Trade bitcoin: how do you invest in Bitcoins?
The bitcoin is known for its huge price fluctuations. These fluctuations make the bitcoin the perfect asset to trade in. But where and how can you invest in bitcoins? Discover where you can invest in bitcoins and read this short guide, so you can immediately start trading bitcoins!
Where can you invest in bitcoins?
There are two ways to invest in bitcoins. You could choose to actively trade bitcoins, or you could choose to buy bitcoins for the long term.
Investing in Bitcoin by buying the cryptocurrency
Another possibility is to physically buy bitcoins. When doing this yourself, you need to create a so-called wallet. This can be quite difficult for people with little to no technical knowledge. Fortunately, bitcoins can also be easily bought via brokers. One of the most well-known parties to buy bitcoins and other cryptocurrencies is Binance. Use the below button to open a free account:
How to actively trade in bitcoins
Before we dive into more details and further analyse the bitcoin, let us first look at the places where you can invest in bitcoins. At this moment, there is one reliable broker where you can immediately trade bitcoins. At the broker eToro you can buy and sell CFD bitcoins, and you can take advantage of the strong price fluctuations by taking the right position at the right time.
A big advantage of trading bitcoins at eToro is the possibility to buy or sell a certain number of CFD bitcoins for a shorter period. Bitcoins are quite unstable, but by trading in bitcoins at the right time and in the right way, you can take advantage of this instability. You do this by going short when there is a falling price. In this case, you speculate on a price fall of the Bitcoin.
Trading in bitcoins can be tried free of charge with an unlimited demo. Use the below button to immediately open a free and risk-free demo account at eToro:67% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.
The bitcoin price is very volatile. While traditional currencies move only slightly, the bitcoin price has made enormous leaps. This unpredictable and impulsive price trend makes it possible to earn huge amounts of money trading bitcoins. Money can be made by both falling and rising prices.
On average the bitcoin price changes several percent per day, allowing you to achieve good results every day. But how do you ensure that you take maximum advantage of this price volatility of the bitcoin?
Maximum advantage can be taken by effectively investing in bitcoins:
- Buy the bitcoin when you expect a price increase.
- Sell the bitcoin when you expect a price decrease.
This short guide trading in bitcoins will learn you all you need to know to trade in bitcoins.
How do you trade in bitcoins?
It’s fairly easy to invest in bitcoins at an online broker. When you buy or sell bitcoins at a broker you have various options for executing your trades. When you place an order you can use these options:
- Buy: push this button when you expect a price increase
- Sell: push this button when you expect a price decrease
- Order: enter the amount on which you would like to automatically open a trade
- Stop loss: enter the value on which you automatically take your loss
- Take profit: enter the value on which you automatically take your win
It’s advisable to always use a stop loss. This way you avoid unexpected losses on your investments if you would for example have to leave for a moment.
Exemplary prices. See here how to place an order on the bitcoin CFD.
When do you buy bitcoins?
It’s wise to buy bitcoins when you expect the price to increase. The bitcoin price will normally increase when positive news hits the front page. Media attention will also push the bitcoin price to higher price regions. The hype will convince investors to buy more bitcoins resulting in a further price increase. These are therefore the ideal moments to invest in bitcoins.
Find below a news message example which contributes to the bitcoin price increase. By reading this message you can reason yourself if it’s a good moment to buy the bitcoin. Because bitcoins are now also tradable as futures, larger financial institutions can also benefit from the digital currency. After reading a positive message, it’s wise to buy.
Favourable news often leads to the rise of the bitcoin price. Source: Reuters.com.
When do you sell bitcoins?
To get the most out of your bitcoin investments, it’s not only a matter of buying but also selling bitcoins at the right time. Many online brokers offer you the possibility to go short. When you go short you benefit from decreasing prices. Every price decrease in the bitcoin will mean a profit for you! This makes it possible to benefit from possible price falls. Therefore, also negative news might be a trigger to start trading in bitcoins
Find below a news message example which might contribute to a bitcoin price decrease. It’s essential to always carefully read the content of the message. The fact China is planning to prevent the issue of new digital coins is clearly a very negative signal. China is a very large country and when coins become forbidden in this part of the world, it can lead to a significant price decrease in the bitcoin. In this case, it could be best to go short.
Negative news often leads to a bitcoin price decrease. Source: theverge.com.
Before investing in bitcoins, it’s important you understand what bitcoins are. The bitcoin can be seen as a new digital coin. These digital coins are also called cryptocurrencies. Compared to normal currencies, the bitcoin is a rather odd one. The bitcoin is not regulated and is not influenced by any central bank or government.
The bitcoin is an invention of a brilliant mastermind hacker known by the pseudonym Satoshi Nakamoto. Bitcoins are mined by means of computers which calculate and discover very complicated number sequences. But how can a digital coin have some value? And how can you obtain bitcoins yourself? We will discuss this in the rest of our article:
A movie which explains what bitcoins are about in layman’s terms
How do bitcoins obtain their value?
Bitcoins are not used as a valid payment means in any country. It might therefore sound a bit strange that bitcoins or also called BTC do have a certain value. This value is created by the fact bitcoins are used in the online world as an online medium of exchange. Each user has its own wallet and bitcoins can be transferred to other Internet users by means of a unique bitcoin address.
