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March 9, 2022

Why is Crypto so Volatile?

Crypto sometimes gets compared to gambling in the sense that it is an extremely volatile market that could land you high earnings or deep losses very quickly. This leaves many new users asking why is crypto so volatile? The reason behind this is mainly because the daily trading volume of the crypto economy is about 10x higher than the stock market. This means that at such a high rate of trade, the prices rise and fall at a higher rate as well.

Why is Crypto’s trade volume so high?

With the risk and volatility involved in crypto, you see most traders reaching for short-term strategies and metrics to employ to find their gains. Most crypto exchanges also push their leverage option out to users, which would basically allow them to trade with up to 100x of their current assets. Crypto’s volatility means that you should invest with an extreme level of care. Never invest more than you are willing to lose because odds are that in a week your balance will be extremely different than it is now.

What to do about it?

If you’re still interested in joining the cryptocurrency world, but don’t want to enter into such risky investments, then stablecoins may be the best option. Stablecoins are assets that are tied to more traditional assets such as the US dollar, or gold. With the use of stablecoins, most of them also offer high-yield savings options where you can earn as much as 6-10% APY by holding onto them and opting into these programs. One exchange that offers 8% APY on all of your crypto holdings is FTX. FTX is a newer exchange that raised 900 million USD in 2021 during a series B fundraising round. Regardless of which exchange you use for your crypto trades, it is important to find one that is backed by trustworthy companies and people.

Risky Investments

Crypto inherently has a large amount of risk involved. Between the high trading volumes, the lower market cap of some assets, and the short-term-minded investors that fill the space, it can sometimes be hard to navigate. It is even more important as a trader to choose the correct exchange as well. There will always be differences between the fees placed on a single transaction, but users also need to be aware of how much trust they can place into the exchange. In 2021, an exchange founder was able to lock all of the users accounts, take their assets, and flee the country. It is imperative as a trader, regardless of the trust factor of the exchange, to move your assets to a hardware wallet to feel fully secure. This leaves no ability for someone to steal your crypto.

Crypto Taxes

With all that being said, If you do decide to jump into this world of crypto and even pick yourself up some tokens, you need to make sure that you have the proper tools on hand to help you manage your financial accounting needs. One of the best solutions for you will be Ledgible.

With Ledgible, you can report and keep track of your crypto transactions with the supported integrations as you dive into the crypto space with this new information. If you want to learn more about Ledgible and get started for free, click here.

Disclaimer: The author and Ledgible do not provide investment advice and nothing in this article is meant to be taken as such. This website is presented solely for informational and entertainment purposes and is not to be construed as a recommendation, solicitation, or an offer to buy or sell / long or short any securities, commodities, cryptocurrencies, or any related financial instruments.

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