If you’re like most short term traders, you’ve probably thought about trading Bitcoin, but never have because the market seems to be completely unpredictable and therefore not worth spending time studying.
First, realize that Bitcoin doesn’t act like a currency, and it doesn’t act like a stock, either. Right now, it seems to be acting like something completely new (which it is), and like a completely different type of market that what has ever existed before. If it had to be placed into an existing category, it would probably act most like a commodity, but since it is a form of payment, like a credit card or an e-wallet, this isn’t exactly correct, either. In other words, if you’re going to trade Bitcoin, you need to treat it unlike anything you’ve ever traded before.
Second, Bitcoins are tough to monitor since they are decentralized. They’re like a credit card, yes, but not a centralized location, like Visa or MasterCard are. They are free floating within the other marketplaces, and they’re value is based much more heavily on true supply and demand than anything else. This makes them very hard to speculate as a short term trade, like you would find with many binary options brokers. You do not want to trade Bitcoin as something like a 60 second binary option, but rather as a little longer term trade. Looking to a week or longer will be helpful with this asset, so if you’re binary broker doesn’t offer this with Bitcoin, this isn’t the best approach.
Third, Bitcoin has a ton of risk. It does have a ton of potential–it’s currently around $500 per unit, but has been over $1,000 in the recent past–but that doesn’t make a guarantee for you by any means. Bitcoin was around $7 per unit in 2012, and it’s definitely not there now, but there’s a likelihood that 10 years from now, Bitcoin might not even exist. It’s definitely not something you want to put too much money into, but rather use just as a supplement to your portfolio. This will expose you to minimal risk while still giving you a chance to profit off of its potential if it comes to light. Now, add all of this to the fact that it’s a new platform. There’s always the danger of hackers or computer crashes impacting your money here. The risk gets smaller every day, but it’s still there.
So, how do you successfully trade Bitcoin? Unfortunately, there’s not a clear or definitive answer to this question yet. It’s an industry that’s still evolving and shaping its identity. There’s potential for sure, but where it’s headed is unclear. It’s really only a place where people that have expendable income for higher risk ventures should go, and only if they have a high degree of market knowledge.
However, there is a huge upside to Bitcoin that you won’t find elsewhere. There are Bitcoin mining operations out there that basically allow you to generate your own Bitcoin. You can’t just automatically create shares of Apple, or anything like that, but with a web application running in the background, you can generate Bitcoin and create wealth without much effort. The problem is then storing your Bitcoin, which you can do yourself or through an outside source. Both have risks that are not present with other asset classes, but it’s only a minor issue. Couple this with a strategy for selling those Bitcoin periodically, and you have a money generator that you might not be able to find elsewhere. It allows you to create wealth with or without trading, basically. The crux of this being that Bitcoin, while attractive for making a profit, is still uncertain and tough.