Cryptocurrencies are gaining popularity again. It’s the perfect opportunity to use them for your trading portfolio, especially the ever-popular Bitcoin. Here's a short memo that contains everything a beginner needs to know: what is it, why is it, how do you approach it.
What a time to be a crypto trader. Bitcoin is going through its second renaissance, smashing all the price heights and growing strong. In case you have never traded crypto before, here’s a list of pros and cons.
But first, a little introduction to Bitcoin. Bitcoin (BTC, XBT) is a cryptocurrency that is not controlled by any bank or government and can be transferred from user to user without any third parties through a blockchain system.
- Emission date: 9 January 2009
- Created by: Satoshi Nakamoto
- Units circulating: 18,355,100 of 21,000,000
You don’t have to buy Bitcoin using crypto exchanges and setting crypto wallets. Like any other currency, Bitcoin is a trading asset you can easily find on most trading platforms. Most often you will find the BTCUSD pair. Liquidity of the asset secures constant transactions. Some people buy Bitcoin, some people sell it, price changes - that’s how you get your profit.
High returns are no surprise for experienced crypto traders. Bitcoin tends to have incredible and sudden price growth, making its owners rich within a short period.
Bitcoin is not infinite. Its emission stops after the 21,000,000th Bitcoin is mined. Since that moment, all the transactions will include existing Bitcoins, making it similar to Gold and other finite commodities. It means that with time if there is a demand for Bitcoin, its value might skyrocket.
Bitcoin is not regulated. Much like any anarchists’ dream, Bitcoin belongs to everyone and no one. It makes this asset unpredictable and less stable than your usual assets of choice. Volatility can bring you high returns, but that also means that the price can change not in your favour.
The most significant risk of Bitcoin is that it becomes irrelevant. Right now, it can offer advantages no other payment method can, but it can be temporary. Once there is an alternative that offers as much as Bitcoin and more, there might be a rapid fall in price. Then, fall in demand, liquidity, and, eventually, Bitcoin will become irrelevant to the market.
In case you physically own any amount of Bitcoin, you can’t cancel the transaction once it’s made. It means that in case you transfer your funds by mistake or to some fraudulent source, you won’t get them back. Overall, Bitcoin can become both the strongest asset in your portfolio, as well as its weakest link. If you want to trade crypto, get ready to:
- Monitor the price and set price alerts.
- Face panic buys and sells of crypto. A lot of inexperienced investors tend to mass buy or sell Bitcoin at the smallest price movement.
- Study risk management.
Learn more about altcoins and monitor them. Ethereum, Ripple, Dash - that’s just a few examples of equally popular cryptocurrencies that tend to be affected by Bitcoin price movement.
Once you get to the forums and websites dedicated to Bitcoin and crypto trading you will see a lot of words and abbreviations you might not know, so here’s just a few for you to start with:
- HODL - hold. Once people are panic-selling crypto, long-term investors remind you to keep calm and HODL.
- FOMO - fear of missing out. You can also see that word being used to describe mass trends in crypto. Everybody is buying or selling Bitcoin now, so I should too, right? (Spoiler alert: no)
- Whale - someone who owns a big share of cryptocurrency. Imagine buying a significant amount of Bitcoin for fun in 2009 and forgetting about it. That makes you a whale (with terrible memory).
- FUD - fear, uncertainty, and doubt. If you see people spreading rumours about a certain currency going down soon, they will be called out. Don’t spread FUD!
To the moon! - a war-cry of crypto traders once their currency skyrockets in price. To the moon, Bitcoin! Now you are ready to trade crypto in case you got interested in it. Don’t forget to do your research, monitor the market, and HODL out for new opportunities.