Trading Cryptocurrencies

Typical Price chart showing volatility

Every trader, regardless of what he buys and sells, ventures into trading for the sole purpose of making profit. By this he ensures or aims to achieve buying and selling with some margin in between i.e. his cost price must be less than his selling price. Trading cryptocurrencies in no different and this takes us to the cliche “buy low, sell high”. This is the number one rule of trading, be it stocks, futures, Forex, cryptocurrencies, commodities or even everyday goods and services. You always want to sell for profits.

With cryptocurrencies the situation has a twist to it. The aim isn’t just to make profit but profit in bitcoin. Profit isn’t just profit; profit in US$, Naira or any other fiat currency is not the same as profit in BTC. To reiterate, the ultimate aim of trading cryptocurrencies is to accumulate as many Bitcoins as possible and there are three ways of doing this when it comes to trading.

 

Strategy I

Buying bitcoins when you have the chance and funds to: With this approach an individual accumulates more and more BTC as time passes based on his liquidity position. His overall portfolio value increases as bitcoin price appreciates. This however puts some level of strain on a person’s finances.  Today’s bitcoin price is expensive by all standards. For instance an individual who bought 10 bitcoins when the price was $500 with a capital of $5,000 would have bitcoins worth $60,000 today. If, hopefully soon, bitcoin gets to say $25,000, his value would be $250,000 and he would have achieved this from an initial investment of $500 with no extra work, effort or time dedicated to the trade!

 

Strategy II

Day or Position trading of bitcoin: A trader buys some bitcoins with no intention of buying more, but may. The initial investment is fixed and the trader seeks to increase his value by taking advantage of bitcoin’s price volatility. Here he sells his bitcoins for fiat when the price appreciates to a high, just before a price correction. He then buys back when the price is at a bottom. He does this confidently and purposefully knowing that the price will recover. This is a risk worth taking if the trader can, to some level of accuracy, read price charts and trends correctly. He must be able to accurately analyse Bitcoin’s price movement with respect to short term highs and lows. His aim is to increase the BTC holding in his portfolio using this method. This is slow but provides more return than approach 1 above. The risk is much, much higher nonetheless. Read the charts or trends wrong and the consequences are catastrophic for his positions.

 

Strategy III

Trading cryptocurrencies: This is a high risk strategy to increase the value of an investor’s portfolio to levels significantly greater than what is achievable from the day/position trading of bitcoin strategy. This involves leveraging on other cryptocurrencies’ volatility against bitcoin to increase the value of an investors portfolio value. Traders seek to buy digital coins or tokens that appreciate in value against bitcoin. This requires careful analysis; the risk of failure is immense, the consequences of failure is catastrophic. Value can be eroded to near zero in a day. Similarly value can appreciate to as high as x10 in the same period. It all depends on the trader’s finesse in picking the right trade and at the right time for the right duration.

 

Bitcoin’s increasing value comes from its ever increasing demand. So whichever your preferred style of investing in bitcoin is, there is value to be gained, profits to be made, so long as the demand for bitcoin does not wane to zero.

New to bitcoin and not sure how to go about buying your first bitcoin or fractions of? No worries, the party is big enough and there’s room for you. Climb on board y’all, this train is bound for glory and there’s plenty of room for all.

The next section will focus on how to buy and store bitcoins


Buying  cryptocurrencies

Governments of different countries  have different views of and control on bitcoin and other cryptocurrencies hence regulations, restrictions and/or access vary from one country to another. If cryptocurrencies are prohibited in your region or country then it is advisable to weigh the risks before proceeding with buying and using cryptocurrencies. Visit buybitcoinworldwide for specific exchanges that operate in your country.

That said, generally the process of buying bitcoin is the same regardless of your location.

Bitcoin Wallet Address QR code

To get started the first requirement is a wallet to store your bitcoin if and when you do get to buy some. A wallet for bitcoin is a digital store/address where your bitcoin will be assigned to. It’s similar to the concept of your email address; your emails are accessible through your email address. You can open a bitcoin wallet on www.blockchain.info/wallet. Other bitcoin wallets are available on numerous online exchanges and by simply signing up a bitcoin wallet will automatically be assigned to you. A wallet address is an alphanumeric string such as 3F8LtCpwyYaWiHsov13GDLLJZYUqhehtbA. So if someone (seller, friend, business client) were to send you bitcoin or you were to buy some all you’d need to give out is your bitcoin wallet address as above. Only this is required. This is the address where your bitcoins will be sent. Never give out more than the address. The address can also be presented in QR code form.

Secondly finding a source to buy or receive bitcoins from would be the next step. This could be: 

a. Via an online exchange (e.g. Coinbase.com, bitstamp.com). You should note that these might not operate in all countries. Do some search to find what works in your locality;

b. Peer to peer platform (e.g. remitano.com, localbitcoins.com, luno.com);

c. Directly from a seller;

d. Getting paid in bitcoin.

As stated earlier the only requirement will be to give out your bitcoin wallet address at the time of purchase or on request by the would-be sender. Once the sender has sent the bitcoin, you can keep track of the progress of the transaction by using a blockchain explorer.

Enter your wallet address into the search bar for updated transaction progress and status. Depending on the state of the network it can take up to 10 minutes for the transaction to be fully executed and your funds will appear in your wallet. Delays are not uncommon.

Once your bitcoin funds transfer is complete you can leave the funds in the wallet for as long as you wish but it’s better to keep your funds offline as we all know the risks associated with online companies,  they may get compromised or go bankrupt for various reasons. This has happened in the past. So it is not advisable to keep large amounts of bitcoin on online wallets. Best option is to use paper wallets or cold storage wallets. and keep the coins in your possession and control. These cold storage methods will be explained at a later date.

So why not get some bitcoin today? Just a little for a start. I hope to, in the next write-up, go into details of the basics of trading and get you set up to make some good profits trading bitcoins and other cryptocurrencies.

 

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