Despite its risky unpredictability, trading Bitcoin has dramatically dominated a massive sector of global traders and investors. Warnings come with the package, and it could be from an individual’s own instincts kicking in or sometimes, cautions from the government. Still, Bitcoin enthusiasts confide into the unknown and the tribulations for reasons of their own. Read the know-how before jumping in.
The Bitcoin Market
The title says it all. A Bitcoin market is where consumers actively trade their digital gold with other priced assets. It is just like any other marketplace wherein buyers trade a product for their currency, and different in a sense that it’s not minted under any nation’s economic and financial standing. These factors, no matter how influential they may be, do not affect the creation of Bitcoin. In fact, the process that generates the digital gold is called “mining,” and this is where all miners gather to use mathematical computations in cracking a block of 25.5 BTC. Whether these Bitcoins are stored or sold, they are used to standardize the exchanges of fiat money.
This Bitcoin market functions just like the other articles of trade. After being mined, they get sold to the market as its price fluctuates depending on the demand and supply.
Bitcoin Trading: Where Does it Happen?
It is much easier to get Bitcoins now than how it was on its earlier years. There are few exceptions, however, most countries today now allows exchanges to operate openly. Majority of the major exchanges offer services to global audiences. Exchanges mediate the transactions between buyer and sellers. With efficient digital trading platform, trades are executed efficiently and instantaneously handling huge numbers of transactions simultaneously.
There are many localized smaller exchanges specializing the local currencies to the Bitcoin accommodating in service in the regional languages. Depending on the local government laws on cryptocurrency trading, most of the exchanges require KYC or ID verifications to trade.
There are now a number of decentralized crypto exchanges available today that allows BTC to be traded to other altcoin pairs without the need for much human interventions. These decentralized exchanges are still relatively new and hasn’t gained much popularity yet, mainly because of its inherent inefficiencies and lack of liquidity. That said, many still believe that the future is indeed Blockchain-based decentralized exchanges because of the enhanced privacy and government inaccessibility it provides.
Bitcoin Trading: What are the Requirements?
Bitcoin Exchange Account
For you to be an eligible buyer and seller of Bitcoin from/to the markets, you would just have to find a trustworthy Bitcoin exchange. There, you would sign up and provide the personal information that the exchange requires.
Most exchanges require Know-Your-Customer (KYC) and Anti-Money-Laundering (AML) procedures which require your ID verification. It is a regulatory framework casted upon by the government which typically required for the conventional banks. Users are required to submit confidential personal information, which is to ensure that the users are not utlizing Bitcoin transactions for any illicit activities, such as money laundering, funding terrorism, and drug trafficking.
Trusted Bitcoin Exchange
Before you start trading, it is highly recommended to do due diligence on investigating and cross checking with local authorities and the Bitcoin communities, whether the subject exchange has platy of reputable track records. You can also find independent reviews online to help you in making a decision.
Here are a few helpful basic terms for the trading.
Arbitration –Arbitrage refers to the process of making a profit by maximizing the use of the difference in prices that might exist among the many trading sites. Simply buy low at one site to sell high on another site, if there is considerable difference in price. We are living in a fast-moving digital world; using arbitration to make a profit is becoming understandably difficult.
Ask Price – Simply “the selling price” or the minimum price that the seller is willing to sell.
Bid Price – Contrary to the Ask Price, this is the maximum price that the buyer is willing to pay.
Bubble – A trigger for this occurrence is a heightened when excessive buy orders are placed by people with FOMO (Fear Of Missing Out), resulting in soaring prices in very short period of time. The price soon collapses due to the groundless over inflation. One example of this was what happened back in December 2017 and February 2018.
High-Frequency Trading – Making a profit out of predictions in price movements in short term spans.
Leverage Trading – This form of trading concerns the underlying product for that sliver of difference that enables you to get more then what you initially invested.
Margin Trading – A much riskier option, it trade with borrowed money. While it may allow for higher profit margins, it is at risk of forced liquidation.
Market Depth – The number of Bitcoins that no traders have purchased yet, apart from what the seller had originally put up for sale on a trading site.
Speculator – A digital version of a market buy-and-sell, a speculator, tries to make a profit out of they buy at a low price and sell at a higher one.
Volume of Trading Site – As the name suggests, it is the number of monetary units that were sold within a specific period.
Precaution and Investment Risks
Bitcoin investing can be risky, especially to those that aren’t familiar with it. One must be mentally prepared before stepping in to the Bitcoin trading world. A typical price fluctuation is the good portion of the Bitcoin trading risk. Typically, the fluctuations in fiat currency market are a matter of few pennies. However, fluctuation in the Bitcoin market can be 10 to 50-fold of the fiat market. Bitcoin has risen from $1000 to $20,000 in a year, and fell from 20,000 to $3500 the next.
Millions of Bitcoin enthusiasts believe that the price fluctuation is part of the adaptation process – it will become more stabilized as its adaptation goes mainstream. Most of the bitcoin holders are in for long term investments. Even with extreme volatility, bitcoin’s overall market value has still grown exponentially over the years. Bitcoin’s value grew from less than a dollar from 2011 to over $10,000 in just eight years.
To be clear, Bitcoin network has never been hacked since the genesis block in 2009. Bitcoin network is the first un-hackable network in the world. The network produces a block in every 10 minutes and it hasn’t stop doing so ever since its inception 10 years ago.
However, there have been many reports about the individual wallets being compromised by bad actors, as well as wallet owner’s own negligence. These incidents, despite not directly because of the network itself, have badly affected the Bitcoin industry. Many are now assuming that Bitcoin is susceptible to hacks.
Individual wallets can be hacked if the hacker can get hold of the private key of the wallet. One of the most famous Bitcoin exchanges hack is the Mt. Gox’s case. 800,000 Bitcoin was stolen from the exchange wallet. After that, a large number of exchanges had been targeted by hackers which include the BitFinex and BitStamp. With this said, it is highly recommended that you do not keep your cryptocurrencies on exchanges for long term purposes. Make sure to keep your wallet private keys offline. Hardware wallet is highly recommended.