Most seasoned traders or investors are seeing Bitcoins as the perfect investment for today or as the fastest means of generating money. What attracts the investors are the stories of those that invested very little in Bitcoins only to become millionaires in a very short while. Whereas investing requires some amount of patience, trading in Bitcoins seems to be the more lucrative option. If you want to make money using Bitcoins, it is important to understand, at first, the differences that exist between trading the cryptocurrency and investing in the same.
Firstly, for those that are brand new to the world of Bitcoins, investing or trading the cryptocurrency seems like an easy job wherein you can make some money by just clicking the mouse button. However, it is not easy as it sounds. The reason for this is that the price can go very high to very low in a day in a matter of a few hours’ time. It also does not mean that no one can make a fortune by trading or investing in Bitcoin today.
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Bitcoin – What is it
Bitcoin was invented in the year 2008 as the world’s first cryptocurrency. It elicited a lot of interest because it was a new form of virtual currency, something that no one had ever seen before. Today, there are over 700 virtual currencies in the market. Any virtual currency has no physical form but exists only in digital form.
Why is Bitcoin So Popular
There are a few reasons why Bitcoin is popular. The currency is decentralized, that is, no authority controls it and any transaction is fast and involves very little fees. All transactions of the Bitcoin that have happened up till now have been recorded in a public ledger called the Blockchain. Any member of the Birtcoin Peer to peer network can see all the transactions. There is very list scope for malpractice or cheating.
Bitcoin is a global currency and the value is not controlled by the happenings (political or economic) in any country. One can trade 24/7 with Bitcoins as there is no official Bitcoin exchange or pricing. The exchanges are open round the clock. An investor or trader can track the Bitcoin prices in any exchange located anywhere in the world.
The value of Bitcoin changes often and in the traders’ parlance, it is volatile. It can vary drastically even through a single day. This is a major drawback for both investors and buyers. For traders, however, this presents an opportunity for making money. In the most recent rally, the value of Bitcoin went up by $2000 to reach a very high value. Thus a trader can have many exciting moments in one day when trading with Bitcoins.
Though the rise in value of the Bitcoins is because of the number of people that trade in the cryptocurrency, there are a few other factors that drive the price. One happens when any government releases statements that involve cryptocurrencies or their legislations. If there is a security breach or hacker’s attack that happens on the Bitcoin network, the price is likely to drop. Bitcoin does not have any backup like other fiat currencies. The open ledger can be accessed by just about anyone. The supply of Bitcon is a maximum at 21 million. Therefore when the demand is more and the supply is less, the price will go up. Any technological advancements that back up the Bitcoin network (the Segwit upgrade) is likely to drive the price upwards.
Bitcoin – To Trade or Invest
It is easy to buy Bitcoins: find an exchange or wallet and pay for the Bitcoins. This is the most common option exercised by those that want to try investing small amounts or others who want to try out the cryptocurrency. There is no need to track the prices. The investors can sell the coins when they have made a profit.
Investing big time in Bitcoins or alternate currencies is more complex. One can have a portfolio that features different cryptocurrencies to hedge the risks and also attain financial goals. Such investors are not bothered about day-to-day volatility. They will hold the cryptocurrencies until they find the perfect moment to sell. This may happen many years after the initial purchase.
Trading with Bitcoins is short-term and the traders will sell when the value of the currency reaches a new peak. Traders will not deal with the Bitcoins when the market is unprofitable. In the traditional stock market, a day trader is not considered a serious trader. However, in Bitcoin trading, a serious trader contends with the price fluctuations on a daily basis.
Investing and Trading in Bitcoins – The Risks Involved
Trading Bitcoins is more subject to the volatile dynamics of the currency. Investors will keep quiet through a price crash. Traders have to make the most when the going is good in the market.
A trader usually stores his Bitcoins in a wallet. It is not the most secure option. Mt. Gox was an exchange that crumbled and over 800,000 Bitcoins were lost. When the trader has a large amount of money, they should be careful. An exchange can close anytime. Always hire a hardware backup wallet to keep the money safe (Ledger Nano S, TREZOR, etc.). Invest only small amounts in the beginning. A trader can also opt for leveraged trading by choosing an appropriate broker. However, the chance for losses is as high as the chance for profits. This depends on the leverage ratio that is on offer. Some brokers that offer leveraged trading are eToro, AVA Trade, Magnr, etc.
Whether to invest in or trade in Bitcoins depends on the knowledge of the cryptocurrency and the amount available for investment.
One should invest a very small amount and increase he amounts gradually as the experience gets better. It is a long-term drive. Trading is better for those who do not mind losing and who have knowledge about the market. Therefore, whether to trade or invest depends as much on the nature of the person as much on the technicalities of the action.