk-return tradeoff.

As an investor, one can exploit the price swings and make money from whichever direction that the market moves. Crypto volatility will continue to happen as the market matures and the industry tries to shift from speculative investing to provision of utility.

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