If you think Forex trading is risky (which it is), I don't even know what to call trading cryptocurrencies. Words like suicidal come to mind. Yes, it is beyond speculative. If you want to read some horror stories, you can read this Reddit thread.
Just so we are clear, I do not recommend buying Bitcoins.
But even so, with uncertainty comes opportunity. All the media outlets are focusing on the shutdown and speculating on why it happened, blah, blah, blah. But not many people are really discussing what can be learned and what is the next step for Bitcoin.
So in this post, I'm going to give you an overview on my take on the MtGox shutdown, the future of Bitcoin and what I'm going to be doing to take advantage of this budding currency.
When a stock exchange shuts down, do we say OMG, stocks are dead? Of course not.
That is what some people are saying about Bitcoin. Bitcoin is not dead, one exchange that traded Bitcoins is dead. There is a big difference.
Exchanges do shut down. One that comes to mind is the Pacific Exchange. Granted this exchange closure did not involve money vanishing, but the point is, similar to MtGox, the business model was fundamentally flawed, which resulted in a shutdown.
Things like this will happen. Just be sure that you learn from it.
Why anyone would keep their Bitcoins in an sketchy exchange dealing in a new virtual currency it beyond me, especially when you have the choice to pull your money into cold storage. So the first lesson is to setup your own wallet and stay in control of your money.
The next lesson is not to go all-in. Like I mentioned in the beginning, calling Bitcoin speculative would be like calling Bill Gates a “computer guy.” So if you put a significant portion of your cash into Bitcoins and it goes poof, then that's your own damn fault. You should not expect to make any money on your Bitcoins. Expect that your money is already gone.
It makes me sick to see how some of these people have lost their entire savings because they stuck it all in Bitcoin. But you get what you pay for, as they say.
Why I Believe Bitcoin Is Still An Opportunity
Now that we have established the absolutely moronic things that you shouldn't do, let's take a step back and attempt to take an objective look at Bitcoin and the cryptocurrency landscape. Is there still an opportunity to make money? I believe that the answer is yes.
All trading essentially comes to supply and demand, and the bottom line is that Bitcoin is a finite currency. There will only be 21 million Bitcoins produced…ever. There is no Quantitative Easing in Bitcoin.
Now look at the mechanics of Bitcoin storage. If you put your Bitcoins into cold storage by putting them on your computer or transferring them to a physical medium like printing them out and you lose them, they are gone FOREVER. Hard drive crash, you accidentally use your Bitcoin papers to roll a joint (in Colorado, of course), or your dog eats them…poof, all gone.
You see where I'm going with this.
The supply of Bitcoins is always going to decrease.
Therefore, if it remains a viable currency, its value will probably increase. How much it increases and how volatile it will be is anyone's guess. It depends on how widely it is used and other variables, but it is attractive from the supply side of the equation.
Also, Bitcoin itself is still stable. It is only the mistakes of one exchange that is currently bringing the price of the currency down. Yes, it was one of the biggest exchanges, but it is certainly not any cause for widespread panic.
Of course there are huge catches. Like Jaws huge. And you don't want them biting you in the ass.
All of this hinges on the acceptance of Bitcoin as a legitimate currency. Although many big companies are accepting it as payment, if the US government ever decides to declare it illegal, that's it, the party is over.
Someone might also figure out a way to hack Bitcoin. The Bitcoin hard fork showed us that the currency is not infallible and there could even be changes in the mining algorithm, rendering the currency worthless.
Things could also get really bad before they get better. Who knows, Bitcoin could go back to $3 before it goes back up again. So what is the best course of action?
How To “Low Risk Trade” Bitcoin
The idea of the “free trade” is something that I feel every trader should have in their toolbox. That is when you can lock in a brekeven or a small profit and make a play for bigger gains. It takes the stress off, which is very important for your psychology, and still keeps the door open for more opportunity.
I can't take credit for this idea because it came from a trader friend of mine, but if you do want to get involved, you can to do something similar with Bitcoin. You can do a “low risk” trade by selling stuff for Bitcoins instead of cash. This is assuming that you don't need the cash right away, what you are selling isn't super valuable or it is stuff that you don't need anyway or it doesn't require additional time/money to produce.
Examples are unused personal items, online education courses, membership sites or even easy consulting gigs that you can get paid partially for in Bitcoin. I'm actually going to do this by accepting Bitcoin as payment for my new course that is coming out soon. We are also going to accept Bitcoin as payment for the second edition of the Bubble Trading Course. I may even sell some stuff I don't need on Craigslist for Bitcoins.
To me, this is the only way to get involved with this volatile currency. In addition, I'm only going to allow a very, very small percentage of transactions to be paid for with Bitcoins. But paying cash for Bitcoins at this point is just not a smart thing to do.
One of the first lessons that you learn in any type of trading is the capitulation phase of market cycles. Essentially, you are buying the dips. It's like when I bought Citigroup (C) stock for $1.50. When it comes to Bitcoin, we are in a big fucking dip.
And it could dip more. A lot more. Or it could go up. Or it could disappear tomorrow. Who knows?
But people are scared after the MtGox shutdown. There is definitely some capitulation going on. They may be more willing to do a low risk trade with Bitcoins, just to get rid of them. Doing this could help you to get into the market with very little downside.
Cryptocurrency is a brave new world and it will take awhile to establish stable exchanges and public acceptance. It fundamentally makes sense to me though, I strongly believe that crytocurrency is here to stay. If not Bitcoin specifically, then in another form.
However, it will be awhile before we see it on our Metatrader screens.
This is not investment or trading advice. Just my opinions and is for informational purposes only. Just like with anything else in trading, do your own research because you are completely responsible for your decisions.
What is your opinion?