The crypto world is expanding each day, with more and more people joining the ecosystem on a daily basis. The number of people who own crypto grew by 178% in 2021.
Data showed that 295 million people were active in the crypto market in December 2021, compared to just 106 million in January of that same year, with many of them amassing wealth. This trend does not seem to be slowing down, as many expect there will be around 1 billion crypto holders by the end of 2022.
The huge growth in active traders brings in a large number of novice traders who are not experienced in any sort of trading, be it crypto or otherwise. As these traders join in, the first crypto most of them look at is of course Bitcoin. The crypto giant alone is attracting most of those traders in the hopes that they will make good profits.
But trading bitcoin is not as simple a task as buying low and selling high, it requires a good investment strategy and some knowledge as there are different strategies traders can utilize, each with its own upsides and downsides.
Now, before we discuss some of the most effective strategies, we need to take a look at how we can start and why it is a good idea to trade Bitcoin.
The main reason people start to trade Bitcoin is that it's easy to understand, at least compared to more traditional trading methods. Trading Bitcoin for beginners is as simple as taking out their smartphone and creating a Bitcoin wallet.
With a Bitcoin wallet, you are pretty much ready to start buying and selling Bitcoin, as you are then able to purchase the token by different means, be it through bank transfer, credit card, or other. After that, you can utilize many trading platforms, which you can choose based on your preferences and the trading style you want to utilize.
Bitcoin has been around for a long time, but it only went mainstream not too long ago, and people started to see it as a good investment option.
One of Bitcoin's attractions is its changeable market. We might look at it and say that changeability is a negative aspect. But if we know when to buy and sell Bitcoin it becomes its biggest strength.
Also one of the best things is that you don't need a huge investment to start trading, you can start with just $10 and try it out before deciding on further investment.
Knowing when to buy and sell Bitcoin is where trading strategies come into play, so you can trade most effectively and make good profits.
Commonly called “Buy and Hold”, it is one of the easiest strategies for a beginner to start with. The hold is a strategy where you buy Bitcoin and just store it away for holding, with its value going up to a point then you sell at a profit. It has been one of the most used strategies since Bitcoin is usually on an upwards trajectory. But with the crypto winters becoming more frequent, you might need to come up with other profitable strategies.
The biggest strength of this strategy is that it can be really profitable, as Bitcoin does not tend to stay low for very long periods of time. So if you buy Bitcoin when the prices are low and hold until it returns to its heights, you might be on track for making some profits.
It also comes with some weaknesses as it's not an easy thing to determine when to buy and sell Bitcoin. As we mentioned before, the Bitcoin market is changeable. One day it might be worth $45,000 and the next day, go down to $30,000, as happened recently in May 2022.
Buying and holding is a long-term strategy, so this price fluctuation is not too catastrophic. But there are also other, faster, and better strategies.
Bitcoin margin trading has been gathering popularity lately. This strategy maximizes profits as you are trading using some borrowed funds on top of your investment, which means you can make huge profits with a smaller initial investment.
How does Bitcoin margin trading work? If we look at it from a surface level it's not too complicated. When trading, we can borrow funds. Usually, we borrow them from the exchange platforms we use, to then leverage our trades for a higher profit margin. For example, there are some exchanges that offer 3:1 margins for trading. This means that if you want to start trading with 3 Bitcoin, you just need to put up the money for 1 and the platform will give the capital to purchase 2 more Bitcoins.
One of the biggest positives of this trading strategy is the amount of profit you can make with just a few trades. We mentioned 3:1 trading, but there are also some platforms that offer 100:1 or even better offers. This strategy can give you profits really fast. As we mentioned before, Bitcoin prices fluctuate a lot, so with good timing and a large amount of leverage, you can make big profits quickly.
But with great advantages, there are greater risks. We can call this trading a double-edged sword because just like big profits, there is a chance for big losses. Let's say you want to trade $100 of bitcoin with a leverage of 100:1. You would be trading with $10,000 and if the price of Bitcoin went down by just $3, you would lose $300. And if you don't have enough funds to cover those losses, your position gets liquidated, and you end up losing all of your money.
