The volatility of bitcoin has been a hot topic in the news, and now that you're an investor, it's a good idea to know how volatile Bitcoin is compared to other investments. Continue reading →
While discussing about cryptocurrencies, the first thing that springs up in the mind is none other than the fluctuating market. The volatility of bitcoin has been a hot topic in the news, and now that you’re an investor, it’s a good idea to know how volatile Bitcoin is compared to other investments.
Bitcoin is a risky investment. It came to the market to make sure that the financial segment continues to stay strong and intact even amidst the corruption in the political and economical sector. Also, since there’s no asset backing it and its price isn’t determined by supply and demand like stocks are, its value can fluctuate wildly.
In contrast to Bitcoin’s volatility, the S&P 500 index or s&p/tsx composite index has been much more stable than Bitcoin over the past 100 years (see graph below).
In addition, bitcoin had twice as many days with large price movements. It also had half as many days with small price movements. This means that bitcoin is significantly more volatile than stocks in terms of both magnitude and frequency of price change.
The variability of bitcoin’s returns over time was significantly enough to say that bitcoin is a more risky investment than stocks.
You may see in the chart above that bitcoin had twice as many high volatility days and a half as many low volatility days. A high volatility day means it traded with a percentage change greater than 5 per cent within 24 hours. This means that there is a lot of movement these days, and traders are more likely to have lost money or made money if they had any exposure to bitcoin. Low volatility days are the opposite — their percentage change was less than 1 per cent.
In both cases, high volatility days are followed by downtrends (bearish trends), whereas low volatility days are followed by uptrends (bullish trends). So this makes things even harder for traders trying to predict what will happen next since there’s no clear pattern between these two indicators!
Before you dive into the comparison, it’s essential to understand the difference between stocks and cryptocurrencies.
Stocks are investments in publicly traded companies. In exchange for buying a stock, you receive rights to a portion of their future profits (dividends) and voting power within the company. The easiest way to think about bitcoin is that it’s like gold: It’s valuable because people believe it has value, not because someone will always accept it as payment for goods and services. If enough people stop believing that bitcoin is worth anything, then its price will drop dramatically—precisely what happened when China banned trading earlier this year. Try Bitcoin Dynamit to use AI-based tools to trade Bitcoin like a pro.
While it may seem like a no-brainer that stocks are safer than Bitcoin, it’s important to remember that both have risks and rewards. If you’re looking for more stable investments, then investing in stocks might be the right choice. On the other hand, if you’re looking to take on some risk with hopes of making some money from an exciting project or product, then maybe cryptocurrency is the ideal investment vehicle!
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