Understanding the Crypto Market’s Volatility

Price chart
Price chart

The soaring highs and low lows of cryptocurrencies have always been a topic of discussion for the investment world at large. The Guardian points out that Bitcoin hit a record high of more than $68,000 in November 2021, and astute investors who took advantage of the rock bottom price of $36,946 in June 2021, cashed in a handsome 84% increase in just five short months.

The fact that the cryptocurrency is so volatile warrants caution from beginners in the market. But for investing experts, the risk-return trade-off rule has always been “high risk, high reward.” If you’re thinking about investing in Bitcoin, or just interested to learn more about cryptocurrencies, read on to better understand market volatility and how to make a profit out of it.

How to measure volatility?

Volatility measures the degree of price fluctuations of an asset like Bitcoin or a whole market like the crypto market. Unlike prices, volatility is directionless. An easy way to estimate volatility is to square price returns (percentage price changes per measurement period). Another way is to use the standard deviation of returns. Technical analysts also have a variety of additional tools.

What drives the market’s volatility?

Market volatility is caused by any form of uncertainty which could influence the value of an asset. For cryptocurrency, millions of things could cause the asset’s perceived value to change. Two important drivers have been (1) shifts in regulation regarding cryptocurrencies, and (2) adoption of crypto currenices in real-world use cases. Let’s take a look at an example.


In September 2021, The People’s Bank of China announced that all cryptocurrency transactions would henceforth be illegal, effectively prohibiting all digital tokens like Bitcoin. This news inevitably stirred up the market as China has one of the largest cryptocurrency markets in the world. A fluctuation in China understandably sent off ripple effect in the global price, and the price of Bitcoin immediately crashed more than US$2,000 following the announcement. However, these kind of setbacks are usually only short-lived.


On the other hand, the adoption of cryptocurrencies has been rising steadily over the years and continues to do so. For instance, decentralized finance has been an important topic, followed by non-fungible tokens (NFT), and lately it has been the „metaverse“.

Decentralized finance means running banking-related services such as loans or exchanges for digital assets without traditional centralized institutions on a global scale with the help of computer networks.

NFTs are unique digital tokens that can represent a digital piece of art or other things and now they can be sold and traded on exchanges.

The metaverse took off after Facebook renamed itself to Meta and many electronic gaming and virtual reality platforms were launched in connection with the ability to trade land or items on these platforms with cryptocurrencies.

Opening up these new possibilities nurture the real value of the crypto space and alongside crypto prices can also appreciate heavily.

Beside these major drivers, also announcements from Elon Musk are well known to have an impact on the crypto market. However, that doesn‘t interfere with the long-term story of the increase in the actual value of the crypto space.

Can we expect volatility to ease anytime soon?

Global markets have seen dramatic fluctuations in 2021, and the world is still fighting the pandemic with the recent new COVID-19 variant, Omicron. Due to high costs for fighting the pandemic, inflation has increased to high levels and central banks (foremost the Fed) have set out to fight it by increasing interest rates and by quantitative tightening of its policy. This has led to a resurgence of fear and caution around the globe, and even more uncertainty in stocks, cryptocurrencies, and investments. Thus, crypto and stock markets are expected to stay volatile.

When comparing the relative volatility of the markets, the crypto market is certainly more volatile than, e.g., the stock market. The reason is the higher level of uncertainty regarding regulation and adoption. Like in any maturing process, the uncertainty and volatility of crypto prices will eventually reduce. Until this happens, it keeps offering one of the best investment opportunities among all asset classes.

Is crypto a bubble?

This debate has been going on for quite some time. Experts at Forbes argue that crypto does not respond to normal financial systems because it is not a normal fiat currency. That is, Bitcoin is special because it is scarce, with only a limited amount available in circulation that cannot be increased by a financial institution, like a central bank. For this reason, Bitcoin has been also termed „digital gold“. Following this narrative, it serves as a store of value for many investors.

Opponents of crypto claim that it has no intrinsic value, consumes large amounts of energy, and the crypto bubble could burst at any time. Ofcourse many crypto projects fail to deliver value and eventually default. Therefore, it is important to choose wisely in which cryptocurrencies to invest.

For instance, Ethereum is a platform for decentralized applications coupled with a secure worldwide electronic transaction system. This value proposition is very strong and there are many believers in it. Recently, some expect it even to overcome Bitcoin‘s market capitalization. This anticipated event is called „the flippening“.

Regardless in which thesis you believe, the crypto market‘s volatility is what makes it both risky and rewarding, and even newer investors can see great returns on their investments.

How to profit from volatility?

Cryptocurrency is a relatively young market, and expert advice is particularly crucial. There are basically two ways to take advantage of the crypto market‘s volatility and to successfully invest in the cryptocurrency market.


First, as a believer in the crypto space, one could simply buy-and-hold the most conservative and most promising cryptocurrencies. Bitcoin offers the relative lowest risk and would be the most conservative bet in the crypto space to date. It goes down the least when the market crashes. When it comes to most promising cryptocurrencies, smart contract platforms and surrounding solutions for scaling and oracles might offer real and sustainable value.

To get invested, either buy-the-dip or dollard-cost-averaging are viable strategies. Dollar-cost-averaging simply buys crypto for the same amount at a fixed frequency, say once per month. Thus, you buy more once it is cheap. In case you bought at a (local) top, the crypto market‘s cycles have been around 4 years, so waiting to get out with a profit might take much less time compared to the stock market, in which you might have to wait 10 years when you are unlucky.

Market timing

Second, proper timing might reduce the downside of your portfolio greatly by selling your assets in case a crash appears on the horizon. Now, the difficulty lies in to tell whether we are seeing a slight dip in a bull market or the beginning of a bear market. To this regard, reading our blog will provide regular insights.

CryptoCaptain has developed a unique approach for timing the market based on it‘s AI for analyzing the bull and bear trends in the market‘s sentiment. For instance, on 13th May 2021, CryptoCaptain sent a sell signal to its members when Bitcoin was trading at around $50.000 – right before its crash to $30.000.

Sell Signal On May 13 - CryptoCaptain
Sell Signal On May 13 – CryptoCaptain

More recently, CryptoCaptain sent a sell signal on the 18th November 2021, when Bitcoin was trading around $57.000. Subsequently, the downtrend took Bitcoin towards $40.000 in January 2022. Following CryptoCaptain could have helped you to protect capital.

Where to find more information?

Cryptocurrency is a relatively young market, and expert advice is particularly crucial. If you can’t talk to experts, then you may consider some books that all great investors have read. One such book is Burton G. Malkiel’s world-renowned investment guideA Random Walk Down Wall Street. Known as the bible of investing, it gives a great overall understanding of how to build a profitable low-risk investment portfolio.

If you are always on the go and don’t have time to read, you could listen to interviews with specialists about financial markets. Money for the Rest of Us is a podcast for investors who want to maximize their returns while remaining in range of their risk tolerance and goals, with regular discussion of academic research, market cycles, and the likes.


Market volatility may sound intimidating, but so long as you know how to invest properly, this volatility might end up in your favor. While exact predictions are impossible, proper research can help you anticipate which way the price will swing, allowing you to ride the wave and cash in some profits.

  • ​Invest early in emerging bull markets
  • Cash out ahead of market crashes
  • Count on years of experience
  • Spend only a couple of minutes / month

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