At its peak, Bitcoin was worth around $20,000. Sadly, this didn’t last long and today it’s worth around $6,400. As you might expect from those figures, bitcoin is extremely volatile. Virtual currencies have lost a huge chunk of value in the last year alone – around $350 billion. Here are some of the factors that affect bitcoin trading.
Trading bitcoin is not for the faint-hearted. The forex trading market is characterized by high liquidity and volatility. Prices can rise and fall steeply at any time. Market crashes are triggered by any number of things and it’s not unusual for cryptocurrencies like bitcoin to drop like a stone in one day.
It is fair to say that bitcoin and other cryptocurrencies are a speculative asset. If you are saving for your retirement, don’t put your money in bitcoin; not unless you want to risk losing it all. But, if you have some disposable income in your trading account and you are in the game for quick gains, cryptocurrency trading can be very profitable. Does that sound like you? If so, here’s what you need to know.
Expect a Wild Ride
Volatility is the name of the game. If you can’t stand the heat, stay out of the kitchen. Equities investors think nothing of 5% price movements, but crypto traders need to get used to price swings 20% in either direction. In a worst-case scenario, a cryptocurrency could even end up being worth zilch. It probably won’t happen with bitcoin, but never say never.
Increased Regulation Hits Prices Hard
The cryptocurrency market is facing increased regulation. The industry has largely operated outside the boundaries of normal regulatory restrictions, but financial authorities are keen to clamp down on shady bitcoin exchanges.
With many authorities viewing bitcoin trading as the Wild West of forex, some US states are seeking to apply further legislation to cryptocurrency instruments. In the UK, MPs say the crypto industry is leaving investors vulnerable to criminals. Hong Kong has just announced that cryptocurrency trading will be further regulated. In Japan, several bitcoin exchanges were ordered to tighten up their practices following a spate of hacks.
Tighter regulation is good for investors, as it reduces the many risks inherent in bitcoin trading, but it also means prices are likely to fall in response. Bear this in mind.
Use Your Common Sense
Some people view bitcoin as the Holy Grail of forex. They read news reports about stratospheric price rises and hand over their money immediately. Then, when the price crashes, they sell in a blind panic and lose money.
Use your common sense. Bitcoin is volatile, so prices will rise and fall on a daily basis. The important thing is to keep your head and not put all your eggs in one basket. Don’t panic when the price drops. Try to see bitcoin as a long-term investment.
Digital currency is the future, so in time, we might all be using it to pay for everyday goods.