The Key Considerations Before Trading Bitcoin
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At first glance, it’s relatively easy to see why trading Bitcoin and cryptocurrency as a whole is so appealing to investors. After all, the market capitalisation value of Bitcoin alone reached $199.62 billion earlier this year, with this expected to rise further in the years ahead.
Overall, market capitalisation values have increased markedly across the 4,900 cryptocurrencies listed across various regulated exchanges, with this being indicative of a growth market and one that offers huge value to investors.
However, the cryptocurrency market is deceptively complex and volatile, so you’ll need to give this investment vehicle careful consideration. Here are some of the key points to keep in mind.
- The Technology Adoption Life Cycle for Crypto
In the case of cryptocurrency (and particularly the marked leading token Bitcoin), the technology adoption life cycle is most accurately depicted by a bell curve where the left side minority is represented by innovators.
This is followed closely by early adopters, as the curve starts to slope upwards before declining gradually to the point where late adopters and stragglers begin to participate in the marketplace.
But what exactly does this mean? In simple terms, Bitcoin is in a phase where all of the early adopters are effectively on-board, with the early majority having mostly invested.
Ultimately, this places Bitcoin firmly in the middle of the technology life cycle, creating a scenario where now is arguably the ideal time to jump abroad and pursue a viable profit.
- The Cost of Production and Crypto Stability
Over time, the marginal cost of production has evolved to mirror the value of Bitcoin, at least from a general perspective. This means that the cost to ‘mine’ bitcoin has leveled out in the last couple of years, with this roughly equating to the median market value.
Interestingly, this attribute is indicative of an increasingly stable and predictable asset, and one that’s arguably unlikely to replicate its historic and incredible price run back in 2017.
So, while Bitcoin still represents a relatively volatile and highly speculative investment, it has become far more reliable and rewarding as it has continued to evolve. But it also consists of many risks of losing money.
- Risk Appetite and Tolerance
This brings us neatly onto the topic of risk, which is central to every type of investment vehicle in the financial marketplace.
Yor underlying tolerance risk is a key consideration before trading bitcoin, which is at least as fraught as purchasing a single-company stock. So, if you were averse to the notion of buying a share in a single brand such as Amazon, investing in bitcoin directly is probably not a viable option for you.
However, even slightly more risk-averse traders can look to diversify their risk while simultaneously investing in cryptocurrency, simply by targeting a specialist Exchange Traded Fund (ETF) that focuses primarily on assets such as bitcoin.
This enables you to target various associated assets and automatically diversify your risk, while also tapping into bitcoin and the cryptocurrency marketplace as it continues to peak in terms of maturity. But at the same time, it is still your risk.
Ultimately, you need to consider all bitcoin investment vehicles in line with your capital holding and core risk profile, before making a decision that optimizes your chances of success over time. But there is no guaranteed income and there is always a risk of losing money.