When Satoshi Nakamoto released the Bitcoin white paper on 31 October 2008, he was most likely astonished at how quickly Bitcoin would evolve into a multi-billion dollar trading vehicle. In less than 10 years, Bitcoin (BTC) finds itself on the verge of being recognized as a major asset class within the investment community. Trading volume in Bitcoin derivatives has exploded during the past few years and there are many great Bitcoin strategies to try. In this article, we take a look at some of the main ones and help decide whether they’re right for you.
Bitcoin Futures Are on a Tear
The Chicago Mercantile Exchange (CME) recently reported a record level of volume for its BTC futures contract. As of 23 August, the average daily volume was 7,237 BTC contracts for 2019. This represents an increase of 132% from the same time period last year.
In order to take advantage of this recent surge in volume, crypto traders need to develop some successful trading strategies. Let’s examine a few of the great Bitcoin strategies being used within the crypto community below.
Are You a Bitcoin HODLer?
Arguably, the most popular investment strategy is to “buy and hold.” This is popular among all asset classes. This would include stocks, bonds, commodities, alternative investments, and cryptocurrencies.
Within the cryptocurrency community, the “buy and hold” strategy has a special acronym known as HODL. The term originally surfaced in 2013, when Bitcoin was experiencing one of its many volatile price movements. As the volatility increased, many Bitcoin investors decided to “hold on for dear life.” Thus, HODL was born. Therefore, if your Bitcoin investment strategy is to buy and hold, you are known as a HODLer.
An argument could be made that buy and hold is the most profitable investment strategy among all asset classes, including cryptocurrencies. Why? Because it is a long-term investment approach that allows the investor to capture the big price movements over an extended period of time.
Unlike more aggressive strategies like short selling Bitcoin, buy and hold is known as a “passive” investment strategy because the investor is not required to make any short-term trading decisions. Instead, the investor must simply maintain the position for several months or even years.
In addition to capturing long-term price movements, another positive aspect of long-term trading is the fact that it is a very inexpensive way to trade. Quite often, a long-term trader will only place a few trades per year. Of course, this dramatically reduces the investor’s trading fees and commissions. Consequently, he or she has a greater chance of realizing a profit.
Day Traders Increase Bitcoin Liquidity
In addition to “buy and hold,” another one of the great Bitcoin strategies is day trading. In fact, Bitcoin day trading has grown exponentially during the past few years. Why? Because Bitcoin is a perfect vehicle for day trading based on the fact that it produces extreme price volatility.
Profitable day trading is virtually impossible without volatility. Successful day traders require their asset classes to generate large intraday price movements. This explains why Bitcoin has become the asset of choice among day traders and in retail futures trading.
As we briefly mentioned, the CME recently announced a record volume in retail futures trading. The majority of this volume can be attributed to day traders. As long as Bitcoin continues to provide volatility, day traders will use it as their preferred trading vehicle.
The Bitcoin community owes a debt of gratitude to day traders based on the fact that these traders have added a tremendous amount of liquidity to daily trading activity.
Now we know that day trading is a popular strategy within the Bitcoin community, does this necessarily mean that it is a profitable strategy? The results are mixed. Certainly, there are a large number of day traders who are quite successful trading Bitcoin on a daily basis.
Conversely, there exists a large percentage of BTC day traders who perform rather poorly. Without question, successful day trading requires a certain skill set and discipline that most traders don’t have. Although there is no statistical evidence, it’s probably safe to assume that the majority of Bitcoin day traders are net losers.
Digitex Will Produce More Profitable Day Traders
Without question, successful retail futures trading requires a tremendous amount of patience and discipline. This is particularly true for those who are trading cryptocurrency derivatives. As we just discussed, the majority of Bitcoin day traders are net losers. The main contributing factor causing most day traders to lose money is excessive fees and commissions.
Thankfully, Digitex Futures is in the process of building a commission-free futures exchange based on blockchain technology. The Digitex exchange will completely disrupt commission-based exchanges because Digitex will provide day traders with a much better chance of becoming successful. This will make great Bitcoin strategies like scalping more profitable–and viable–for all.
Short Selling Bitcoin Is a Legitimate Strategy
The main difference between stock trading and futures trading is the fact that futures traders have the option of buying or selling. As an example, if you believe Bitcoin is overvalued based on its current price, you can “sell short” a Bitcoin futures contract in anticipation of lower prices. Eventually, you can buy back the contract at a later date in order to close out the position. This explains why futures traders have a tremendous advantage over stock traders.
Whether you are a position trader or a day trader, short selling Bitcoin is a great tool to add to your overall trading strategy. During the past few years, some of the most volatile moves in Bitcoin have been to the downside. Short selling allows traders the opportunity to participate in these large moves.
Successful traders will agree that capturing large price movements is absolutely essential to becoming consistently profitable.
Which Bitcoin Trading Strategy Is Best?
In terms of the best Bitcoin trading strategy, there is no “one size fits all” answer. It depends on your preferred trading style and length of holding period. For those traders who favor a more traditional “buy and hold” approach, it would probably be a good idea to avoid day trading. Instead, these traders should concentrate on capturing the long-term trend of Bitcoin.
If you are a trader who enjoys the intraday price volatility of Bitcoin, perhaps day trading would be the most suitable strategy for you. Whichever strategy you select, the most important detail to remember is to maintain discipline and patience. This is the “key” to successful trading.