Bitcoin, the world’s most popular cryptocurrency, became the phenomenon in the financial markets. There is no doubt that bitcoin outplayed the majority of existing currencies, because it is fully decentralized and open-source online payment mechanism. Traditional currencies are issued by the governments of different countries, whilst bitcoin is not controlled by anyone or anything.
Therefore, many individuals see bitcoin as the potentially good financial instrument and thus speculate on its price. In this article, you will find out if it is possible to make profits using bitcoins in such a way.
Bitcoin Speculation: Advantages
Firstly, you do not have to pay high fees or commissions for buying or selling bitcoins. Bitcoins usually do not involve third parties, because it is a peer-to-peer system. Since there is no brokerage that charges the spread or bank that takes a commission for making a transaction, speculating on bitcoins only involves having the bitcoin wallet and the bitcoin exchange where you can speculate. There are a lot of bitcoin exchanges on the market, so there will be no problem to find one where you can conduct your operations.
Secondly, bitcoin price is changing very rapidly, where the rise or fall in price is worth hundreds of dollars. Hence, there is the potential to make substantial profits by predicting where the price will go next.
What is also convenient is that the bitcoin rates are the same in all countries over the world. This means that you will avoid unnecessary conversions on the foreign exchanges.
Bitcoin Speculation: Disadvantages
Although it is possible to capitalize on bitcoin, the price of this virtual currency is extremely volatile. It is possible to both make money and lose part of the bitcoins within the short period of time. If you are only starting out at bitcoins, speculation presents a high level of risk that you might not handle properly.
It is very hard and sometimes even impossible to predict the price movements of bitcoin. Thus, this type of speculation is sometimes described as bitcoin gambling by many individuals. Since the price of bitcoin is mostly determined by supply and demand, it is difficult to make a good prediction. Therefore, speculating on bitcoin more looks like making a bet.
It is very risky to use arbitrage strategies in bitcoin speculation. Arbitrage strategy means buying bitcoins on one exchange and then instantly selling them for a higher price on the other bitcoin exchange. Since bitcoin transaction confirmation takes some time, conducting such trades may incur massive losses.
Additionally, the lifespan of bitcoin exchanges is approximately 1 year on average. Since bitcoin conditions are constantly changing, it can be troublesome for exchanges to maintain their activity and therefore they tend to close.
The Bottom Line
Bitcoin can be viewed as the profitable trading instrument. However, bitcoin price fluctuations are the double-edged sword. Thereby, the simple rule of “buy low, sell high” may not work here. Speculation on bitcoins requires experience, knowledge that will help to make a trading decision.