Size Matters: Volume and Cryptocurrency Spikes
With a lack of traditional “fundamentals” in the cryptoassets markets, technical analysis has become essential in any investors toolkit for evaluating when and where to buy and sell said assets. We’ll cover volume and how it relates to price movement.
In traditional capital markets, liquidity tends to be directly correlated with the “health” an asset. For example, Microsoft’s stock trades tens of millions of shares a day and the spread (the delta between the bid and the ask or what someone is willing to buy or sell Microsoft stock for on the stock exchange) is very tight, typically $0.01. Volume and liquidity help reduce the overall price volatility in the movement of Microsoft’s stock, in either direction, up or down.
In cryptoassets, bitcoin and ether tend to be the most liquid and have, relatively, lower daily price volatility than a number of altcoins and subsequently, bitcoin and ether have the most volume on pretty much any exchange.
Altcoins, however, are relatively illiquid, meaning, the spreads between what people will buy for and sell for are wide and the price swings can be intense for if someone intends to buy a large amount or sell a large amount, the lack of liquidity means the price movement can be sharp and fast.
This is why we developed a free Telegram bot that notifies you in real-time of anomalies for all assets’ prices helping forecast future price movements. How can help you? The answer is simple: Volume.
In this image for instance you can see a fast and strong negative spike of RIF vs USDT with significant increase of the volume, a good opportunity to invest and... as you can see in the next image the price bounces and has a violent positive spike.