Bitcoin as a Commodity is Great for Traders, Not so Great for Investors
Bitcoin’s intense volatility makes it great for traders, behaves similarly to commodities.
Bloomberg reports that historically, commodities have not performed well as an asset class. Equities have drasticly outpaced commodities in terms of long-term investment gains. However, commodities are exceptionally good for traders due to their high volatility.
Because prices tend to swing rapidly in a short period of time, traders stand to make a great deal of money from volatility in the commodities market. Unfortunately, rapid upswings in price tends to attract long-term investors who, over many years, end up with few gains.
What is a commodity?
Gold bugs have been insisting for years that people invest in gold, citing global economic fears and gold’s long use as a store of value. Yet over time, gold has performed quite poorly when compared to most asset classes. The same is true of silver, and indeed, any commodity.
The real question is this: is Bitcoin a commodity?
Bitcoin is traded across many global exchanges and markets, and is known for its high volatility. Unlike traditional markets, the Bitcoin market never closes, meaning that investors and traders alike can buy or sell Bitcoin 24/7/365. Bitcoin’s volatility and always-open markets make it ideal for traders interested in short-term gains.
Over $1 bln of Bitcoin is traded every day on exchanges such as Poloniex, Bittrex, Kraken, and others. This year, Bitcoin has reached an all time high of $4,400 and its market capitalization exceeds $70 bln. While thinly traded by traditional measures, Bitcoin has a significantly higher volume, and thus is more liquid, than altcoins. This makes Bitcoin the ideal digital currency for daytraders.
Though Bitcoin is considerably more liquid than altcoins, its trading volume is still low enough for deep-pocked traders to manipulate the markets. Since most Bitcoin markets are unregulated and lack SEC oversight, traders should be careful.
Studying and trading Bitcoin, as with stocks and commodities, can be rewarding if a trader focuses on clear uptrends and downtrends. The previously cited article by Bloomberg points out that commodities achieved, on average, an annual return of only 2.18%, without the dividends that equities provide, and with considerably more volatility.
James Faucette, a payments analyst at Morgan Stanley stated:
"Bitcoin owners are reluctant to use the cryptocurrency given its rate of appreciation, more evidence that bitcoin is more asset than currency."