If you are used to stock investing but are not completely an expert in Bitcoin and cryptocurrency trading, you may face many difficulties entering this new market. To help you transition faster we decided to create this quick guide for you.
This might be a booming market, but it is also one that that has a lot of volatility and can be really tricky if you are not 100% sure about how to invest well. Just see how the price of Bitcoin rose to $20,000 USD in December, only to dip to about $8,500 USD by March. If you bought while the price was high, you could have lost a lot of money.
The market suffers many losses from hackers and regulations and it looks like it will be some time before the market completely overcomes some of these problems. Let’s see the six major aspects that you have to know about Bitcoin and other cryptocurrencies.
Volatility In The Cryptocurrency Market Is Really High
While a 5% movement in the stock market is considered to be big, 20% in a single day for cryptos is not a big deal at all. You can see the case of Bitcoin as the extreme example. The coin’s price rose to the sky at the end of 2017 and then it fell hard.
Bitcoin is a very speculative asset at the current moment and the whole technology is still new so expect high risks to be involved with investing in cryptos. Because of this, it is obvious that you should not buy cryptocurrencies as a way to “save money” for your retirement portfolio, for instance.
While it is a common sense among hardcore crypto investors that the Bitcoin’s price will be much higher in the future, it is surely too risky to believe that they will be right. Nobody really knows what will happen.
You Can Profit From Either Short Or Long-Term Trade
There is more than one way to trade cryptos. For speculators who intend to buy low and sell high fast, the market is perfect, as the volatility offered in the cryptocurrency market cannot be found anywhere else in the industry and there is a lot of profit to be made in it.
On the other hand, if your portfolio is very diverse (and only when this happens) you can profit from long-term investment because this market is not correlated with any other one and the prices tend to fluctuate a lot, but they will be resilient against the crisis that generally causes problems on the mainstream market.
Also, there are options for investing in indexes of the market that will have only the better coins which can be more stable than many other options.
Many Traders Will Not Follow “Common Sense”
Experts have determined that many cryptocurrency investors have what could be considered to be an “irrational behavior”, as they believe that the prices will always go up without actually having any proof of this.
As soon as the price drops, a lot of people will start buying believing that they will earn money in the future, even if there is no projection that this will actually happen.
You Should Know When To Sell Or You Will Lose Money
Learning when to sell is critical in this market because, if you lose the chance, you might lose a lot of money. A case can be seen in Litecoin during December, when it reached its top price. If you sold it then, you would have been able to get a lot of money. Instead, a lot of people kept buying more tokens and the price declined harshly.
You have to watch the market to see when it is stopping to grow. As soon as the price reaches the top, you should really sell your tokens and take your profit.
Price Manipulation Is A Reality
Unlike stock markets, the Bitcoin market is really prone to manipulation. While manipulation of OTC stocks exists, Bitcoin price manipulation can be even higher. Examples can be seen that, whenever a lot of traders reunite, the prices have a lot of volatility afterwards.
Because of this, you have to be prepared for manipulation of prices if you are interested in entering this market. As it lacks regulation and sometimes even transparency, this characteristic will likely change.
Regulation And Advertising Bans Affect Prices Negatively
Even if this market might be immune to the geopolitical causes that affect many stock markets, it is clear that it has its own issues and regulation is the worst of them all. Every time that some country bans cryptocurrencies or ICOs, the prices tend to drop.
The prices also dropped a lot when Facebook and then Google banned ads for cryptocurrencies, which lowered the liquidity in the market and caused the market to become considerably smaller in trade volume. This is way staying up to date with news and following the activity of the industry can be key for a trader.