Bitcoin Investing Strategies 101: A comprehensive guide for beginners
Since its inception in 2009 by the pseudonym Satoshi Nakamoto, Bitcoin has grown both in popularity and price. With its decentralized nature, finite supply, and increasing acceptance among merchants, it has become an attractive investment option for many.
How to deal with the volatility?
Currently, Bitcoin is trading at over $28,000 and experts predict it can even rise to $1 million in the coming months.
However, investing in Bitcoin comes with risks, as the cryptocurrency market is volatile and often unpredictable. So, it can be difficult for new investors to navigate the world of Bitcoin investing. In this guide, we will discuss different types of trading analyses, examine whether Bitcoin is a commodity, and explore the idea of using Bitcoin as a savings account.
Different types of trading analyses
Before we delve deep into Bitcoin trading strategies, you must understand the different types of trading analyses. In short, trading analyses are methods that traders use to determine the best time to buy and sell an asset. To get started, here are the three most common types of trading analyses:
- Fundamental Analysis
Fundamental analysis involves evaluating the intrinsic value of an asset by examining its underlying factors. This could include studying market adoption, regulatory developments, and technological advancements for Bitcoin. By assessing these factors, investors can determine if the current market price accurately reflects the asset’s value or if it’s overpriced or underpriced.
Some critical factors in fundamental analysis for Bitcoin include:
Market adoption: Look for evidence of increasing adoption among merchants, businesses, and consumers. This can indicate a growing demand for the cryptocurrency, which may drive its price higher.
Regulatory developments: Monitor government policies and regulations that may impact Bitcoin’s legality or usability. Positive regulatory developments can increase adoption, while negative developments can deter potential investors and users.
Technological advancements: Bitcoin’s future success depends on continuously improving its underlying technology. Follow the progress of updates and enhancements to the network, such as the Lightning Network and Taproot upgrade, which can improve transaction speed, privacy, and scalability.
- Technical Analysis
Technical analysis is a method of forecasting the future price of an asset based on historical price data and market trends. This approach involves using various charts and indicators to identify patterns that may suggest future price movements. Unlike fundamental analysis, technical analysis doesn’t consider the intrinsic value of an asset.
Some standard technical analysis tools include:
Moving averages: These help to smooth out short-term price fluctuations and identify longer-term trends. A popular choice is the simple moving average (SMA), which calculates the average price over a specified period.
Support and resistance levels: These are price points where selling or buying pressure is strong enough to prevent the asset from moving past that level. Identifying these levels can help traders make better entry and exit decisions.
Relative Strength Index (RSI): This is a momentum oscillator that measures the speed and change of price movements. It can help determine whether an asset is overbought or oversold.
- Sentiment Analysis
Also known as behavioral analysis, sentiment analysis involves studying the emotions and opinions of market participants to predict price movements. This approach is based on the belief that market sentiment can significantly impact asset prices. Investors can use various tools and techniques to gauge sentiment, including social media monitoring, news analysis, and market surveys. For instance, the fall of major US banks in the past few weeks had a net positive impact on the price of Bitcoin as it increased investor confidence in the asset.
Is Bitcoin a commodity?
A commodity is a basic good or raw material used in commerce that is interchangeable with other commodities of the same type. Traditional commodities include gold, silver, oil, and agricultural products. The classification of Bitcoin as a commodity has been debated among market participants and regulators.
Like gold, Bitcoin has a limited supply of 21 million coins with increasing mining difficulty, making it scarce and potentially valuable. Hence, many investors are now using Bitcoin as a digital alternative to gold, a traditional store of value and hedge against inflation. Also, Bitcoin’s underlying enables peer-to-peer transactions, which makes it a functional asset. These characteristics make Bitcoin similar to other commodities used in trade.
However, some argue that Bitcoin differs from traditional commodities as it only exists digitally, unlike other commodities like gold and oil. Also, unlike conventional commodities, Bitcoin’s price fluctuations are often more extreme. Furthermore, other commodities like gold and oil have industrial uses that make them valuable. In contrast, Bitcoin’s value is primarily derived from people’s belief in its potential as a currency or store of value.
Regulators in countries like the United States have classified Bitcoin as a commodity for regulatory purposes. While this impacts how cryptocurrency is taxed and traded, the debate on whether Bitcoin is a commodity continues.
With an understanding of different trading analyses, developing a Bitcoin investment strategy tailored to your risk tolerance and financial goals is essential. One popular approach to Bitcoin investing is dollar-cost averaging (DCA). This involves buying a fixed amount of Bitcoin at regular intervals on a popular exchange like Gate.io, regardless of the current price. Learn how to buy Bitcoin on Gate.io.
By treating Bitcoin as a savings account and consistently investing a small amount, you can benefit from the potential long-term growth of the cryptocurrency while mitigating the impact of short-term price fluctuations. This approach allows you to build a Bitcoin investment over time without the need for constant monitoring or precise market timing.