Day trading is another frequently used strategy that traders utilize, and it has gathered a lot of popularity ever since Bitcoin prices started to fluctuate more frequently. This strategy has traders always keeping an eye on the market, traders should be buying Bitcoin when it's low and selling it when prices are high, and doing it during one day.
Contrary to Buy and Hold, this strategy requires traders to make quick transactions. As we mentioned, the Bitcoin market is volatile and that's the reason why this trading strategy has gained huge popularity. It gives traders an opportunity to buy when the market is red, and sell as it goes back to green.
One of the biggest benefits of day trading is that you can do it 24/7. The frequently fluctuating market is day traders' best friend and that's also the reason it is one of the best Bitcoin trading strategies.
Just like any other strategy it also comes with its cons. We mentioned that market volatility is a day trader's best friend, but it can also be their greatest enemy. We have to know when to buy and when to sell, and if we make a small miscalculation it could lead to great losses. That's why it's better to have some experience when it comes to trading when using this strategy.
When day trading there are different indicators one can use to analyze the market and decide if it's the right time to buy or sell.
One of the best indicators a day trader can use is On Balance Volume (OBV). It utilizes a combination of volume and price activity and tells you the total amount of money going in and out of the market. With the smart overlaying of different charts and OBV indicators, we can analyze the market in real-time and decide what's the best move at any given moment. But OBV is not the only indicator we can use, as there are many more indicators that could give us an advantage if used correctly and at the right time.
When utilizing this strategy, our main focus is “spread”. Spread is a price difference between different trading platforms. So when we use arbitrage we buy crypto on one platform and sell it on the other where the spread is larger.
To start arbitrage trading, the first thing we need to do is to open up an account on exchanges that we believe will show significant differences in prices on the same asset when compared to other exchanges.
One of the most well-known cases of arbitrage trading was “kimchi premium.” It was the time when Bitcoin was selling for 40% more on South Korean exchanges compared to the U.S ones.
During this time, traders were buying Bitcoin on US exchange platforms and selling them on the Korean market. But this does not mean that spreads will always be this high, as it was one of the highest spreads for Bitcoin ever seen. Also, one huge detail to take into account when using this strategy is transfer fees. We need to calculate not just the difference in price, but also the transfer fees associated with it, as those fees can easily wipe the gains away.
This trading strategy has gained a lot of popularity in recent years as more and more firms are offering Bitcoin future trading, and more money flowing into this market. This strategy allows us to predict the future price of Bitcoin, by going into a contract with any firm that is offering us this option. If we predict that prices will go up, we lock in that prediction and o long on the trade, and if we think that prices will fall we short the currency.
As an example, let's say a person is opening a futures contract on 5 Bitcoins with a total value of $150,000, and he thinks that prices will fall, he can place a futures contract to short the Bitcoin. Then if prices do actually fall and the value of the coins decreases to let's say $120,000 that person has seen a gain of $30,000. The same logic goes into long contracts with us betting that prices will go up at a certain period of time.
One of the best things about this trading system is that it is regulated, and because of that you are less likely to run into any kind of problem while utilizing this strategy. Its main attraction is the short-selling option, as you can make money even if prices fall and unlike other strategies, a bearish market could be used for gains.
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The best way of trading Bitcoin comes down to personal preferences. If you are there for the long run, then buying and holding is the best approach. If you have some trading experience and time then day trading is something that will generate good profits.
When it comes to trading Bitcoin, or any other crypto in general, the best place to go is Binance. This is the biggest crypto exchange in the world, which offers many different trading options.
Coinbase is a really good place to trade Bitcoin, especially if you are from the US. This is the second-largest crypto exchange in the world and the biggest in the US. Just like Binance, they offer different trading options that traders use to maximize their profits.
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