Sirwin
Sirwin

Cryptocurrency’s volatility; poor liquidity or reaction?

By Dzoelx | Cryptocurrency Scripts | 15 Apr 2024


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That big red candle on the 24hrs chart looks horrible! Horrible enough to scare any investor into selling off what they have left and enough to scare off a trader from buying the ‘dip’. Sometimes it looks like it’s over for the particular coin/token; when it spans across a majority of the cryptocurrency market, the bears take over and doomsayers run the day.

If you’ve been in this space for a while, this occurrence is quite popular. Steep falls occur across major cryptocurrencies; the short time it takes for things to go crazy is a major turnoff for most people. Yeah, “cryptocurrency is volatile, I wouldn’t touch it!”

‘Just a second’? A second could be too late. It’s like a ‘rush hour’ scenario. Startled? You don’t have to. Remember the popular saying that “a minute in the crypto space is equivalent to one real-world hour”? Yeah, guess that helps a lot when you consider how fast things move in this space. Call it volatility, but that sounds way too euphemistic.
If volatility is a satisfactory term for how fast cryptocurrency prices could change, then I’d say it’s just a ‘normal’ speed. But this space moves way faster.

Bitcoin first, others follow immediately, and prices come crumbling or racing up…depending on the market’s direction. Traders find this rewarding and equally risky. A wide space for gains could mean a wider space for losses.

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The Crypto market’s volatility is unsavory, a good reason why many institutions prefer staying away. Taking a look at different cases of sudden jerks, the real reason for these movements is sometimes obscure. Buy the rumor, Sell the news? Well, that’s the case sometimes when individual projects move against the market. The price movements could be tracked down to developments particular to the project. But this is hardly the case when this movement occurs across all boards.

But whether volatility is individual or general; it is either a case of poor volatility or abrupt reaction from traders and holders.

Cryptocurrency holders develop the habit of ‘watching whales’, this is normal however as whales control a good portion of the market capitalization and are rich enough to influence the overall price with their actions. Most times they exert this influence without making an actual move; a simple transfer to another personal wallet does the job!

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Whales’ presumed influence not only stems from their huge stake in the project; for spinoff projects, whales are as well thought to have a deeper relationship with the project and are closer to the team. They are thought to be closer to insider information than any other investor. With this in mind, a whale move may represent a lot to existing investors and potential investors. A Big news incoming? Someone knows something! These reactions are notorious hype builders in the crypto space, whale moves comfortably trigger them!

Price movements in cases like this are clearly due to abrupt reactions. Buy walls shrink, sell wall swells, and prices come crumbling, the reverse is also true when the triggering events are presumed to be positive. Traders react to prevent liquidation, and holders take profit or prevent the loss, whatever the case may be.

Tesla earlier announced the sale of some of its bitcoin holdings to test liquidity, but the sale barely moved the market. This probably is because this announcement came after the sale, things would have easily gone either way if the announcement was made before the sale. Abrupt reactions affect liquidity, with traders withdrawing their orders suddenly and potential buyers or sellers holding off.

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Poor liquidity is blamed for cryptocurrency’s volatility, but this is in fact, not the case. Volatility is most times due to traders’ behavior. It’s justifiable, these actions. Despite reaching convincing levels of efficiency and adoption, cryptocurrency is still an emerging system. While many enthusiasts have tuned evangelists, few staunch believers sincerely hold on to their investments during turbulent times. Most traders and holders react to every development, resulting in the volatility that characterizes cryptocurrency.

This claim is not absolute anyways as there are some clear cases of poor liquidity. As seen in individual projects, poor liquidity caused by slim buy or sell orders will see price move quickly in any direction.


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Dzoelx
Dzoelx

Drinking coffee and writing about cryptocurrency.


Cryptocurrency Scripts
Cryptocurrency Scripts

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