Why the price moves so much

What volatility is

VolatilityvolatilityHow much and how fast a price changes up and down over a period of time.Example: A price that rises and falls sharply in a day is volatile, whatever direction it ends up in. shows how much and how fast a price changes, up and down. A volatile price is not necessarily one that falls: it is one that moves strongly, in both directions. A stable price changes little and slowly.

The Bank of England describes the value of crypto-assets as very unpredictable, even compared with other unstable assets, and warns that the value of such an investment can fall to zero. We do not repeat price figures here, because they would be out of date within hours. What interests us is why it happens.

Supply and demand

Every market price is formed from supply and demandsupply and demandHow many want to buy (demand) compared with how much is offered for sale (supply); the balance between them moves the price.Example: If many want to sell and few want to buy, the price tends to fall.: how many want to buy and how much is offered for sale. If many want to buy and few sell, the price tends to rise. If many want to sell and few to buy, it tends to fall. The same rule applies to apples, tickets or shares. What differs is how fast and how much the balance between them changes.

Why it moves so much

• Smaller, less liquid markets. Compared with large traditional markets, many crypto-assets have fewer buyers and sellers at any moment, so one large sale or purchase moves the price more. (Bitcoin.org also explains volatility by the still small size of the market.)
• News and mood. A rumour, a statement, a regulatory decision or a viral post can change, within an hour, what many people think about value.
• Expectations instead of anchors. For a share there is a company with income and costs; for many crypto-assets there is nothing like that, so the price depends a lot on what people expect.
• A market that never closes. Trading goes on day and night, weekends included, so reactions do not stop when an exchange closes.
• Leverage. Some participants use borrowed money. When the price falls, leveraged positions can be closed by force, which can push the price lower still.
• Panic and herd behaviour. When you see everyone selling, it is hard not to sell too; sales pile up and the price slides fast.

The maths of losses, with hypothetical examples

Imagine a sum of 1,000 lei that falls by 40%: 600 lei are left. To get back to 1,000, the remaining sum must grow by about 67% (600 × 1.67 ≈ 1,000), not by 40%. A loss needs a bigger percentage gain to be recovered. It is arithmetic, not an opinion.

A second hypothetical example, with leverage: you put in 100 lei of your own and borrow 900, to take a position of 1,000 lei. If the position's value falls by 10%, the loss is 100 lei, which is all your own money. In reality, platforms may close a position automatically before that, and costs and fees make things harder. Leverage enlarges gains, but it enlarges losses just as much.

What you can take with you

Any personal decision about crypto-assets is yours and carries real risks, including the total loss of the amount. The purpose of the lesson is not to push you towards them or away from them. It is for you to know why a price can jump so much in a short time and not be fooled by figures or stories that seem to promise something.