Jul 24, · Trading in bitcoin has the potential of increasing the returns that you get from your investment. Overall, the disadvantages associated with using bitcoin or other cryptocurrencies shouldn’t deter you from making an investment. Good investments take time for them to yield results. May 30, · Bitcoin Pitfalls and Hidden Dangers May 30, Uncategorized Last week brought news that Bitfinex, a leading Bitcoin exchange, lost an estimated $65 million due to a recent hacking incident. Bitfinex has stated that as a result, their users will lose 36% of their funds to make up for the losses incurred by the hack. Jan 15, · Bitcoin drops $2, in value as South Korea announces planned trading ban Read more Finally, nothing becomes a good investment just because “it’s been going up in price lately”.
Bitcoin trading pitfallsThe Advantages and Disadvantages of Trading Bitcoin - My Trading Skills
These are all things that people have bought in the past, driving them to absurd prices, not because they did anything useful or produced money or had social value, but solely because people thought they could sell them on to someone else for more money in the future. When you make this kind of purchase — which you should never do — you are speculating. This is not a useful activity. Even if you win money through dumb luck, you have lost time and energy, which means you have lost.
Investing means buying an asset that actually creates products, services or cashflow, such as a profitable business or a rentable piece of real estate, for an extended period of time. An investment is something that has intrinsic value — that is, it would be worth owning from a financial perspective, even if you could never sell it. Blockchain is simply a nifty software invention which is open-source and free for anyone to use , whereas bitcoin is just one well-known way to use it.
As a real-world comparison for blockchain and bitcoin , take this example from the blogger The Unassuming Banker :. Imagine that someone had found a cure for cancer and posted the step-by-step instructions on how to make it online, freely available for anyone to use. Now imagine that the same person also created a product called Cancer-Pill using their own instructions, trade marked it, and started selling it to the highest bidders. I think we can all agree a cure for cancer is immensely valuable to society blockchain may or may not be, we still have to see , however, how much is a Cancer-Pill worth?
Our banker goes on to explain that the first Cancer-Pill bitcoin might initially see some great sales. Prices would rise, especially if supply was limited just as an artificial supply limit is built into the bitcoin algorithm. But since the formula is open and free, other companies quickly come out with their own cancer pills.
Anybody can make a pill, and it costs only a few cents per dose. This screenshot from coinmarketcap. Bitcoin AKA Cancer-Pills has become an investment bubble, with the complementary forces of human herd behavior, greed, fear of missing out, and a lack of understanding of past financial bubbles amplifying it.
To better understand this mania, we need to look at why bitcoin was invented in the first place. As the legend goes, in an anonymous developer published a white paper under the fake name Satoshi Nakamoto. The author was evidently a software and math person.
But the paper also has some in-built ideology: the assumption that giving national governments the ability to monitor flows of money in the financial system and use it as a form of law enforcement is wrong. This financial libertarian streak is at the core of bitcoin. Government-issued currencies have value because they represent human trust and cooperation.
Here is a quick introduction of other cryptocurrencies:. Some Forex, CFD, commodities and stock index traders are hesitant to trade altcoins because their instruments offer enough trading opportunities on their own. They do not want to learn a new instrument if their Forex or CFD trading is working well for them, which of course makes sense. The currency markets offer a wide range of currency pairs that trade within established support and resistance levels.
However, traders might still want to consider following cryptocurrencies as they compete for investments and attention in the global arena. We mentioned 8 points that make trading Bitcoin and cryptocurrencies less attractive when compared to Forex and CFD markets. But there are some advantages too.
Here is our list of pros but feel free to add your own ideas in the comment section. Bitcoin has managed to overcome multiple hurdles in its short but lively history.
Bitcoin is being frequently used a method for payment and more vendors and stores are accepting Bitcoin. Are you worried about government debt, central bank quantitative easing, and the value of fiat currencies?
It should be noted that such an insurance should never be a large part of any portfolio in our view. A hedge is more a way to mitigate risk of an economic recession or even an economic downturn which is when other assets become less valuable.
You can hedge with the help of markets. Bitcoin is becoming more accepted as a payment method and as a storage of value.
Shops are offering the ability to make Bitcoin payments and there is an increase in Bitcoin services. The media is also covering Bitcoin in more detail as the price grows and the application of the currency increases. Although people from the West might not see it, the cryptocurrencies do actually solve problems for citizens of many countries. Here are some issues that could stimulate demand for cryptocurrencies:.
