Introduction
Bitcoin has experienced a significant surge this year, with its price more than doubling. Despite this, an analyst suggests that there is still room for the cryptocurrency to grow, as long as traders are willing to tolerate some short-term volatility. According to a note sent to clients on Tuesday by Thomas Lee, the managing partner at Fundstrat Global Advisors, Bitcoin has the potential to increase by another 25% to reach $25,000 by the end of the year.
What is Bitcoin?
Bitcoin is a form of virtual currency that utilizes peer-to-peer technology to enable instantaneous payments. Transactions are authenticated by network nodes through cryptography and saved in a decentralized public ledger called a blockchain. The anonymous individual or group known as Satoshi Nakamoto invented Bitcoin and made it available as open-source software in 2009.
Bitcoins are produced as a reward for mining, a process that involves verifying and validating transactions on the network. They are exchangeable for other currencies, products, and services. By February 2015, more than 100,000 retailers and merchants were accepting Bitcoin as a form of payment.
Volatility in Bitcoin
Bitcoin has displayed significant volatility in the past year, with prices fluctuating widely from below $7,000 to above $19,000. Skilled traders can profit from this volatility by taking advantage of it in several ways.
One method to benefit from volatility is trading on margin. This entails borrowing funds to trade with, magnifying both gains and losses. However, margin trading should only be used when the trader is confident in their ability to forecast price movements, as incorrect predictions can amplify losses.
Another way to profit from Bitcoin’s volatility is through arbitrage. This involves taking advantage of differences in prices between various markets. For example, if Bitcoin is trading for $10,000 on one exchange and $9,800 on another, a trader can buy Bitcoin on the cheaper exchange and immediately sell it on the more expensive exchange, pocketing the $200 difference. By monitoring several exchanges and identifying discrepancies in prices, traders can find opportunities for arbitrage.
Regardless of whether one is trading on margin or seeking arbitrage opportunities, it’s crucial to keep in mind that volatility can be both advantageous and detrimental. By employing caution and employing a strategic approach, traders can profit from Bitcoin’s price fluctuations while mitigating the risk of losses.
How to profit from volatility in Bitcoin
Trading Bitcoin is invariably accompanied by some degree of volatility, particularly during periods of market uncertainty. Nonetheless, traders can still capitalize on volatility and make substantial profits with the appropriate trading techniques. Here are a few strategies for leveraging Bitcoin’s volatility to one’s advantage:
1. Employ technical analysis to determine significant levels of support and resistance.
2. Seek indications of bullish or bearish momentum
3. Execute your trades accordingly and capture profits when they become available
4. Avoid getting entangled in daily fluctuations and concentrate on the long-term trend.
