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Bitcoin trading: What to know as a beginner

Bitcoin may not be the only cryptocurrency in existence – there are over 2,000 coins listed on the Coinmarketcap – it is however the most-sought after crypto and therefore the most valuable in the market.

The total supply of bitcoin available is capped at 21 million, with new ones released every day. As at 2017, the total number of bitcoin already mined were at 16 million according to data from Blockchain. In 2019, the circulating supply has reached more than 17 million (17,662,937.5). The implication is that there are 3,337,067.5 bitcoin left to be mined.

Although the finite nature of bitcoin makes access far from ideal, it is partly responsible for the surge in price. Unlike the early days, options for trading in bitcoin have expanded. There is also a proliferation of alternative means of acquiring and trading today.

Bitcoin trader, Bashir Aminu, describes the basic trading process this way:

“If you buy bitcoins at one price and then sell them for a higher price, you make a profit of the difference between those two prices, less any commission that you paid. However, if the price goes down, you will be in the uncomfortable position of having to either sell them at a loss or hold and hope the price goes back up while risking higher and higher losses if the price continues to drop.”

The bitcoin market has two major traders – those who hold it for a long term and the short term traders. Apart from buying bitcoin itself in the hope of selling it on at a profit, it is also possible to speculate on its value without ever owning the token. Presently, there is no exchange in Nigeria that provides this service.

For beginners, some of the things to note are:

Bitcoin is not fiat money

You may have used bitcoin to buy recharge card, but that does not make it fiat money. Fiat money is controlled by the central bank of any country; bitcoin has no central government control. This is largely responsible for its high volatility – going up or down by a high percentage in a short time. The price changes all the time and the more it changes the riskier it is.

One of the reasons for its constant fluctuations is the media. Bitcoin’s price reacts to a wide range of events including articles about new government regulations or action from banks; statements from prominent figures in the tech and investment worlds; news of hacks or security breaches; and rumours and incorrect information.

Trading cryptocurrencies is a 24/7 market.

Whether you are a long term trader or a short term trader, the market does not sleep. Hence, it is possible to make money every day as well as lose money daily.

“It is important that you are aware of what the market can give you,” says Olaleye Awe, a bitcoin trader and trainer at a recent meetup organised by Luno in Abuja, Nigeria.

Many beginners often make loses for ignoring this piece of advice – get information. Awareness would always put the mind at rest and prepare the trader for any unforeseeable. More traditional investments such as stocks and bonds carry a certain level of risk, but bitcoin is more speculative in nature. And unlike stocks and bonds, its fundamental indicators are often less concrete. One place to begin learning is the bitcoin whitepaper.

Awe also recommends bitcoin exchange’s Luno Learning Portal as a platform for beginners.

Make a plan and follow through

While acquiring information about the market is a critical building block, it does not guarantee you will make money trading bitcoin. Create a plan from the first day you decide to trade. Your plan should be able to help you figure out the best time to enter into a trade. For instance, setting a buy option anytime prices go up may not be the best strategy. The profit margins during a bullish run may not as much compared to buying when the market sees a major drop.

Prioritize small profits

“Anytime profit is showing on your bitcoin, take it,” says Awe. “It doesn’t have to be big profit. Small profits add up over time.”

 

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