By using the bitcoins as an active medium of exchange a certain value has been created. The prices related to investments in bitcoins are therefore created in the same way as the prices related to investments in shares. An increasing number of online webshops are accepting bitcoin payments and these bitcoins also seem to make their way in physical shops. Recently for example the Dutch Bar De Waag in Delft has started accepting bitcoin payments.
How do you get bitcoins?
It is now clear that the value of bitcoins exists because it is used as a medium of exchange, but how do you actually get bitcoins? Without a shortage, a bitcoin would not be worth anything. However, because bitcoins have to be found through mining, it takes time and energy to find a bitcoin.
To generate a bitcoin, a computer needs to mine for it. Mining is a process whereby computing power is used to find a unique code which might be used to obtain a bitcoin. There is only a limited supply of bitcoins. At the same time there is an increasing demand because the bitcoin is increasingly used as a payment method. An equal supply combined with an increasing demand results in an increasing bitcoin price.
3 Strategies can be used when investing in the bitcoin. Let’s look at these 3 strategies:
Buy & hold strategy
This is a good strategy for whomever has a lot of confidence in the bitcoin. This strategy involves physically buying bitcoins which you hold for the longer term. Some people believe the bitcoin will one day be worth over $100.000. When applying this strategy, it is a smart move to buy when the price reaches a low. By doing this, you immediately achieve a higher return when the price actually rises.
Some investors choose to invest in bitcoin when the price is increasing. This is also known as going long on bitcoin. It is important to consider beforehand at which price you are going to sell the bitcoin. This strategy involves taking your profit when you believe the bitcoin price will fall again in the future.
Bitcoin has crashed regularly. You can benefit from a crash by placing an order on a falling price. You achieve a positive result when the bitcoin price keeps on falling. This method also requires considering beforehand at which price you will close the position. A position should be closed when you believe the bottom of the bitcoin price is almost reached.
- The bitcoin was a hype: media attention attracts investors.
- It is a new means of payment which is used by various service providers and webshops.
- The coin is anonymous and therefore a perfect means of payment for criminals.
- The bitcoin is often seen as a safe heaven similar to gold.
- The bitcoin can be used to avoid transaction costs.
Find below the actual CFD price of the bitcoin. It is also possible to immediately buy or sell CFD bitcoins by means of the below buttons.
Upon the incredible bitcoin hype in 2017, there was a serious price crash. Has the coin lost all its value? That may be a bit short-sighted. The trade volumes namely are still higher than those of the summer of 2017. Besides, the underlying technique still has a lot of potential. Nevertheless, the problem of the price is that it barely reflects the underlying value: the value is mainly created by speculators.
However, smart investors don’t see this as a problem. Even now, the bitcoin price is still very volatile. You can benefit from this volatility by using orders and by gently surfing and grabbing all you can on the waves up and down. Actively trading bitcoin Anno 2018 is therefore still very relevant!
Update 2020: the bitcoin price went sky-high beginning of 2020 and reached a price of 10,000 dollar. The coronavirus has again caused a price crash . Nevertheless, being an active investor there are still various was to benefit from bitcoin investments.
The bitcoin is the most well-known cryptocurrency. Nevertheless, in the meantime there are hundreds of alternative cryptocurrencies which can be traded. All these crypto coins have their unique characteristics which make them interesting on their own. There is a big chance the bitcoin will eventually be overtaken by another currency that may have more potential.
However, nowadays, we are still seeing a clear bitcoin dominance. There is a strong correlation between the bitcoin price and the price of altcoins like Ethereum and NEO. On some platforms you even require bitcoins to buy other cryptocurrencies. In the article investing in cryptocurrencies you can find more information about the most famous cryptocurrencies which can be traded nowadays.
Because bitcoins are not regulated by a central bank, it is very difficult to apply any form of regulation on this type of currency. Besides, because the source of bitcoins is pretty unclear, dirty games can be played by brokers because it’s difficult to trace the source of a bitcoin. Moreover, bitcoins can be used for money laundering because they are so difficult to trace. Therefore, if you are not careful, investing in bitcoins can be quite dangerous!
When you decide to invest in bitcoins, it is important to remember the bitcoin has no underlying value. When buying a share for example, you are co-owner of a company. The bitcoin is not managed by anyone, and it has no physical asset in the background which adds to the uncertainty of the bitcoin in the future.
You must also ensure enough security. When you actively trade bitcoins at eToro for example, you cannot be robbed because you are using derivatives to trade bitcoin. When you are physically buying bitcoin, your wallet can be compromised and robbed. It wouldn’t be the first time, investors are losing bitcoins worth thousands of even ten thousand dollars.
Finally, it is important to remember cryptocurrencies are complicated. Thanks to the user-friendly software of brokers it is easy to buy or sell cryptos like the bitcoin in the blink of an eye. Be aware though the underlying bitcoin technique is very complicated. Do a proper and extended research and carefully weigh benefits against risks before opening a position.
All in all, bitcoins are a very interesting but also very speculative investment opportunity. It can be a lot of fun to play with these types of financial securities, but we don’t recommend betting too much money on bitcoin trading.