Throughout the years Bitcoin has evolved to be more than just a cryptocurrency. In fact, it has become one of the most popular financial investments of the 21st century. As a result, it has become the biggest financial bubble in history exceeding the Tulip. Furthermore, Bitcoin has created overnight millionaires and billionaires. Most notably, the Winklevoss twins, who co-founded the leading social media platform Facebook. Perhaps you’re reading this article wondering how you can also become an overnight millionaire or even billionaire for that matter. Or maybe you’re just looking to diversify your portfolio into some more speculative investments to boost your overall yearly returns. Regardless of what your motivations may be for reading this article we’ve created a guide for both novice and expert to follow to help maximize returns and fully understand the concepts of Bitcoin trading. In the following article we will discuss;
- What is Bitcoin and the history of Bitcoin
- How to trade Bitcoin
- Trading and valuation techniques for pricing Bitcoin and identifying trends
What Is Bitcoin?
For those of you that are completely novice and don’t exactly understand what Bitcoin is but hear about all the buzz surrounding it, let me explain;
Bitcoin is a cryptocurrency, which is essentially an electronic form of currency just like your dollar, yen or euro. However, Bitcoin itself is an unregulated currency meaning that it has no lender of last resort. In essence, it’s a country without a residence. Furthermore, it allows the user to exchange payments without passing through a central authority such as a bank. As you can see from this, no one person controls the network. Bitcoin is essentially pure capitalism at play. The market for buying and selling is what determines Bitcoins value (along with other factors). In addition, bitcoin is limited in value. Unlike traditional currencies, a central authority cannot issue more of the currency to fight inflation.
This factor also adds to Bitcoins value. As demand spikes and supply remains the same in return the value will increase drastically. Just like a limited edition baseball card.
Another great feature of Bitcoin is that it offers semi-anonymity meaning that no central authority can verify your identity. As a result, you’re only identified by a unique key relating to your account and nothing more.
Other interesting factors of Bitcoin include,
Being able to break down a single unit of Bitcoin into a tiny fraction or decimal. While is not possible with traditional currencies. For instance, you can’t break down €1 into .0000001 cent. It’s not possible however with Bitcoin it is. However, Bitcoin does come with its inconsistencies too. For example, once a transaction is made, it cannot be undone.
Now that you understand exactly what Bitcoin is and how it works, let’s just talk a bit about its history.
The History Of Bitcoin Trading
As any good investor will tell you, it’s important to know the history of your investment.
Established during the recession in August 2008, Bitcoin.org was registered. Just a couple of months later, on 3rd of January 2009, after a paper was published on peer to peer trading, the Bitcoin network went live. During the early days, Bitcoin traded at low of .06c a coin. Reason being many people had never heard of it or understood it’s actual application. However, it wasn’t until 2013 when the price of Bitcoin started to rally, reaching a high at that moment of $1000. Four years later, in 2017, it reached a new profound high of $17500. Surpassing the infamous tulip as the greatest bubble ever in financial history. During the 2017 price surge, all of the popularity and hype surround Bitcoin drove the price through the ceiling. Despite what many other analysts say, every investment comes down to one thing; Is there a buyer and is there a seller?
If you get a lot of both than you have a very liquid base. In return, you’ll get insane prices. Everyone from your average Joe to skeptical accountant wanted in on Bitcoin. Despite the fact they knew nothing about it. Forget all the hypothetical theories analyst were pedaling. They were nothing more than high hopes and conspiracy theories. Basic economics never lies. When a bubble occurs everyone gets in for a short while and then it pops. However, sooner or later the cycle starts all over again. As of this moment, Bitcoin currently stands at a price of $8000. Are you ready to ride the second wave?
How to trade Bitcoin
If you’re new to this you’re probably a bit lost but don’t worry. Firstly, before you begin trading you’re going to need two things;
- A digital wallet to store your Bitcoin on
- Set up an account with an exchange to buy and sell Bitcoin on.
There are various different digital wallets out there that can store your Bitcoin. If you’re wondering what is the best digital wallet to store your Bitcoin on we’ve created an article highlight the best digital wallets to store your Bitcoin on. In addition, using an exchange is the easiest way to gain access to buying and selling. Ensure that you choose a reputable exchange for Bitcoin trading such as Coinbase or CEX. Again, we’ve created an article highlighting the best exchanges to trade Bitcoin on.
Once your account is set up you’re good to go. However, it’s important to understand what you’re buying and can you afford to buy. With that said, it’s important to do your research. Understand how the blockchain network works, Bitcoins future developments, how does it stand out from competitors, your current financial position, your future cash outlays, your contractual financial obligations etc. It’s important that you know what you own and why you own it. Never get into an investment blindfolded. Make rational decisions and ignore everyone rushing you into it. It’s important you separate emotion from logic when investing.
Trading and valuation techniques for pricing Bitcoin and identifying trends
Without going into too much detail as this section could be an entire guide in itself, you need to familiarise yourself with various different fundamental and technical analysis techniques. While Bitcoin is more a speculative investment it’s important to prioritize technical analysis over fundamental. If you do decide to use fundamental analysis you could end up with very inaccurate estimates for the price of Bitcoin. Hence why it’s important to understand price patterns and movements more so than financial breakdowns when it comes to these types of investments.
Bitcoins valuation is affected in numerous of ways;
- Popularity – This comes down to supply and demand for Bitcoin. As we mentioned earlier, Bitcoin is a limited supply product, therefore, the more media surrounding Bitcoin the greater the price will be as demand rises.
- Industry adoption – Bitcoin is still a concept that’s not widely recognized as a professional function with very few vendors accepting it as a form of payment. However, the more it grows in popularity the more people will begin to use it and hence drive up the price.
- News Events – As with any investment whether they be stocks or bonds, news will always affect the price whether it is good or bad. It’s important to track news stories surrounding Bitcoin.
Regarding technical analysis, there are a few indicators you should track and come to understand;
- 50 day and 200-day moving averages – moving averages take an average of a price over a 50 or 200 day period. You make a buy or sell judgment when the price either breaks the moving average up or down.
- Relative Strength Index – This indicator will help you identify whether Bitcoin is overbought or oversold.
- Moving Average Convergence & Divergence (MACD) – This will help you identify the market environment you’re operating in.