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Why Should I Trade Bitcoin?
Over the last couple of years, trading Bitcoin and Bitcoin CFDs has become incredibly popular. This is because of the lucrative benefits that doing so can award those who partake in this form of investment. You have likely heard of these benefits and are now looking to get involved for yourself. On this page, we will provide an introduction to the industry, so you know where to begin.
What is Bitcoin, and how does it work?
The concept of Bitcoin can be quite complex, but the fundamentals are quite simple. Bitcoin was conceived as an alternative to traditional finance and was created as a direct opposition to the banking systems that caused the 2008 financial crash. To achieve this goal, Bitcoin remains unregulated and uncontrolled by any central bank and instead, Bitcoins are traded over a peer-to-peer network. Alongside numerous other benefits, they are anonymous for the user and have a detailed history which makes them less susceptible to fraudulent behaviour. It is considered the first of its kind in regard to its concept but many have followed in its design. These assets of a similar nature are known collectively as cryptocurrencies. Bitcoin, and other cryptocurrencies, can be used as a form of payment or as an investment opportunity. The latter of these two options is what we are going into today.
Why trade cryptocurrencies?
The reasons to trade Bitcoin are plenty and a more in depth guide how to trade Bitcoin CFDs is available on cryptimi.com. There are a few reasons that can be particularly enticing for traders. These are;
The volatility of the cryptocurrencies can be considered positive. Over the last few years, we have seen serious volatility from Bitcoin especially. From being worthless at one point, it had peaked in value at close to $20,000 in price, before receding to $3000 and then up to $15000 again – all within the space of around 24 months from November 2017 to July 2019. The volatility remains a big pulling point towards investment as those who manage their assets right can turn over very good profits. Most in the industry believe that this high volatility will continue for some years before an eventual stable price is reached. Most other assets, particularly more popular ones, follow suit in terms of volatility.
Going long and short
This volatility provides traders with numerous options to long or short the different assets to good effect. Many believe that the true value of Bitcoin and other cryptocurrencies is yet to come in the next few years and so encourage the practice of HODL – which essentially is crypto’s version of holding a long position on assets and waiting for the value to increase. However, if you want to invest in cryptos and then benefit from quick profits, then shorting can be very useful, particularly in the current climate of high volatility.
Entering or exiting the crypto market is super simple as they are free from discounts or premiums. Thus, liquidity is very high. The rise of cryptocurrency exchanges, such as eToro, has made this even easier as on these you can quickly and effectively buy or sell cryptocurrencies as and when you see fit.
Due to cryptocurrency assets being independent of trading markets, you no longer need to wait for markets to open and close. Instead, you can trade around the clock – the market is always fluctuating regardless of the hour; allowing you to make decisions as and when you hear market news.
HODL (Holding) VS Trading Bitcoin
A big topic on the mind of traders who are starting out is whether they should HODL and wait for a secure price, or continuously trade Bitcoin and other cryptocurrencies in the hope of making fast profits. The main differentiation comes down to how quickly you are looking to see results, and the levels of those results with risk playing a significant role too.
Those who hold are waiting for results to come in a couple of years’ time on the expectation that Bitcoin will reach unprecedented levels of value that far surpass their all-time high. Whether this will happen or not though is something that is up for debate. While those who trade Bitcoin are benefiting now from the high volatility, they can see them double smaller investments in a short period of time. The problem is though, that while this is fine for now if the price does surge too high and stays there, the risk of being priced out or missing out on big money profits in the distant future is much higher.
The best solution is to diversify your efforts and HODL a portion of your portfolio and trade the rest.
Mistakes to avoid when trading cryptocurrencies
There are many mistakes that those who are new to the world of crypto trading make, but some of the most common are:
• Dumping too soon or too often
• Not using the best trading platforms
• Not trading Bitcoin CFDs
• Not paying attention to crypto market news
• Investing in overhyped tokens with no backing
• Not diversifying their portfolios
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