Bitcoin first came into the market in 2009 when from an unknown developer by the name of Satoshi Nakamoto. The total supply of the digital asset was limited to 21 million. At the initial stages, the cryptocurrency was worth a few dollars, but later on, it came into the spotlight of many investors due to its flexibility and non-regulatory nature.
Bitcoin can be sent from one person to another using a peer-to-peer network and is traded similarly to other financial instruments. The cryptocurrency comes under the eyes of many economists, retail traders, and governments. Some deem it a wrong investment choice due to its use in illegal transactions, electricity consumption, price movements, and non-regulations. While others use it as their prime choice to trade the markets.
Advantages and Disadvantages of Bitcoin
Let us go through some of the important benefits and demerits of Bitcoin trading before diving into its characteristics:
- Price movements. The increasing difference between the supply and demand of Bitcoin provides a great deal of volatility which is the bread and butter for investors.
- Trading fee. Regarding currencies and other financial assets, the trading fees are quite low. All the transactions occurring in Bitcoin are made public via a ledger, making it difficult to cheat the system.
- Availability. Bitcoin is available globally, where investors from any country can sign up and start trading with a broker immediately. The process is simple and requires only a few minutes with a nominal amount of cash.
- Chargeback. Bitcoin transactions can not be reversed in any circumstances. This makes the deal safe for both the buyers and sellers.
A few disadvantages of trading the digital instrument can be as follows:
- Prone to hackers. Bitcoin exchanges are prone to hackers, causing a loss of cryptocurrencies.
- Spikes. Any major news from a billionaire or a ban on cryptocurrency in any country can result in price spikes. The asset can fall or gain immediately, causing a loss of funds.
Important Points to Note
The cryptocurrency market has certain terminologies or characteristics that traders should understand. Let us go through each of them in detail.
Wallet
Bitcoin wallet is used to store the cryptocurrency and keep it safe from external hackers with the help of a key. Only the owner can access their wallet by entering with the help of an encryption key. It is possible to send and receive BTC from one wallet to another.
Mining
Mining is one of the important activities to get Bitcoin as a reward. It is performed by investors on small and big levels, including governments. To get into the process, traders have to solve a complex cryptocurrency puzzle by devoting a piece of their hardware, such as a GPU or CPU.
Some people join multiple graphics card and processing units to form a mining rig or a farm. It consumes a huge amount of electricity and is now considered an environmental hazard.
Bots
Trading bots are common amongst investors who have no experience in the crypto markets. These algorithms perform all the buy and sell transactions for trades and generate a good amount of passive income.
Trading Strategies
There are tons of trading strategies that revolve around Bitcoin. This involves using indicators such as moving averages and studying the charts for potential support and resistance levels. Averaging is also common amongst traders who like to use the mean reversal phenomenon.
Image 1. Trend lines are a common way to determine the trend of the market. The daily chart of Bitcoin shows that the price was in a downtrend and is currently heading to break the previous flow.
