Launched in 2009, Bitcoin was the first, one-of-a-kind asset called Cryptocurrency. Since then, there’s been no turning back with it being widely discussed in the media. Read on to understand more about what is Bitcoin, why is it so popular, how to buy Bitcoins, best Bitcoin wallets, how to trade, advantages & disadvantages.
Defined simply, Bitcoin is a digital currency that is held electronically on computers. Unlike paper money, they are not controlled by banks and monetary authorities. It is rather produced using advanced software programs that can solve complex mathematical problems. A combination of software-driven cryptography and peer-to-peer technology is used to create a currency that is backed by code.
Fig.1 – Introduction to Bitcoin (Cryptocurrency)
Current price of 1 Bitcoin equals 26,712.40 United States Dollar. Nigeria is ranked the second largest Bitcoin Market in the world which traded a total of 60,215 Bitcoins. 1 Bitcoin equals 1,01,91,991.92 Nigerian Naira.
Nigerian economy is massively import-dependent and since Central Bank of Nigeria has limited liquidity to cater to everyone, Nigerian entrepreneurs had a tough time in dealing with the process. Hence they found Cryptocurrency useful and helpful for their economy.
The Bitcoin has several interesting attributes that set it apart from traditional currencies and facilitates global exchange. All you need is a computer to set up a Bitcoin address and begin the transaction in seconds. It allows the users to maintain multiple addresses, demands no personal information, and is therefore anonymous.
Fig. 2 – Nigeria Benefits from Cryptocurrency
Why is Bitcoin So Popular
It is gaining popularity as this cryptocurrency is decentralized form of digital cash, that eliminates the need for intermediaries like governments and banks for financial transactions. It also keeps Bitcoin users’ transactions private i.e. though the transactions are recorded in Public Log, names are never revealed. Transaction is recognized by the Users wallet id’s. It is the currency of choice for Dark Net users for illegal activities like buying/ selling drugs etc.
How to Buy Bitcoins
There are several options to purchase Bitcoins. They are:
- Bitcoin ATM
- Buy it on an Exchange
You can visit National Bitcoin Atm to search your nearest Bitcoin ATM to collect in person.
Peer-to-peer purchases can be made directly from other Bitcoin owners using tools like BitQuick and Bisq.
Buy it on an Exchange
Marketplaces called Bitcoin exchanges let you sell or purchase Bitcoins using different currencies.
You can even ‘’mine’’ Bitcoins by competing to solve complex math puzzles. However, computer costs and the necessary technical expertise makes this option unfavorable for most people.
Fig. 3 – Bitcoin ATM
Best Bitcoin Wallets
Some of the best and reliable digital wallets include:
- Robinhood Crypto
- Trezor Model T (Hardware Wallet)
Fig. 4 – Crypto Transaction using Hardware Wallet
How to Trade with Bitcoins
Since it is highly volatile cryptocurrency, Trading cryptocurrency is risky. However, you can follow the steps below for trading.
- Understand Bitcoin’s Price Movement
- Pick a Trading Style and Strategy
Understand Bitcoin’s Price Movement
To gain from a surging opportunity, you need to first understand the factors that affect it’s price:
- Bitcoin Supply
- Key Events
- Bad Press
The integration of bitcoin into banking frameworks and new payment systems undoubtedly influences its public profile. You can expect a positive effect on bitcoin prices when this integration process is carried out successfully.
The current supply of this cryptocurrency is predicted to be exhausted by 2140. With this timeline, there would be an increased demand for Bitcoins with a corresponding increase in prices.
Macroeconomic bitcoin announcements, security concerns, or regulation changes affect the prices.
News concerning the longevity, coin value, or its security is bound to produce negative implications on the coin’s overall market price.
Pick a Trading Style and Strategy
There are several Trading Styles and Strategies one can follow and they are:
- Day Trading Bitcoins
- Trend Trading
- HODL Strategy
Day Trading Bitcoins
Here, you open and close a position within a single trading day. This strategy lets you avoid overnight funding charges on your position. Choose this, when you are looking to profit from short-term price variations and make the best of its daily volatility.
This strategy is adapting your position to the current trading trend. Should the trend reverse or slow, consider closing your position and begin a new one that matches an emerging trend.
Hedging helps to mitigate your risk by letting you take an opposing position to an already open position. It is ideal when you are concerned about markets moving against your interests.
This strategy involves purchasing and holding on to your trade. However, remember to hold only when you have a positive outlook on the Bitcoin’s long-term price. Stop the losses if your trading plans and research suggest to sell your position and make a profit.
Determine a Method to Get Exposure to Bitcoin
Getting exposed to the cryptocurrency market can be done in several ways:
- Purchasing Bitcoins through an Exchange
- Trade Bitcoin Derivatives
- Determine your Stops and Limits
- Monitor your Trade
- Close your Position to Cut Losses or Sweep Profits
Purchasing Bitcoins through an Exchange
Choose this option if you are planning on a buy-and-hold bitcoin strategy. Buying Bitcoins through an exchange will give you direct ownership with an exception of a rise in it’s price.
Trade Bitcoin Derivatives
Here, you will not have outright Bitcoin ownership but will be speculating its prices with CFD’s. You will thus be able to take a long or short position based on the rise or fall of Bitcoin prices.
Determine your Stops and Limits
These are crucial risk management tools that will help to reduce losses. They help to lock in profits by following the market movements and closing your position at set levels.
Monitor your Trade
Typically, a Bitcoin trade is opened by buying when the price rise and sell when the price falls. Once open, ensure to monitor the market and analyze if it is moving in your favor. You may even seek some technical indicators to determine what the price might do next. These indicators also assist in investigating market sentiments and conditions like volatility.
Close your Position to Cut Losses or Sweep Profits
You are free to close your position upon incurring losses or take a profit. While profits are directly credited to your trading account, losses will be deducted from your current account balance.
Fig. 5 – Image of Price Chart as on 28-12-2020
If you have wondered about Bitcoin’s soaring popularity, here are some reasons that make it so great:
Return on Your Investment
Bitcoin is not just a popular cryptocurrency but also makes for a lucrative means of investment. The rising hash rates of bitcoin networks only attests to investors recognizing its profitability potential. This tradable asset has a unique store of value and has proved to deliver an unparalleled return on investments. Bitcoin payments also have low transaction fees and facilitate cross-border transactions with little friction.
Low Risk of Fraud for Buyers
Bitcoin buyers can make purchases without divulging sensitive financial data to the sellers. Unlike most credit cards, you get to enjoy a greater degree of financial anonymity. Although Bitcoins are digital, they are not susceptible to hacking attacks and also safe from targeted data breaches.
Privacy, Anonymity, and Security
When compared to other traditional financial arrangements, Bitcoin gives you more control over furnishing financial data or personal information. It implies you face a lesser risk of identity theft than users of other digital payments like credit cards.
Ease of Use
When it comes to international transportation of Bitcoins, all you need is a memory stick for the job. This currency can be used in multiple countries without the worry of dealing with local banks and currency conversions.
Reduced Inflation Risk
With Bitcoins, you can enjoy zero inflation risk. They were introduced with the sole purpose of being finite. Thus, there are reduced possibilities of excess currency being issued and thereby mitigating the risk of inflation.
Bitcoins are no longer a marketing gimmick but a standard currency used by thousands of business establishments. While it is incredibly volatile and speculative, understanding its trading mechanisms can give you superior profits over traditional methods.
Disadvantages of Bitcoin
- This currency is not widely accepted.
- Lacks buyer protection.
- Unknown technical flaws might exist as its a new system.
- There is no valuation guarantee for Bitcoins.
- It encourages illegal users.