What Is Volatility in Crypto?

What does volatility mean in crypto and what is the volatility index? Here are some of the top strategies to trade crypto while taking volatility into account.

Mar 29, 2024

What Is Volatility In Crypto

Key Takeaways:

  • Crypto volatility presents both risks and opportunities, and understanding it is crucial for traders and buyers.
  • Factors influencing cryptocurrency volatility include market sentiment, regulatory developments, technological advancements, and macroeconomic events.
  • Strategies for navigating volatility include Dollar Cost Averaging, setting stop-loss and take-profit orders, position sizing, portfolio diversification, staying updated, and maintaining emotional discipline.
  • Technical analysis tools like moving averages, Bollinger Bands, RSI, Fibonacci retracement, and volume analysis are used to aid in managing and predicting volatility.
  • Understanding volatility is important when trading cryptocurrency, alongside doing research, risk management, and having a trading strategy in place that accounts for market swings.


Cryptocurrencies have revolutionised the financial landscape with their decentralised and digital nature. However, they also come with a characteristic that typically influences them more than most fiat currencies — volatility. 

In this comprehensive guide, we delve into what volatility means in the cryptocurrency market, why it is important to understand it, and the factors influencing crypto volatility.

What Is Volatility in the Crypto Market?

Volatility refers to rapid and significant price fluctuations that occur frequently in the cryptocurrency market. Unlike traditional financial (TradFi) markets, where price movements of currencies are usually less pronounced, cryptocurrencies can experience wild swings in a matter of hours or even minutes. This volatility can be attributed to several factors, including the emergent nature of the industry, market sentiment, regulatory developments, technological advancements, and macroeconomic events.

Understanding volatility is crucial for anyone involved in the cryptocurrency market. It affects traders, buyers, and the overall stability of the market itself. By grasping the concept of volatility, traders are able to make more informed decisions and mitigate potential risks.

Why Does Cryptocurrency Volatility Matter?

Volatility in the crypto market can present both risks and opportunities. 

On one hand, it can lead to substantial gains if trades are timed correctly. In the crypto space, users call this ‘buying the dip’ and ‘taking profit’ — in other words, as volatility accompanies the crypto market, one can wait for a price dip to buy and often sell on a high soon after.

On the other hand, it can result in significant losses if not managed properly. In other words, selling on a low and buying on a high.

In essence, volatility is a prominent feature of the cryptocurrency market that cannot be ignored. Further understanding volatility can allow traders to develop effective strategies to navigate market swings. 

Learn trading psychology and how it influences buying behaviour.

Factors Influencing Cryptocurrency Volatility

Since volatility is common, it is helpful to learn what influences it. Various factors contribute to volatility in the crypto market. 

Market Sentiment

Market sentiment plays a crucial role. News, social media, and trader sentiment can heavily influence the demand and supply dynamics of cryptocurrencies, leading to volatile price movements. In other words, if it’s all crypto doom and gloom on TikTok and X, expect downward volatility swings.

Regulatory Developments

Regulatory developments also impact cryptocurrency volatility. Government regulations or policy changes can affect how cryptocurrency can be used and is viewed, leading to increased volatility. A recent example is the approval of spot Bitcoin exchange-traded funds (ETFs) in the US, which led to billions of US dollar inflows into the funds and price volatility. 

Technological Advancements

Similarly, technological advancements and innovations within the crypto space can trigger market swings as traders react to new possibilities.

Macroeconomic Events

Macroeconomic events, such as economic crises or geopolitical tensions, can also fuel volatility in the cryptocurrency market. These events can create a flight to safety, causing users to either buy or sell cryptocurrencies in response to broader market uncertainties. An example of this is interest rate announcements by the government.

Understanding these factors and their interplay is essential to navigate market swings and make informed decisions in the ever-changing cryptocurrency landscape.

Examples of Volatility in Crypto

The cryptocurrency market has seen several notable instances of volatility throughout its history:

2017 Bitcoin Rally

One such example is the late 2017 Bitcoin rally. Within a few weeks, Bitcoin’s price skyrocketed from around US$6,000 to nearly US$20,000, only to crash back down in the following months. This event not only attracted significant media attention, it also caught many traders off guard, highlighting the importance of understanding volatility.

2022 Terra-LUNA Depegging

The Terra-LUNA depegging in 2022 led to the unprecedented collapse of the Terra ecosystem, causing significant repercussions in the crypto market. The depeg of UST, the stablecoin in the Terra ecosystem, triggered a dramatic fall in both UST and LUNA prices, rendering them nearly worthless. Within days, the crypto market as a whole — from Bitcoin to Dogecoin — experienced dramatic price reductions. 

