Bitcoin Investment – Top or Flop?

Bitcoin: When it crashes it crashes, but that’s not always a bad thing.

bitcoin-newsWhat hasn’t been said already about Bitcoin?  Let’s face it almost every day there is a new headline about the infamous cryptocurrency making new record highs or how some high profile investment guru believes it is a bubble or the next big thing.

Today is no different.  Today the financial press is littered with coverage of Bitcoins recent plunge from a new record high set last week.  Bitcoin’s 29% drop over the weekend is a simple reminder that this digital currency is forever unpredictable and extremely volatile and prone like most traded instruments to the whims of the market. The UAE Bitcoin market isn’t any different. You can read more about how to buy bitcoin in UAE here.

Bitcoin’s latest slump has been put down to the cancellation of the fork planned for 16th November which clearly spooked investors who clearly jumped out of the market.  Although a 29% drop sounds pretty dramatic, when you compare it to the 40% drop Bitcoin experienced back in September and the 38% drop it suffered in July it tends to paint a slightly different picture.  The fact of the matter sudden drops in Bitcoin really is the norm for this cryptocurrency and that is not always a bad thing. There are still other cryptocurrencies to invest in 2017 rather than Bitcoin.

“Throughout its history Bitcoin has been well known for its sudden chaotic falls from grace.  In spring of 2013 it finally past the $30 level reaching a high of $233 before falling by 71% within 24 hours to $67 per coin.  It did it again in November that year rising to $1,150 before dropping to $500 the following month.  And then you had all the drama of the Mt. Gox exchange hack in 2014 which caused Bitcoin to drop by 49% from $867 per coin to $439 per coin.  This is the nature of the cryptocurrency, simple as that. However even when it crashes, it still presents an opportunity like opening a short position on Bitcoin as a cfd”.

James Trescothick, Senior Global Strategist, easyMarkets

Shorting or go short is when you sell an asset that you believe will fall in value when you do not even own that asset and can profit if the price does indeed fall.  Short selling first started in the stock markets when traders wanted to gain on a price of a stock declining in value much like we see in spread betting or forex trading.  They would do this by using a broker who would borrow shares in a stock from a trader who was buying (or going long) and would then lend those shares to the trader who wanted to short the stock with the idea that they would buy back the shares later at a lower price and the trader would pocket the difference.

In the forex market it operates very different as each instrument is a side way transaction.

“Short selling can be very confusing for the uninitiated as they often question how I can sell something if I don’t own it.  But remember in the forex market currencies are traded in pairs, so if I believed for example that Bitcoin was going down in value against the USD, I would short the Bitcoin but at the same time I would be longing the USD against it.  This way there is no borrowing needed to perform the trade and if I was right on the direction of Bitcoin I would profit.”

James Trescothick, Senior Global Strategist, easyMarkets

With Bitcoin here to stay, there are still plenty of potential opportunities out there even when it is crashing. When it does fall you can simply buy in again as a lower price and hope it can bounce back up or short sell and potentially profit if it falls further.  Throughout its life span this cryptocurrency has had plenty of huge ups and huge downs and it looks like these massive swings is a key part to its DNA.