The cryptocurrency market has been volatile from the very beginning, but the last couple of years have been a particularly wild ride for millions of investors around the world. Many have made millions on the big upswings, and yet many have lost large and small investments in the bursting bubbles and sudden market downturns. This is why one should know how to survive and prosper in the crypto market in periods of high volatility and investor uncertainty. To understand how to do it, we should determine the factors that influence the price of digital currency and ways to use them to our advantage.

Why is the crypto market so volatile?

• Cryptocurrency is still an emerging market: The relatively small market size means that smaller forces can have a larger effect on price.

• Cryptocurrencies are purely digital: Most cryptocurrencies like Bitcoin are purely digital assets and are not backed by anything physical like a currency or commodity.

• The technology is still developing: Blockchain and other alternative crypto technologies are still in their early stages of development. 

• Speculation: One of the biggest drivers of volatility in the cryptocurrency market is speculation. This involves investors betting that the price of different cryptocurrencies will go up or down by buying and selling cryptocurrencies. 
• Crypto investors: Unlike other markets, such as real estate and the stock market, the barriers to entry into cryptocurrency trading and investing are extremely low. This is why the crypto market is the market of choice for millions of amateur traders around the world.

“Bitcoin’s volatility is part of what makes it irresistible”

• Willemien Kets, associate professor at the University of Oxford’s Department of Economics

Also, read – Cryptocurrency’s Impact on Financial Markets

How to survive the volatility of the crypto market?

• Don’t fall into the trap: Checking the value of cryptocurrencies constantly is unproductive. You can’t do anything about the price movement itself. You should instead decide on a price point at which you will sell.

• Buy to hold: When people buy and sell in a dizzying cycle, they miss the bigger cryptocurrencies picture and the blockchain technology on which they are traded. 

• Diversify beyond Bitcoin: Diversifying is useful when you don’t know which cryptocurrencies will survive.

• Invest only what you can afford to lose: If you have invested 20% of your portfolio into bitcoin, and all of a sudden your bitcoins increase so much that they’re now 35% of your portfolio, you can rebalance and go back to your asset allocation. That should protect you from some of that volatility.