First introduced in 2009 by Satoshi Nakamoto, Bitcoin is now a worldwide attraction for most traders. There is a ton of volume and multiple brokers available to trade the digital currency. In 2021 it has reached new highs reaching nearly $70000 in value, and the prospect is not so bad for the upcoming year.
Bitcoin is a decentralized digital currency with
no bank or regulatory authority maintaining its price. It can be sent from one
wallet to another without any intermediator. The total supply limit of BTC is
capped at 21 million, and the current value is hovering in the market is
nearing 19 million.
Benefits
and Demerits of Bitcoin Trading
Before diving into the important terminologies
of Bitcoin trading,
let us discuss some benefits:
●
Volatility. Bitcoin is a highly volatile currency that offers many
opportunities for investors. Huge participation from bulls and bears provides a
good amount of volume as well. Traders can trade it on the long and short
sides.
●
Transaction fee. The transaction costs in bitcoin are pretty
low when we contrast it with other forms of payments. All the transfer
operations are made public in a ledger, making it impossible to cheat.
●
Access. Bitcoin is available for all of the general community to trade.
Traders can access it with a smartphone and an internet connection. There are a
variety of brokers that offers cryptocurrencies. Signing up with them and
depositing the cash, it is possible to speculate these digital instruments
easily.
●
Chargeback. Any bitcoin transaction can not be reversed. After receiving your
payment, the sender can't take back the money, making it secure for both sides.
While a few drawbacks for trading BTC can be:
●
Hacking. A cryptocurrency exchange can get hacked, causing a loss in
millions or billions of dollars worth of Bitcoin.
●
External influence. Bitcoin is suspected of huge spikes if there is
any major ban or investment from a billionaire.
Traders have to keep their wallets or physical
devices that contain BTC safe.
Important
Terminologies in Trading Cryptos
Traders should understand some critical characteristics of bitcoin, which
are different from other financial markets.
Wallet
A cryptocurrency wallet is used to send and
receive bitcoin. They can store the coin in a digital format and keep it safe
with the help of a key that only the owner has access to.
Mining
Mining is one of the famous topics in
cryptocurrencies. It is possible to devote a piece of your GPU or other
processing hardware and solve a cryptocurrency puzzle. The reward comes in the
form of a crypto coin. While devoting the processing unit, investors have to
analyze the electricity costs.
The amount of coin mined varies depending on the
capability of your hardware. It is possible to get a huge amount of
cryptocurrency by joining several graphics cards and forming a farm or a rig.
Trading
Strategies
Like other forms of financial trading, it is
possible to trade BTC using technical setups. Supply/demand, support resistance, Fibonacci intervals,
candlestick patterns, etc., are commonly under analysis by traders to predict
the future of the digital asset. Trading robots are also used by many who
speculate the markets on auto mode and open and manage the trades for profit or
a loss.
Image 1. A trader identifies
that the market is moving in a current downtrend by plotting a channel. He then
uses Bollinger Bands to identify potential support and resistance points. When
the price bounces to the median point and shows some bearish activity, they take
a short position for a profit. The risk-reward is 1:1 in this case.
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