A few Key Things to Consider when trading Bitcoin

This is an image showing Bitcoin trading.

Trading bitcoin has become increasingly difficult. The increased difficulty could be due to the new traders entering the market or the entrance of the big players. This article looks at a few different ideas to consider when trading or investing in bitcoin.

Theories on Bitcoin

Some theorists have suggested that the recent spike in value may be due to the trade war between the USA and China. As both nations prepare to drastically expand tariffs, investors that are worried about the strength of conventional currencies are choosing to invest in the more stable cryptocurrencies until global trade stabilises. Furthermore, this movement towards cryptocurrencies, particularly Bitcoin, in the last few years in the mainstream media has meant that large investment companies scrambled to buy Bitcoin and other currencies in order to begin to trade with consumers for massive profit. This competition may also drive up price.

Due to its popularity, investors have also theorised that as Bitcoin becomes more mainstream in the investing world, people will begin to move away from alternative coins such as Tether and obscure currencies and into the larger, more trustworthy and stable investments.

The Bakkt thesis, in which cryptocurrencies such as BTC are given a physical storage space, like for fiat currencies, suggests that volatility will decline and the future of BTC value would be more stable. In theory, this works flawlessly; instead of just moving across cyberspace at the whim of buyers and sellers, BTC can now be stored and used to steady the future of cryptocurrencies, obviously also increasing its value to investors. Unfortunately, sales lagged after the release of these contracts, suggesting that demand may not be as healthy as previously thought.

Risks associated with Bitcoin

Bitcoin is a digital currency without a physical form; it has inherent risks associated with online trading, as well as any risks associated with market fluctuation. These include hacker-related risk, the lack of guaranteed value (and therefore investment volatility) and the fact that as a digital currency, BTC does not have a long track record or market fluctuations to track and use to predict peaks and troughs in value. BTC is one of the highest risks, highest return investments on the market right now. Malware and Operational glitches are the other major threat to Bitcoin trading. False, fraudulent BTC is becoming an increasing problem as the currency become more mainstream.

Digital wallets present a huge risk when trading Bitcoin, as all Bitcoin transactions are permanent and irreversible. If hackers were to steal an investors’ BTC, there is no way for them to get this money back, and therefore must be able to mitigate the loss. This means that many investors must therefore pay to take out insurance on their BTC investments through the Securities Investor Protection Corporation.

Potential in trading bitcoin

Bitcoin is trading below its approximately half its highest ever value of $20000, which it reached in 2017. Although this is a massive decline, economists and investors seem confident that the value of crypto is set to recover, potentially even as fully as to once again reach its market high. In higher inflation currencies, BTC is used as a store of value instead of a fiat currency, and as a way of holding asset. In lower-interest countries, Bitcoin is traded for speculation as with many other types of share and currency trading. This could potentially lead to a spike in interest and a catalyst for positive value increases, as instability in more economically developed countries lead to investors in less economically developed countries selling their BTC currency as a stable alternative to a falling fiat currency.

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Disclaimer: eToro is a multi-asset platform which offers both investing in stocks and cryptoassets, as well as trading CFD assets.

Please note that CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.

Cryptoassets are volatile instruments which can fluctuate widely in a very short timeframe and therefore are not appropriate for all investors. Other than via CFDs, trading cryptoassets is unregulated and therefore is not supervised by any EU regulatory framework.

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