Bitcoin’s rapid rise and unpredictable future has attracted a surge of new attention and investors seeking profits. Officially launched in 2009 Bitcoin celebrated a banner year in 2017. In the second half the cryptocurrency rocketed from $3400 in August to $20000 in December. The wild volatility is unlike anything experienced in the modern currency trading markets.
The debut of Bitcoin futures trading by Chicago’s two largest derivative exchanges, CBOE and CME has fueled greater interest and credibility for the cryptocurrency category. Some analysts caution of the “bubble effect” and potential weaknesses including government regulation, security and the ability to scale as demand increases.
Around the world Bitcoin’s rapid rise and unpredictable future has attracted a surge of new attention and investors seeking profits. But what strategies are seasoned brokers and traders using in this climate? In other words, “how can we follow the money?”
While there are no “silver bullets” investors are finding success in meeting their goals and reducing risk with the methods shared below. Check them out for yourself.
Buy and Hold Strategy: This is a passive investment strategy wherein the investor purchases the stocks and holds these for quite a long period of time. It requires discipline to do this regardless of the fluctuations that the market is experiencing. Known as “hodling” (an intentional misspelling of “hold”) in the Bitcoin world, these investors commit to holding on to their digital currency no matter if the market is going up or down.
Gavin Yeung, founder and CEO of digital asset management firm Cryptomover, advocates a long-term view. “We at Cryptomover believes that a passive investment style will outperform active strategies in the long term” he said.
Not only is passive investing inexpensive and simple, it also lowers trading fees leading to much lower operating expenses.
Day Trading: Day traders seek to make money by exploiting price changes of investments during the same day. They buy and sell throughout the day in the hope that prices continue to climb during the time they own the investment to make a quick profit. Bitcoin is attracting ordinary investors to this approach.
According to Ian Winer, head of equities at Wedbush, “They’re not playing the stock market anymore. They’re playing all the markets that are less regulated, and one of them is the cryptocurrency market.”
He added, “Rather than your average guy or gal buying tech stocks, they’re buying bitcoin or ether.”
Hedge: While not as popular as the first two strategies, there is a segment of Bitcoin owners that will “hedge” and implement both strategies. Most of this group will split all coins in two parts. The first part (approximately 50 percent) they will hold. The second part they will sell and they wait for the “right” price. When the price goes up they will get the profit. And when the price falls they will have less regret because they already cashed out half of their Bitcoins.
Big name Wall Street hedge funds are also working to get in on the bitcoin and cryptocurrency market. The upside is attractive compared to traditional stocks and bonds.
Horizon Kinetics LLC, a firm that manages over $6 billion in hedge funds, mutual funds and other products has disclosed its recent purchases of bitcoin and other cryptocurrencies.
Invest: With the rising price of Bitcoin a significant number of owners are sinking everything into their acquisition. The lure is so attractive that some are taking on debt financing. Securities regulator Joseph Borg told CNBC that people were taking out mortgages to buy bitcoin.
“We’ve seen mortgages being taken out to buy bitcoin…People borrow money. People do credit cards, equity lines.”
Keep in mind that bitcoin is highly speculative and has been seen to shred $1000 in a couple of hours.
Seeding: Prevalent mainly in the private equity sector this strategy is a Silicon Valley favorite. It involves the investment of small amounts of funds by venture capitalists on numerous start-ups which are in their initial phase of development.
The investors already know that the majority of these companies will lose money and fail. The main goal of this approach is to reap massively high returns on investment on the few winners. If any of these start-ups is a success they can potentially recoup all of the losses that were incurred on the bad bets.
Launched in 2014 Focus Investments was one of the first pure play crypto funds. Their early investments included Bitcoin, Ethereum, Qtum, EOS and several other digital currencies.
Johnny Steindorff, Co-Founder said, “Convincing traditional investors of the value of seeding the next generation of tokenized, open source and decentralized protocols was pretty far out there at the time.”
With the impact of digital currencies this approach is not as far-fetched now.
Basket Trading: This is another strategy which gives traders the first mover advantage. The process involves swapping comparatively older digital currencies for a basket of the newly created digital monies. The assumption is that the upside potential of the older ones is less profitable than the new digital currencies.
Bitcoin is the top cryptocurrency based on market cap, user base and market demand. The heightened interest has led to the emergence of over 900 alternative digital currencies. Many of these are built on the same underlying blockchain technology and have use cases that could lead to attractive “trading baskets” for targeted investors.
In closing, each of these trading strategies has some degree of merit and a base of believers and followers. In today’s fast moving, technology enabled, global markets we can expect more competition, volatility and profits.
The real question comes down to what makes sense for you. Which strategy do you use or will you be willing to try? Leave your reply in the comments.
About the Author:
NORM BOND helps bring companies into today’s digital age by effectively using modern marketing tactics, strategies and growth hacks. This helps companies increase their exposure and sell more stuff faster. He splits his time between Bangkok, Thailand and the U.S.