Bananas for Bitcoin: Helpful Tips for Managing the Madness
One Bitcoin hedge fund has seen its returns soar 25,000 percent since 2013. The coin itself climbed in value one day last month from $13,000 to $17,000 in 24 hours. And the Winklevoss twins, who once sued Mark Zuckerberg for allegedly stealing the idea for Facebook, jumped in with both feet and quickly became the world's first Bitcoin billionaires.
If you think the world has gone bananas for Bitcoin, you're right.
The New York Times just wrote about Pantera Bitcoin Fund, a pioneer in the cryptocurrency investment space bitcoin that reported those through-the-roof returns to its investors the other day. And, as the Times pointed out, all Pantera had do was buy a bunch of Bitcoin and sit on them while they skyrocketed in value. "Since 2013," said the report, "the Pantera Bitcoin Fund's compound annual returns have been around 250 percent." The Times offered this analogy: "Bitcoin's moves have been even greater than the movements of Dutch tulip bulb prices back in the 1600s."
Maya Kosoff in Vanity Fair served up this snapshot of our modern-day tulip-bulb bash: "Though bitcoin's freewheeling nature has been a contributing factor in its skyrocketing growth, it has also led to missteps, like the 2014 collapse of Mt. Gox, one of bitcoin's largest exchanges, after it was robbed of more than $470 million worth of bitcoin. The fallout from such incidents has so far been contained among the niche enthusiasts and block-chain hobbyists who hopped the bitcoin train early on. But thanks to bitcoin's entry into a formalized futures market last week, potential backlash will no longer be limited to a fringe set of investors but will reverberate throughout the economy."
So what's a novice investor to do when faced with such terrifying highs and lows on the Bitcoin's rocky road to ever-greater heights? With the price of a coin perched on Tuesday at $18,255, here are some cautionary tips from some of the hearty souls who have been braving the Bitcoin path (and, no, we're not making up these names):
"Have a reason before entering each trade: Start a trade only when you know why you're starting and have a clear strategy for afterwards. Not all traders make gains from trading, since this is a zero-sum game (for everyone who benefits someone else loses on the other side).The Altcoins market is driven by large whales (yes, the same ones responsible for placing huge blocks of hundreds of Bitcoins on the order book). The whales are just waiting patiently for innocent little fish like us to make mistakes."
From Daniels Trading:
"Bitcoin Trading Tip #1: Become Fluent in Technical Analysis."
"The nature of Bitcoin makes it an outlier in comparison to other asset classes or currencies. There is no central bank or governing body to influence its valuation. News events can have unpredictable impacts, and other financial instruments exhibit sporadic correlations. In fact, Bitcoin pricing models are largely speculative, ignoring a great deal of traditional financial theory.
"Understanding the basics of technical analysis is an absolute must before entering the Bitcoin markets. In many ways, price itself provides the only dependable clues pertaining to Bitcoin's future value. The lack of relevant market fundamentals places an impetus upon analyzing pricing charts, applying indicators, and reading price action."
"Leverage allows you to open a position that is larger than the balance of your account. Suppose you fund an account with $5,000. Using leverage, you could open a $10,000 XBT/USD position with this account (long or short). If you close this position for a 20% gain, your account balance will grow by 40% ($2,000). This amplified upside potential is why traders find leverage exciting. Leverage is a very powerful tool because it can amplify your gains. But it's also dangerous because it can amplify your losses as well, and even wipe out your account if you aren't careful."
From Buy Bitcoin Worldwide:
"The overwhelming majority of new traders lose money and quit within a year. All those washouts likely thought themselves future members of that exceptional minority of traders who achieve consistent profitability. The human mind, which excels at pattern recognition, struggles with random outcomes. Trading is emotionally-taxing, involving long hours of boredom interspersed with periods of intense stress. Finally, as traders risk their own capital in an endless zero-sum game, trading is an occupation which bears close resemblance to professional gambling."
From pojo18 on Reddit:
Beware of hackers if you use your credit card to trade Bitcoin: "Yesterday my girlfriend realized her credit card had been compromised. She found fraudulent charges in various amounts from $20 to $450 at grocery stores, toys r us, etc. Well today I logged into to my credit card account and found two fraudulent charges at two different department stores ($197 and $234). My girlfriend uses her card regularly, all over town and online. I on the other hand have not used this particular credit card in over a month, EXCEPT for coinbase transactions and an automatic subscription deduction for Hulu. I find it odd me and my girlfriend's card's were both compromised so closely together, and the only thing being in common between them is us both using them for coinbase purchases. Coincidence? Or were our cards possibly compromised through Coinbase?"
"Setting goals helps traders remain level-headed during periods of extreme volatility. This is highly important for Bitcoin trading. When placing a trade, determine what price to take profits or cut losses in advance. The benefit of this is that it is easier to prevent trading decisions based purely on emotions. For example, a trader with no target price may make a profitable trade, become greedy, and then fail to realize their profits while the market is still on their side.
From We Use Coins:
Why trade Bitcoin? "Bitcoin isn't fiat currency, meaning its price isn't directly related to the economy or policies of any single country. Throughout its history, Bitcoin's price has reacted to a wide range of events, from China's devaluation of the Yuan to Greek capital controls. General economic uncertainty and panic has driven some of Bitcoin's past price increases. Some claim, for example, that Cyprus's capital controls brought attention to Bitcoin and caused the price to rise during the 2013 bubble."
"Bitcoin Trades 24/7: Unlike stock markets, there are no official Bitcoin exchanges. Instead, there are hundreds of exchanges around the world that operate 24/7. Because there is no official Bitcoin exchange, there is also no official Bitcoin price. This can create arbitrage opportunities, but most of the time exchanges stay within the same general price range."
And, most important, "Bitcoin is Volatile: Bitcoin is known for its rapid and frequent price movements. Looking at this daily chart from the CoinDesk BPI, it's easy to spot multiple days with swings of 5% or more:
"We translate Bitcoin into Plain English."
"Buy Bitcoins through Dollar cost averaging -- This means that you don't buy all of your Bitcoins in one trade but instead buy a fixed amount every month, week or even day throughout the year. This way you average the price over the course of a whole year."
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