There has been a protracted debate on the actual identity of Bitcoin, whether it should be regarded as a currency or a commodity.
With reasonable support on each side of the debate based on its inherent characteristics, a huge segment of the ecosystem is of the opinion that Bitcoin can, and should be regarded as both a currency and a commodity.
Whatever definition attached to Bitcoin, the constant variation in price offers an opportunity for investors to make a profit by trading the cryptocurrency, either as a long term investment or in a speculative short term pattern.
What is Bitcoin trading?
Bashir Aminu, Bitcoin trader and convener of online crypto group Cryptogene, explains the basic Bitcoin trading process as follows:
“If you buy Bitcoins at one price and then sell them for a higher price, you make a profit of the difference between those two prices, less any commission that you paid. However, if the price goes down, you will be in the uncomfortable position of having to either sell them at a loss or hold and hope the price goes back up while risking higher and higher losses if the price continues to drop.”
There are two major types of traders in the Bitcoin market, they are ‘long term’ traders and ‘short term’ traders. Each of these group of traders are classified by how long they may wish to hold onto a given position of trade.
Long term traders are usually involved in studying price trends over long periods of time. This informs their decision to buy and hold Bitcoin also over long periods with the hope of taking profit at a price higher than their original entry point. With Bitcoin still in its developmental stages, a lot of users suggest that this is a good time to buy.
This suggestion is based on the assumption that with increasing use case scenario and more adoption, demand for Bitcoin and its associated technology will increase, thereby creating more demand for the cryptocurrency which will automatically cause an eventual increase in value. Glimpses of this have been observed with the surge in Bitcoin price which coincides with a boost in its market capitalization and volume of trade.
On the other hand, short-term traders analyze the intraday behavior of Bitcoin price and seek to take advantage of the swings in price. These traders thrive in market volatility, a factor that is presently characteristic of Bitcoin.
In its early stages, the swings in Bitcoin price was usually so huge as every little event within the crypto space had very serious impact on the price of the cryptocurrency. As adoption grows and Bitcoin becomes more stable, price volatility has reduced considerably and experts think it is a better time to trade the cryptocurrency, compared to an earlier time.
“Bitcoin is certainly safer to invest in now than it was a couple of years ago”, says Aminu.
Aminu describes Bitcoin trading as extremely profitable if you play your cards well. According to him, it all depends on the market movement pattern. He tells Cointelegraph that Bitcoin value rises and falls dramatically throughout each trading day, jumping in whole dollar amounts. A phenomenon which he identifies as very risky when misjudged.
Based on his trading experience, Aminu outlines a set of rules for newcomers who may wish to profit from the Bitcoin market as follows:
- Never put all your eggs in one basket. Your capital should be broken into smaller lots for multiple positions at different price levels.
- Do not invest your life savings or money that may change your life drastically in the event of a loss. This rule is important mainly due to the existing level of uncertainty that still exists within the Bitcoin market.
- Take full advantage of available technology in order to gain maximum profit
- Understanding the market is a continuous process and requires a lot of time, concentration and effort. It is very crucial to do research and be up to date with current trends.
- Know when to cash in. It is important to stay focused, unemotional and professional.
- Traders should keep in mind that losing, just as much as winning, is an integral part of trading. It is the cumulative gains that count.