Bitcoin is considered one of the most volatile asset classes. In order to benefit from Bitcoin boom as an investor, the following points should be noted.
Bitcoin Boom - Knowing risks and avoiding common mistakes
In 2019, Bitcoin let investors shine with an annual high of 13,829.07 US dollars per digital coin. After a temporary decline to around 4,100 US dollars in 2020, the cryptocurrency is now recovering significantly – an opportunity to enter the market?
But before an investor enters into trading with the cryptocurrency, it is necessary to understand that Bitcoin is much more volatile in the market than established financial instruments.
Therefore, the top priority is to remain calm and control emotions in bitcoin boom. Anyone who already owns Bitcoin should of course keep it at rising prices and not irrationally buy additional units. Because when prices rise rapidly, there is always the danger of investment bubbles that correct the price in a short time as soon as they burst. Here, you risk losing a lot of capital in a very short time. A further maxim is that trading should be done exclusively with one’s own capital: every investor is advised not to take out loans to buy crypto currency, because here too the risks of financial bankruptcy increase.
Long position versus short position
As in all markets, observing and estimating the right timing are mandatory before every purchase. If the investor expects the price to rise, he should take a long position, i.e. buy Bitcoin and hold it until the desired price is reached, only to sell it again later with a profit, the so-called margin. A continuous observation of the market is a prerequisite.
If the investor takes a short position, he bets against Bitcoin, i.e. he suspects falling prices. With this method, the investor borrows a certain amount of the crypto currency and sells it immediately. If prices fall as predicted, the same amount is bought back and returned to the actual holder. The difference between the original selling price and the subsequent purchase is the margin on the short position.
The "Bitcoin retirement plan"
Another established variant is the cost-avarianage effect, i.e. the average cost effect. It is considered to be the most constant and stress-free method, since emotionally controlled actions are not significant. Investors regularly invest a certain amount of money and depending on the price, the investor receives more or less shares of the crypto currency. The average price is thus intended to correct the volatility of the bitcoin and accumulate crypto currency in the long term until the desired selling price is reached.
Alternative profit opportunities from the bitcoin boom
An investor can also indirectly benefit from the Bitcoin boom, because if Bitcoin prices rise, the Bitcoin Group share price should also rise. Bitcoin Group is currently the only German company offering crypto currency on a regulated market. The share price of graphics card manufacturer NVIDIA behaves similarly, because very high computing power is required to produce, i.e. mine, the crypto currency, which is why the demand for graphics chips increases exponentially during the heights of Bitcoin. Another advantage of NVIDIA stock is that it is irrelevant which crypto currency is booming, because powerful computers are needed to encrypt all crypto currencies. The same is true for processor manufacturer Intel, whose chips are essential for digging the digital currency.
Bitcoin becomes more serious
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