What is Volatility

Volatility describes the frequent and rapid drastic change in prices of an asset. It is often computed using the standard deviation of the variable prices. Volatility can also be portrayed with the beta coefficient.

Usually, the volatility of an asset is considered a proxy of how risky it is to invest in that asset, due to the unpredictability of the direction and magnitude of the price fluctuations over short time intervals.

Cryptocurrencies, especially bitcoin, are highly volatile. This can be partially attributed to the smaller scale of their markets compared to other traditional markets. Despite the higher perceived level of risk associated to this volatility, it could also be in part the reason behind attracting investors captivated by the possibility of making great earnings.

As cryptocurrencies rally the support of people and the crypto market grows, volatility is expected to decrease with time.