Bitcoin Trading Guides

Trade Bitcoin vs. Buy and Hold? How to Decide

In the YouTube video “Should You Trade Bitcoin or Just Buy & Hold,” altcoin entrepreneur and evangelist Chris Dunn answers the question of whether it is a better strategy to trade bitcoin or to ride out the epic valuation growth of the digital currency and hold your bitcoin. With speculation that bitcoin may hit $5,000 per coin or more, it might be costly to sell bitcoin early.

A Speculative Market

A popular story about stock speculation involves Joseph Kennedy, the father of President John F. Kennedy. In the twenties, the rapid migration to the cities and the expansion of the industrial sector led to massive growth in the stock market. This led to runaway speculation, with just about everyone either actively buying stocks or having an opinion on purchasing strategy.

Bernard Barauch, an investor of the time that bore witness to the events reported:

“Taxi drivers told you what to buy. The shoeshine boy could give you a summary of the day’s financial news as he worked with rag and polish. An old beggar who regularly patrolled the street in front of my office now gave me tips and, I suppose, spent the money I and others gave him in the market. My cook had a brokerage account and followed the ticker closely. Her paper profits were quickly blown away in the gale of 1929.”

As the story goes, Kennedy sold his entire portfolio days before the stock market of 1929 after a shoeshine boy gave him stock tips. Believing the market had become too popular when even street urchins have an opinion, he managed to avoid the Great Depression and secure his family’s fortunes.

With bitcoin currently hitting a record $4,000 per coin, despite splitting into two coins following the hard fork, investing in bitcoin has suddenly become popular. The rapid growth of bitcoin in recent weeks demonstrates that bitcoin is currently in a bull or speculative market. Accordingly, there is fear that a major drop in valuation can occur at any time.

Dunn cautions those seeking to invest in bitcoin to be clear about their investing strategy, saying:

“For anyone that just blatantly say ‘oh, just buy and hold on,’ in theory, that sounds great. But, the reality is most people do not do that because of price volatility.” 

As bitcoin is sold on an active market, its prices fluctuate and have been known to drop as much as 40 percent after a speculative spike. This typically drives nervous buyers to sell low.

Trade bitcoin

Investing with a Strategy

The idea of buying with the hope that you will be able to see a short-term pricing spike is what Dunn calls a “buy and hope” strategy. Dunn has three questions to help determine if a seller has a “buy and hope” strategy:

  • Are you willing to hold your coins if price crashes by 90 percent from its current price?
  • What will you do if you wake up tomorrow and BTC price is down 20 percent … 30 percent … 50 percent?
  • Do you have a plan for every possible market move?

If you intend to make a profit from bitcoin investing, there should be a plan in place for if your bitcoin portfolio valuation falls below a certain level, if it rises to a certain price, if there is a major sell-off, or if any number of contingencies come to pass.

Dunn’s strategy includes:

  • “Invest for the long-term when the price is cheap.” The best time to set up a long-term investment is when the price is low. Investor etiquette dictates buying when low and avoiding buying high. Maximum profitability on a long position is most likely to happen if you are patient.
  • “Trade the big volatility when price is high.” Trading short can be a good strategy if it is done properly. Trading short is a good idea when the market’s valuation pulls back, meaning there is a higher potential to make a quick profit when the market is highly volatile. In addition, investing short in altcoins and ICOs can be highly profitable, as most have a volatile valuation curve and will only have a short period of positive market growth. However, you should avoid overtrading. Dunn believes bitcoin does not have the liquidity to be day-traded.

Dunn argues that it a good position to hold bitcoin for the long haul, granted you have a plan for when and how to get out. Investing without a strategy is dangerous and will likely result in significant losses. Additionally, it is okay to try to trade on the market’s volatility, granted that you pick your spots prudently, do not overtrade, and follow proper trade etiquette.

As the saying goes, “Fortune favors the bold.” For those willing to risk, there lies the potential of large fortunes in the bitcoin market. However, for the new investor, to avoid “buying and hoping,” it may be better to show trade discipline, especially if the goal is longevity in the market.

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