Volatility refers to the rate at which the price of an asset changes. High volatility is defined by rapid price fluctuations, while little movement is termed low volatility. One thing to keep in mind is that volatility is relative. Assets with low market capitalizations tend to make greater % movements than those with larger ones.
A popular method to infer volatility is to calculate standard deviation over a given period, and compare. Aside from measuring asset risk, we can even use it to estimate fluctuations, based on historical ranges.
Volatility in Cryptocurrency Markets
In combination with general excitement, lack of regulation, and 24/7 access, crypto markets often experience sudden bursts of volatility. That's not to say things are bad. In fact, many people flock to crypto markets for this very reason- each spike in price, down or up, is a new chance to profit.
Above, we mentioned that larger assets tend to experience less volatility. This also remains true with crypto markets.
As crypto markets have matured, interest in measuring volatility has increased. The Bitcoin Volatility Index (BVOL) as an indicator is evidence of this. Similar volatility indexes to track other cryptocurrency markets also now exist, including Ethereum and Litecoin.
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