Like any other start-up, your success in Bitcoin trading will depend on your knowledge about it and how it works. Bitcoin is cryptic, with some people considering it a currency and others an investment. Bitcoin presents an excellent way to store value for some individuals and enterprises.
Perhaps, this is why government agencies are unsure how to categorize Bitcoin. For instance, the Securities and Exchange Commission sees Bitcoin as a security while the IRS considers it a property. On the other hand, the Financial Crimes Enforcement Network categorizes Bitcoin as a currency.
At the same time, many people see Bitcoin as a tradable commodity. Thus, they purchase and sell it on platforms like BitIQ. Perhaps, you can Learn How to Invest in Stocks for more information about such platforms for trading Bitcoin.
Overall, Bitcoin has a lot of confusion surrounding it. It’s also uncertain and volatile, especially with its wild price swings. Here’s everything you need to know before trading this virtual currency.
Bitcoin Definition and Its History
Bitcoin is a decentralized virtual, electronic, or digital currency without a central bank or single administrator, and users can transfer it on a peer-to-peer network without intermediaries. Network nodes or miners verify transactions through cryptography and record them in a public distributed ledger called the blockchain.
An anonymous person or group of individuals created Bitcoin in 2008 before introducing it to the public in 2009. The Bitcoin creator used the name, Satoshi Nakamoto. People consider Bitcoin the first cryptocurrency, although prior systems existed.
Perhaps, the accurate description of Bitcoin is the first decentralized digital currency. It’s the largest of its kind in total market value. People create Bitcoins through the mining process, and they can exchange them for other currencies, products, and services.
Bitcoin’s Value Determinants
The main drivers of Bitcoin’s price are supply and demand. The cryptocurrency’s price increases when demand is higher than the available supply. On the other hand, prices drop when more Bitcoins are available than people are willing to buy them.
Besides, other factors such as media speculation, economic instability, and bans or restrictions on its use can affect Bitcoin’s price.
When it comes to trading Bitcoin, there are two main ways to go about it. The first is through exchanges that enable you to buy, sell or trade Bitcoin for other digital or fiat currencies. The second option is through broker platforms that only allow crypto-to-fiat currency pairs. Bitcoin exchanges and brokers vary in their services, safety measures, and fees. So, do your due diligence before selecting one.
Meanwhile, Bitcoin trading requires a clear understanding of technical analysis and chart reading. You can use these skills to buy the dips and sell when prices are high. Additionally, employ risk management strategies like stop-loss orders to limit your losses. Also, don’t trade with money you can’t afford to lose.
As mentioned earlier, government agencies are still confused about categorizing Bitcoin. Therefore, they haven’t come up with specific regulations surrounding its use.
Some countries have outright banned Bitcoin and other digital currencies. Others have placed restrictions on their use. For instance, China has banned financial institutions from handling Bitcoin transactions.
The United States treats Bitcoin as a commodity and taxes it as property. The IRS also requires people to report any gains or losses when trading or selling it.
Generally, there’s no uniform approach to regulating Bitcoin globally, making it a risky investment. Therefore, research your country’s regulations before trading BTC.
Investing in any cryptocurrency is risky because digital assets are volatile and news-sensitive. The price of Bitcoin can change quickly, leading to substantial losses if you’re not careful.
Another significant risk is the possibility that Bitcoin exchanges could get hacked, as has happened in the past. For instance, Mt. Gox was once the biggest BTC exchange before it filed for bankruptcy after losing 850,000 Bitcoins to hacks.
Also, be aware of scams targeting Bitcoin investors. Some fraudsters promise high returns and fail to deliver on their promises. Others may try to exploit your lack of knowledge to steal your coins.
Bitcoin trading can be profitable only if you know what you’re doing and implement effective strategies. Research the crypto market and decide the most appropriate way to trade Bitcoin to enhance your success chances.