Volatility, volume and liquidity

Why crypto is so volatile

VolatilityVolatility How much and how quickly a price moves up and down. describes how much prices swing. Crypto swings more than most assets because:

• markets never close, so news hits prices instantly, day or night;
• many traders use leverageLeverage Borrowing to make a bigger bet than your own money allows, which magnifies gains and losses., and forced sales (liquidationsLiquidation The forced sale of a borrower's collateral when its value falls too far relative to the loan.) can cascade;
• much of the value rests on expectations about the future rather than current cash flows.

A 5% daily move in bitcoin is unremarkable. Smaller coins can move 20% or more.

Volume

Trading volumeTrading volume The total value of an asset traded over a period, usually the last 24 hours. is how much changed hands, usually over 24 hours. High volume during a price move suggests broad participation. Low volume means a few trades can move the price. Be aware that some exchanges have historically inflated their volume figures.

Liquidity

LiquidityLiquidity How easily you can buy or sell something without moving its price much. is how easily you can buy or sell without moving the price. Bitcoin is highly liquid. A small token might have only a few thousand dollars on offer near the current price, so a modest sell order could push the price down sharply. That gap between the price you expect and the price you get is called slippageSlippage The difference between the price you expected and the price your trade actually got..

What this means for readers

When a headline says a coin “surged 40%,” check its liquidity and volume. Big percentage moves in thin markets are common and often reverse just as fast.