There are those who fear it, and those who love it; and that may be all that many people can tell you about Bitcoin. There are many challenges to trading Bitcoin. This is true as with any new activity, and particularly an activity built on new technology. However, understanding Bitcoin requires participants to pay attention to what seasoned investors think.
Bitcoin is designed to have no inflation, so a price slump may be the best time to buy Bitcoin
Bitcoin’s design allows for a maximum lifetime supply of 21 million BTC. This means that Bitcoin won’t suffer inflation through the same mechanisms experienced by other currencies. This is because supply will adjust through the loss of physical currency and topped up by addition of currency to the economy. Seasoned Bitcoin investors know this. A drop in the price of Bitcoin represents an excellent opportunity to buy low for many of these investors. Additionally, such investors usually ‘time’ the market. This involves buying Bitcoin when prices crash, or trying to judge or guess the right moment to make a purchase just before a rally starts. Seasoned investors believe that, in Bitcoin as with other more traditional trading objects, purchasing is best when prices drop, rather than during a bull market. As an investment strategy, this rests on the belief that Bitcoin will become a fundamental and established part of the global monetary system.
Bitcoin can be a risky investment
A seasoned investor knows that investments can go up as well as down; and that Bitcoin is no exception. Just as in the stock market, Bitcoin prices can fall as quickly as they rise. If you wish to trade Bitcoin, then it is essential to understand that any investment is a risk. You can buy and sell Bitcoin and earn a lot of profit, or see significant loss depending on when you buy. Seasoned investors, therefore, trade with a keen eye on events surrounding cryptocurrency. For instance, a sudden government announcement about legalization or banning of Bitcoin (recent announcements by the governments of China and South Korea are good examples) is likely to lead to price drops. Even a social media trend about Bitcoin’s future can have the same effect. A seasoned investor knows that if the prices drop, two things are likely to happen: either it will pick momentum and regain value or it may continue to fall.
Dollar-cost averaging Bitcoin may be better for long-term investing
Most experienced Bitcoin investors know about dollar-cost averaging. Dollar-cost averaging is a strategy involving the purchase of fixed Bitcoin amounts of Bitcoin each week or month regardless of current market price. By doing so, an investor hopes to end up buying more Bitcoin at low prices and less at high rates. This is because buying regardless of price is a strategy to average out price spikes and take advantage of overall rising trends.
Cryptocurrencies are still a very new sector for investment. However, paying attention to the strategies of seasoned investors help illuminate traditional market approaches to understanding the new sector. Though the market is unpredictable, experienced investors know a few tricks on how to approach the market. If you are a novice, you could do a lot worse than take time to learn from someone with experience.