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crypto-basics

What is Volatility?

Alpaca Team
Alpaca Team
Crypto Basics Series: What is Volatility?

Volatility is a measure of how much the price of an asset fluctuates from its average price over a given period of time. It helps assess how risky an asset can be, and standard deviation is a statistical measure that’s often used to analyze how volatile an asset is.1

Volatility and cryptocurrency

One of the potential barriers to widespread cryptocurrency adoption is volatility. A cryptocurrency could be worth $10 today but drop to $5 or grow to $15 the following day, representing a 50% move in either direction in a single day. This volatility in crypto assets has drawn the attention of speculators and short-term traders who seek to profit from such price movements.

Stablecoins can help reduce volatility in comparison to digital currencies like Bitcoin. Although it’s possible for stablecoins to break their 1:1 peg, fiat-backed stablecoins are pegged to a currency like USD and designed to hedge against market volatility.

Example

Jenny buys a burger at McDonald’s for $1 and pays in Shiba Inu. If the crypto price drops by 20% right before she pays, then she would only have $0.80 to pay for the $1 burger, and she wouldn’t be able to purchase the burger due to price volatility.


References

1. What is volatility? Fidelity International.


Please note that this article is for educational and informational purposes only and is believed to be accurate and reliable as of posting date but may be subject to change. The example above is for illustrative purposes only. Alpaca Crypto LLC does not recommend any specific cryptocurrencies.

Cryptocurrency is highly speculative in nature, involves a high degree of risks, such as volatile market price swings, market manipulation, flash crashes, and cybersecurity risks. Cryptocurrency is not regulated or is lightly regulated in most countries. Cryptocurrency trading can lead to large, immediate and permanent loss of financial value. You should have appropriate knowledge and experience before engaging in cryptocurrency trading. For additional information please click here.

Cryptocurrency services are made available by Alpaca Crypto LLC ("Alpaca Crypto"), a FinCEN registered money services business (NMLS # 2160858), and a wholly-owned subsidiary of AlpacaDB, Inc. Alpaca Crypto is not a member of SIPC or FINRA. Cryptocurrencies are not stocks and your cryptocurrency investments are not protected by either FDIC or SIPC. Depending on your location, cryptocurrency services may be provided by West Realm Shires Services, Inc., d/b/a FTX US (NMLS #1957771). Please see the Disclosure Library for more information.

This is not an offer, solicitation of an offer, or advice to buy or sell cryptocurrencies, or open a cryptocurrency account in any jurisdiction where Alpaca Crypto, or FTX US respectively, are not registered or licensed, as applicable.


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Alpaca Team

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