Today, Bitcoin looks stronger than ever. With interest from high-profile investors and plans for institutional adoption, the cryptocurrency is reaching new highs. It has already doubled since the beginning of 2021. Some experts, including Bloomberg strategist Mike McGlone, predict a spectacular value of $400,000 by year-end. But how profitable is trading in reality?
Pros and Cons of Volatility
The value of volatile assets, such as Bitcoin, changes dramatically. Traders see higher profits or magnified losses depending on their strategy. Bitcoin will allow you to make money more quickly than in stable markets. However, you may also lose a lot. Clearly, crypto trading is not for the faint-hearted, and risk management is crucial.
In the fall of 2020, PayPal announced its support for crypto coins, and the price shot up. Back then, $13,000 was a new high. It pales in comparison with the $64,000 mark reached in April 2021. Those who invested in Bitcoin a year ago have already seen a profit of over 400%.
Trading or Investing?
These are two main ways to benefit from the growth. Traders are focused on short-term trends, while investors take a long view. As a trader, you buy and sell Bitcoin frequently to benefit from its ups and downs.
The strategy is based on technical analysis and fundamentals — i.e., news of wider Bitcoin adoption or new regulations. Publicity plays a major role in the popularization of cryptocurrencies. For instance, the gigantic investment by Tesla (it bought $1.5 bn worth of Bitcoin) spurred the surge.
On the biggest exchanges like Coinbase, you can buy Bitcoin for US dollars. Then, you sell them at a higher price to make a profit. Traders can pursue different strategies like:
- trend trading, or
The logic is simple, but crypto trading is quite complex due to volatility. The market is open 24/7. This means you can make a lucrative transaction at any time.
The biggest trading systems are also accessible via apps. You can buy and sell BTC on the go, from your tablet or smartphone. In this regard, cryptocurrency trading is similar to Forex, which is also insanely popular.
Arbitrage is another opportunity. It involves buying and selling on different platforms. The difference in prices is your profit, but you should be aware of the transaction fees. This is a riskier option, and some platforms do not allow you to use their wallets elsewhere.
How Much Can I Gain?
This depends on your skills and the market situation. Traders should have diversified portfolios to prevent excessive losses. Do not rely on Bitcoin alone. You may also engage CFDs or ETFs on the same cryptocurrency. Trading fiat currencies or stocks (including crypto stocks) will also limit your risks.
The Bottom Line
There is no denying that Bitcoin trading is profitable, but high volatility magnifies the risks. Traders should choose secure platforms to buy and sell safely. Diversification is key.