The first 3 of these points are less problematic for Europe, Japan, and the US who for instance have not seen high levels of inflation for a while but altcoins could be a guard against inflation. These countries also have free movement of capital. Here is an example of our chart analysis. You can catch the momentum by joining our telegram group for free. We provide signals and analysis for cryptos, fx, stocks and commodities.
It is still too early to tell but could big players like banks and even countries secretly be buying cryptos and Bitcoin to hedge their assets and reduce their vulnerability on the US Dollar and Euro? It remains impossible to impossible to answer for sure but one could speculate whether this trend is occuring.
Russia, China, oil exporting nations, and maybe even Australia could perhaps be using cryptocurrencies and the mining process to reduce their reliance and dependency on the US Dollar. You can also trade cryptos , including altcoins, with one of our supported providers.
Big players could be looking to reduce their exposure to the US and the EU perhaps due to the large debt that the West has gathered in recent decades.
The Great Recession of pushed the budgets of the governments and the balance sheets of the central banks to the max. Big exporters like China and oil exporting nations like Russia and Saudi Arabia might want to be less dependent on the US Dollar and other western currencies. They might also doubt their ability to pay back the debt via inflation and weak economic growth.
Ultimately all traders need to take their own decision but the above mentioned points hopefully help sort out some of the pros and cons. The answer will also depend on your risk appetite and your method of trading:.
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It is mandatory to procure user consent prior to running these cookies on your website. Elite CurrenSea. Sign up. Christopher Svorcik CEO. Subscribe Receive last updates and news. Disadvantages of Trading Bitcoin and Cryptos The price spike on Bitcoin, Litecoin, Ether and other minor cryptocurrencies is attracting loads of attention — not only from more experienced traders but also from people totally new to financial markets.
Number 1: Little Historical Support and Resistance Levels Technical analysis of any chart composes of three major components: Trend and momentum: indicates direction and strength of that direction. Support and resistance: indicates potential stopping points of that direction. Patterns in general, chart and wave patterns: provides information about the market psychology.
Number 3: Price Volatility Volatility is good for trading because the price movements up and down offer trading opportunities for traders.
Image: Bitcoin price movement on weekly chart. Number 4: Market Sentiment is Not Fixed Sure, the uptrend on Bitcoin and other cryptos altcoins seems like it has no limits and will never stop. Number 6: Conflict with Central Banks and Economic Growth Bitcoin and other cryptocurrencies are non-centralized and not created by any central bank.
This remains to be seen but it could have the following effects: Create economic uncertainty and risks as the money supply is shared. As cryptocurrencies till now have a limited supply, this could enhance deflationary trends or at the very least combat inflation. Last but not least, the popularity of cryptocurrencies could also weaken demand for fiat currencies such as the US Dollar, Euro, and Japanese Yen. Number 7: Conflict with the Financial World Bitcoin and other cryptocurrencies offer an independent path from governments and central banks but also the banking world.
Number 8: Who Will be the Crypto Winner? Ripples XRP : Ripples is the payment method used for the Ripple network, which offers ultra quick transaction speed. The supply of XRP is a lot larger and a small part is released each month.
Number 9: Other Established Markets Offer Enough Trading Some Forex, CFD, commodities and stock index traders are hesitant to trade altcoins because their instruments offer enough trading opportunities on their own. Number 1: Bitcoin is Building a Track Record Bitcoin has managed to overcome multiple hurdles in its short but lively history.
Number 2: Bitcoin Offers a Hedge and Diversification Are you worried about government debt, central bank quantitative easing, and the value of fiat currencies?
Number 3: Bitcoin is Offered in Our Daily Lives Bitcoin is becoming more accepted as a payment method and as a storage of value. Number 4: Cryptocurrencies Do Solve Problems Although people from the West might not see it, the cryptocurrencies do actually solve problems for citizens of many countries.
Here are some issues that could stimulate demand for cryptocurrencies: High inflation: when prices in the shop rise quickly, it could be a good alternative to have some of the cash stored in cryptos.
Capital controls: some countries restrict the movement of capital from the country. Bitcoin was for example popular in Argentina, which made transfers difficult. Confiscation of assets: a government is able to stripe away ownership of many assets but not Bitcoin. Ultra high fees: bank transfer and payment fees do add up and Bitcoin seems to be challenging that cost structure. Number 7: Petrodollar, Western Debt, Economic Slowdown Big players could be looking to reduce their exposure to the US and the EU perhaps due to the large debt that the West has gathered in recent decades.
Conclusions and Solutions for Trading It is worth trading Bitcoin? The answer will also depend on your risk appetite and your method of trading: We will only be using some of the time frames: Short-term trading: OK. In general, we ourselves are open to trading Bitcoin and cryptocurrencies in the short-term.