2023/2024 Winter Recovery

After the Terra-LUNA depegging, many expected a deep and lasting crypto winter. However, a year after the events, markets recovered faster than expected, with increased upwards volatility for both Bitcoin and altcoins

Causes were varied: The space witnessed continuous and increased interest from institutional investors in cryptocurrencies, plus the big push to finally get Bitcoin spot ETFs approved by the US government. Also gaining rapidly was the general interest in artificial intelligence and AI tokens. Finally, multiple developments on the Ethereum network, including the Shanghai Upgrade, might have helped to lift the space out of a bear market faster than expected.

Strategies for Trading Crypto During Volatile Phases

Navigating crypto market swings requires a well-thought-out strategy and disciplined approach. 

Here are some strategies:

  1. Dollar Cost Averaging (DCA): With DCA, instead of buying a lump sum at once, traders instead spread their buys over time. This strategy helps mitigate the impact of short-term market volatility and reduces the risk of making poor timing decisions.
  2. Setting Stop-Loss Orders: Implementing stop-loss orders can help limit potential losses. Set a predetermined price at which traders are willing to sell their holdings to minimise downside risk.
  3. Take-Profit Orders: Similarly, set take-profit orders to automatically sell a portion or all holdings when the price reaches a predetermined level. This helps lock in profits and prevent potential losses due to price reversals.
  4. Position Sizing: Determining the appropriate size of each trade based on risk tolerance and account balance is considered prudent to avoid allocating a significant portion of capital to a single trade, as it increases the risk of substantial losses.
  5. Portfolio Diversification: Diversifying cryptocurrency holdings across different projects and asset classes spreads the risk and reduces the impact of price swings of a portfolio.
  6. Staying Updated: Staying informed about the latest news and developments in the crypto market can help keep ahead of market trends. Examples include subscribing to reputable cryptocurrency news sources, following influential figures in the industry, and joining online communities.
  7. Emotional Discipline: Emotions can cloud judgement and lead to impulsive decisions. Maintaining emotional discipline and sticking to a predetermined strategy, and avoiding knee-jerk reactions to short-term price movements, are important. Learn more about behavioural psychology for traders here.

Crypto Trading Analysis for Predicting and Managing Volatility

Technical analysis is also a popular approach used by traders to predict and manage volatility in the cryptocurrency market. Various technical analysis tools can assist in identifying patterns, trends, and potential price movements. 

Below are some commonly used tools:

  1. Moving Averages (MAs): Moving averages help smooth out price data and identify trends. Traders often use a combination of short-term and long-term moving averages to assess the strength of a trend and predict potential reversals.
  2. Bollinger Bands: Bollinger Bands, consisting of a moving average line and two standard deviation lines that envelope the price, help identify periods of high volatility and potential price breakouts.
  3. Relative Strength Index (RSI): A momentum oscillator that measures the speed and change of price movements, RSI helps identify overbought or oversold conditions, indicating potential reversals in price.
  4. Fibonacci Retracement: Fibonacci retracement levels are horizontal lines that indicate potential areas of support or resistance based on the Fibonacci sequence. Traders use these levels to identify potential price reversals or continuation patterns.
  5. Volume Analysis: Analysing trading volume can provide insights into market sentiment and the strength of price movements. High volume during price increases or decreases may indicate the beginning or end of a trend.

Want to know where to get this type of information? Take a look at our free monthly Alpha Navigator report for metrics like volatility, macroeconomic commentary, and more to get a picture of where the crypto market might be headed.

Conclusion: Embracing Crypto Volatility 

Volatility is a prominent characteristic of the cryptocurrency market that — for now — does not appear to be ending soon. Instead of fearing volatility, understanding its causes and implications can help individuals make more informed decisions and potentially capitalise on the opportunities it presents.

Through thorough research, risk management, and disciplined trading strategies, traders can navigate market swings and minimise potential losses. Technical analysis tools can assist in predicting and managing volatility, while diversification and portfolio management strategies can mitigate risk and maximise returns.

As the crypto market continues to evolve, embracing volatility will become increasingly important. Staying informed, adapting to market conditions, and maintaining a long-term perspective can help traders make the right decisions.

Due Diligence and Do Your Own Research

All examples listed in this article are for informational purposes only. You should not construe any such information or other material as legal, tax, investment, financial, cybersecurity, or other advice. Nothing contained herein shall constitute a solicitation, recommendation, endorsement, or offer by Crypto.com to invest, buy, or sell any coins, tokens, or other crypto assets. Returns on the buying and selling of crypto assets may be subject to tax, including capital gains tax, in your jurisdiction.

Past performance is not a guarantee or predictor of future performance. The value of crypto assets can increase or decrease, and you could lose all or a substantial amount of your purchase price. When assessing a crypto asset, it’s essential for you to do your research and due diligence to make the best possible judgement, as any purchases shall be your sole responsibility.

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