When it comes to currency investment, there’s no asset quite as mysterious and alluring as Bitcoin. The cryptocurrency, which exists in its own, never-before-seen form, has attracted millions of investors worldwide and has shown faster gains than any other asset in history. In its first 4 years of existence, it went from being worth less than $0.01 to a whopping $1,250. As of today, it is hovering around $1,000 and is one of the most volatile and unpredicted assets in the market. If you want to get in on the Bitcoin craze, here are a few things you need to know first
From Zero to Hero
Firstly, it is important to know the principles on which the Bitcoin system was founded. Bitcoin is decentralised, meaning there’s no central bank or government regulating it. It has no physical form and exists solely as encrypted digital code. Bitcoin is regulated by its creators, who are steadily adding more of the currency to the market at a decreasing rate. Their plan is to have 21 million Bitcoin in the world by 2109. Currently, there are about 15.5 million bitcoin.
Next, let’s try to understand what caused its unprecedented surge in price. At first, Bitcoin didn’t really have any traction. It was reserved solely for the early adopters, and there were very few businesses that accepted it as a payment method. In fact, the first transaction ever made in Bitcoin was for two pizza trays, which cost 10,000 Bitcoin in 2010. Today, those pizzas would have been worth around $9 million! As more and more businesses accepted the currency, it gradually went up in value. At the same time, people were starting to embrace the idea of a decentralised currency, and as more people jumped on board, prices began to soar.
Up, Down, and Up Again
Over the years, Bitcoin has displayed seesawing behaviour, reaching a peak, then crashing, then reaching another peak and crashing. This was the case up until it reached its all-time peak in 2013, which it has not been able to replicate since, despite coming close at the end of 2016. The currency, which was initially perceived as exotic and mysterious, has gradually become a legitimate investment option.
Moreover, many investors saw Bitcoin as a haven asset, similar to gold. Unlike traditional currencies, which are affected by changes in their respective economies, Bitcoin is not affected by changes in the field. Therefore, some traders use it as a hedging tool when their own currency is on the decline. A good example of that is the fact that many Chinese investors turned to Bitcoin recently when the Yuan was declining.
Investing in Bitcoin
So, what should you do if you want to invest in Bitcoin? Firstly, while a single Bitcoin is pricey, currently valued at around $900, it is possible to use online trading platforms, such as eToro, to engage in a fractional transaction, investing less than the price of a single coin using a contract for difference (CFD). Secondly, it is important to choose a strategy and stick to it. Since Bitcoin is highly volatile, it is wise to study its patterns before deciding how to invest in it. Alternatively, you can copy an experienced Bitcoin trader, such as @jaynemesis, by using eToro’s Discovery Tool.
Just like any other asset on trading platforms, when investing in Bitcoin, traders can open either a “buy” (long) position, hoping that it will go up in value, or a “sell” (short) position. There is no “right” strategy when trading Bitcoin. It is important to monitor the market, and see whether you wish to pick a bottom and buy, or pick a peak and sell. Due to the aforementioned seesaw pattern, traders should stay up-to-date with news, and follow the ups and downs of its value.
However, it is important to remember that comparably, Bitcoin is a very new currency, and the data available only spans its 8 years of existence, meaning that long-term patterns are less likely to be seen from a technical standpoint. And yet, since its global supply is fixed, and the overall trend is positive, it is possible that prices will remain high, and even go up further in the years to come.
Cryptocurrencies can fluctuate widely in prices and are therefore not appropriate for all investors. Trading cryptocurrencies is not supervised by any EU regulatory framework. Your capital is at risk.