The difference between the lowest and highest price of Bitcoin in one month at the end of 2021 was about 14 percent of its price. For one year, the price had crossed the $30000 mark going up and down more than six times. The fluctuation was also witnessed with numerous other cryptocurrencies, with some economists arguing it was due to the lack of backing of the currencies with stable assets. However, in the first quarter of 2022, even cryptocurrencies backed by the US dollar experienced quite a fluctuation proving that backing was not the reason. Despite catching the attention of most investors, the volatility of cryptocurrencies is barring many others from entering the market. As a resolution, many traders are opting for trading bots hoping they can overcome the volatility issue. To understand how cryptocurrency trading bots attempt to overcome volatility, it is essential to look at the causes.
Discovery or Entry level
The newness of cryptocurrencies in the market of financial transactions is still a fresh concept. Every new product experiences volatility as most trends rely on speculative information instead of practical information. New concepts also struggle to win acceptance among users. To a large extent, the cryptocurrency market is still experiencing investors’ discovery of their worth or pricing. When Elon Musk announced that Bitcoin would not be accepted as a payment method while buying Tesla products, the price of Bitcoin dropped. But when he tweeted Dogecoin, the price of this new, unpopular coin skyrocketed.
Influencing personalities are contributing to the occurrence of events that are multiplying the volatility of cryptocurrencies as they struggle to get hold of and stabilize the market. Trading bots cross reference the information based on human-developed parameters using high-tech algorithms and artificial intelligence, minimizing the risks arising from unseen, unpredictable influential events. Bitcoin Smarter, for example, has an inbuilt algorithm that ensures all the information passed to users is cross-checked with all available technical parameters meant to eliminate risks associated with the discovery level aspect of cryptocurrencies.
No Centralized Authority
Cryptocurrencies operate on blockchain technology for security, eliminating the need for centralized systems. Cryptocurrencies suffer due to a lack of regulation; anyone can create or split a crypto coin by simply making suggestions to the cryptocurrency community. However, the anonymity of cryptocurrency transactions is part of what appeals to most users but is also why some are skeptical towards them.
Trading bots attempt to create unified operations by analyzing data for many traders using similar parameters to address the volatility arising from the lack of centralized systems. It eliminates the likelihood of speculative information in the cryptomarkets as traders rely on verified analytical tools like Bitcoin Smarter to get highly accurate trading information. Trading bots also reduce the chances of traders spreading false information, especially when their trades are not performing as expected.
Sentiments
Speculative trading in cryptocurrency markets has become a norm. Buyers and sellers are, in most instances, motivated by ungrounded sentiments. However, with trading bots, the information provided is based on an analysis of high-volume real-time data from various cryptocurrency markets, evaluated using carefully developed technical parameters. The importance of apps like Bitcoin Smarter is to reduce speculative trading and move the cryptocurrency markets towards stability as trading decisions are based on actual data, say demand and supply.
Eliminating sentiments also eliminates the situation where people use cryptocurrencies to clean ill-gotten wealth or attempt to make quick wealth through pump and dump. The scenario is common with young investors who want to make quick bucks but lose money. When they exit cryptocurrency markets, it is a loss to everyone as it creates volatility. More volatility means the coin is unstable, which keeps new investors away and can eventually collapse, as witnessed with numerous coins.