In finance, volatility or price fluctuation describes how quickly and how much the price of an asset changes. It is usually calculated in terms of standard deviations in the annual return of an asset over a set period of time. Because it is a measure of the rapidity and degree of price changes, volatility is often used as an effective measure of the investment risk associated with the asset, and is usually expressed as a percentage. 

As in other markets, volatility is an important measure of risk in cryptocurrency markets. Due to their digital nature, current low levels of regulation, and smaller market size, cryptocurrencies are far more volatile than most other classes of financial assets. However, the higher level of volatility is also responsible for powering mass interest in cryptocurrency investment, as it allows investors to realize large returns over short periods of time. It is likely that volatility in cryptocurrency markets will decrease in the long term as a result of increased regulations, wider adoption and market growth.

With time, cryptocurrency markets have become more mature and investors have taken more interest in measuring their volatility. As a result, there are now volatility indexes for some of the major cryptocurrencies, including bitcoin. This index is called Bitcoin Volatility Index (BVOL).

Articles in this section

See more