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Bitcoin is a digital currency that is not backed or issued by any government, which makes it a decentralized type of currency. While it is not a physical currency, you get to see your balance owned by a public ledger. Investors and traders now buy bitcoin as a form of investment, as the value has been on a steady rise yearly. As of today, a bitcoin is valued at $62,000. That is a meteoric rise from $504 it was in November 2015. An investor who bought a bitcoin in 2015 would have made over $60,000 profit today.
Investing in Bitcoin
With a total of 18 million in circulation, bitcoin is the most valuable cryptocurrency in the world today, which is the reason why people are scrambling to own at least 1 bitcoin. If you are trading Bitcoin for the long haul, then you do not have to worry about the value of it now. Since you are playing the long game, you can choose to passively follow the Bitcoin trend, as it has always shown that the value at the end of the year will be more than it was in the beginning.
However, you also must study the market trends to know the best time to trade. It is advisable to buy Bitcoin when there is a dip in value, that way, you earn more profit when it eventually increases in value. For the more active traders who buy and sell daily, you must be strategic when trading bitcoin to make a profit.
Useful Strategies When Buying Bitcoin
The difficult part of Bitcoin trading is knowing the best time to trade. Below are some of the strategies you can adopt when trading bitcoin.
Buying at the Dip
Buying the dip is a popular trading strategy that you can use when trading Bitcoin. It is widely believed that the best time to buy Bitcoin and even other cryptocurrencies are when it is on a dip/bearish run A bearish run means that a certain financial asset’s value is on the decline. In the crypto space, it refers to investing in a cryptocurrency that has experienced or is experiencing a decline in value. People buy at the dip with a belief that the future value will still rise and they will sell at top dollar.
This strategy has proven to be very effective, especially for some of the established coins such as Bitcoin and Ethereum. While they are always on the rise, there are times when there will be a dip in price only to come back strong and increase in value. For this strategy to work, you need to be ready for when Bitcoin is on a bullish trend and identify when the bullish run will end and the value of Bitcoin starts to decline sharply.
Most times, bullish runs are stopped by unexpected market decisions which make assets such as bitcoin overreact and start to dip. This is when buying on dip strategy comes in handy. Finally, you must also understand the bearish trend and for how long it will continue. The Fibonacci Retracement strategy and the Dollar Cost Averaging are useful techniques in determining how long the bearish run will continue.
Crypto Arbitrage Trading
Buying bitcoin these days is quite easy as there are several crypto exchanges that you can choose from. Virtually exchanges have bitcoin listed on their platform and once you know the terms and conditions of your preferred platform, you are good to go. One of the bitcoin trading strategies that you can use between crypto exchanges is crypto arbitrage trading. When you use this strategy, you are leveraging Bitcoin prices between exchanges. In other words, you buy bitcoin from an exchange at a lesser price and sell immediately at a higher price on another platform. For this strategy to work, it must be done instantly.
Buying and Hodling
This trading strategy originated in 2013 when the value of bitcoin was dropping drastically and an investor mistakenly typed ‘hodling’ instead of holding to indicate that he is not selling his bitcoin. It gradually evolved to become arguably the most popular trading strategy. It involves buying bitcoin and holding on to it with the belief that it will keep increasing in value. The upward trajectory of bitcoin since its inception has made this strategy an effective one.
Hedging
Hedging is a trading strategy that can be used when you anticipate a short-term decline in the value of bitcoin. Hedging your Bitcoin means you will make strategic trades that will mitigate the risks of changing your position in the short term for the anticipated dip in price. Simply put, hedging involves you selling your bitcoin at the going rate in anticipation that it will dip. If this happens, then you buy back bitcoin at the new dipped price and make a profit on the difference. The most effective way of hedging is with CFDs. This is so because, with a CFD, you do not have to own the underlying asset in order to trade.
Concluding thoughts
Trading Bitcoin is not always as clear cut as one may hope it to be. One must do the legwork and see which strategy and time will work best. Ultimately, choosing mindfully will prove to be the most lucrative in the long run.
