Why crypto prices swing so much: what volatility and the stability score say

Volatility is the size of a price's swings up and down. What matters is the size of the swing, not its direction. A coin that rose 20% in a day and one that fell 20% moved in opposite directions, yet their volatility is similarly large.

With high volatility, prices move up and down sharply even over short periods, and gains and losses change quickly. With low volatility, prices move gradually and are a little more predictable. Volatility itself is neither good nor bad. It is a property that measures how abruptly an asset moves.

First, crypto markets are open 24 hours a day, weekends included, and have no daily upper and lower price limits like those on the Korean stock market. With few mechanisms to halt prices, they can be pushed far in one direction.

Second, coins lack a firm consensus on intrinsic value such as earnings or assets, so they react more sensitively to supply, demand and sentiment. A single line of news or a single trade by a large holder can move the price sharply.

Third, heavily leveraged derivatives trading is widespread, so once a price crosses certain levels, forced liquidations go off in chains, and the thinner a coin's liquidity, the further a single large order pushes the price. This structure amplifies swings.

The stability score, the third axis of Jupick's coin grade, rates a coin higher the smaller the average of the absolute values of its 7-day and 30-day price changes. It ignores direction, up or down, and looks only at the size of the swing.

With almost no average change, the score is close to 100 points. As swings grow, the score drops, reaching 0 points once a certain level is passed. It sums up in one number how calm the price has been recently. The exact scoring standards are published in the coin grade methodology document.

The stability score ignores direction, but the arithmetic of gains and losses is not symmetric. Even for a move of the same size, the base differs between a drop and a rise, so the move needed to get back to even after a drop is larger.

For example, after a 20% drop the price has to rise 25% to return to where it was. After a 50% drop it has to rise 100%, and after an 80% drop, 400%. The bigger the drop, the steeper the rise needed to recover.

So an asset with high volatility may look like it moves a lot both ways, but once it falls deeply, getting back to even is arithmetically harder. This is not a statement about any coin's future but arithmetic to keep in mind when reading price moves, and low volatility does not mean safety any more than high volatility means opportunity.

The most important caution is this. A high stability score is only an observation that the price swung less over the past several days or weeks. It never means the coin is a safe investment or that the principal is protected.

A quiet past is no assurance of a quiet future. Coins often stay calm for a while and then suddenly move sharply, and a stretch of low volatility can be followed by a big swing. The stability score cannot prevent future swings.

Jupick provides the stability score only as a current-state indicator that summarizes recent swings and gives no trading advice on any coin. This content is for information only and is not investment advice.