Why Trade Cryptocurrencies?
Why trade Cryptocurrencies? Cryptocurrencies are a new asset class based upon a potentially disruptive technology, and so are the focus of intense interest from investors, speculators, and traders. Cryptocurrencies have shown extraordinarily high price movements – high volatility, meaning there are potentially large profits that might be made on both the long and short side, although there is also an accompanying extremely high risk.
In this lesson, we explain how cryptocurrency offers a lot of price movement over all time frames, and differentiate between the time horizons of investors and traders. We review the statistical basis for expecting a high amount of price volatility to persist, and for expecting hot new assets making record high prices to be most likely to continue doing so.
Video Tutorial
Additional Reading About Why Trade Cryptocurrencies
.
Why Trade Cryptocurrencies?
Cryptocurrencies are new, and they have the potential to significantly change the way that the world works. If they do, they will be a successful, disruptive technology. Early investors or speculators in successful disruptive technology often make spectacular returns! For example, $10,000 invested in Microsoft stock in 1986 would have been worth more than $3 million within 25 years. The same amount invested in Apple stock in 1980 would be worth approximately $4 million today. So, over the medium or long term, even small investments can grow into significant, life-changing profits. This is why you should be interested in cryptocurrency investing or cryptocurrency trading.
When we talk about investing in cryptocurrencies, what we mean is buying some cryptocurrency and holding it for several months or maybe even a few years. When we talk about cryptocurrency trading, we mean something with more active transactions, over much shorter time frames - perhaps even as quickly as a few minutes, and selling short as well as going long by buying. You might be wondering – is trading cryptocurrencies just as attractive as investing in them? The answer is 100% yes, and there are several reasons why.
Firstly, the top ten cryptocurrencies, including Bitcoin and Ethereum, fluctuate in value dramatically, because they are subject to huge short-term speculative interest. Any asset which rises in value by a large amount is statistically likely to either continue to rise, or fall by a similar amount soon, because volatility “clusters”. If volatility is high today, it is also likely to be high tomorrow. This means that there will probably be speculative opportunities in cryptocurrencies during 2017 and into 2018 at least, either in buying, or in selling short. For example, see this weekly chart of the Bitcoin price, the largest and “best” cryptocurrency, against the U.S. dollar, over the past 2 years leading up to October 2017. Just look at those moves! Big fluctuations in price mean big profits are possible.
The second reason why you should be interested in the larger cryptocurrencies is because some, including Bitcoin and Ethereum, hit several all-time highs in 2017. Historical research shows that when stocks of new companies make significant new all-time high prices, they usually keep going up higher and higher. This can give a trader a winning statistical edge and can serve as an indicator of how to trade Bitcoin and other major cryptocurrencies.
Good news for cryptocurrency traders: more and more brokers are offering cryptocurrency trading in Bitcoin, Ethereum and Ripple. Your options as a cryptocurrency trader are increasing by the week, and you can even get leverage for your trading, if you want it.
Finally, there are some additional advantages in cryptocurrency trading over investing: you don’t have to worry about buying and storing the cryptocurrency securely in a Bitcoin wallet or something similar, because you are just making short-term predictions on the price movements. Even better, you can (and should!) use stop loss orders, which should get you out of a market which moves dramatically against you. Investors usually don’t have that option.
For anyone interested in trading currencies, the bigger cryptocurrencies are an option that’s too attractive to miss!