Bitcoin Trading – Profit From a Falling Bitcoin Price

Venzen Khaosan @venzen
January 15, 2015 12:36 UTC

Bitcoin price has been declining for a year to the consternation of those who want Bitcoin’s price to appreciate, so they can cash out some of their Bitcoin holdings at higher prices for a profit. Many Bitcoin holders may be surprised to learn that it is possible to make equal profits, during times of falling Bitcoin prices, as when the price is rising.

Investing in Bitcoin vs. Bitcoin Trading

Trading and investment are very different ways of gaining profit from the market.

Buy-and-Hold Investment – Waiting for Profit

Investment is typically a Buy-and-Hold approach that seeks to buy an asset when its price is low and to sell it later for a profit when the price is high. The timescale of investment is usually long-term (months or years) and, as a result of the sheer span of time involved, investors assume an easy-going and low-intensity approach to the market.

If an investor buys 10 BTC at a price of $200 each (total assets: $2,000) then, months later, when the Bitcoin price has risen to $800, his Buy-and-Hold investment strategy would see his Bitcoin holding grow to $8,000 for a profit of $6,000. The market then drops from $800 back to $200 over a period of three months during which time the investor must wait for his opportunity to buy for the next profitable run.

Actively Trading for Profit

Market Trading is the activity of seeking regular profits from market moves.

Some traders may operate like Buy-and-Hold investors and only ever buy low to sell high. They could do so on a daily basis, over weeks or even months – buying on the dips and selling when they think the price is at a high, before dipping again.

However, the market moves up, and it moves down, and brokers (some exchanges also act as brokers) offer traders the ability to enter both long and short trade positions. To buy the market “long” means “to bet that price will increase” and to “short” sell the market means “to bet that price will decrease” and to profit when it does.

The facility to long and short the market is dependent on the trader opening a margin account with their broker (exchange). Funds in the margin account are held (by the broker) as collateral on any long or short positions a trader may take.

A trader funds his margin account with 10 BTC and buys the market “long” from a price of $200 to $800. This is the same scenario as with the investor example, above. However, when the market declines from $800 to $200 the trader can “short” sell the market for equal profits as he made during the rising market. The investor has to wait for the next rally to see profits, but the trader can turn a profit in either market direction.

Learn How to Short the Bitcoin Price

xbt.social offers subscribed members with resources for learning how to profit when the market moves up, as well as when it moves down, like during the recent year-long Bitcoin price downtrend.

It is not enough to only know that you can short sell the market – traders need to learn how to do so effectively and with a rational Trading Method. In addition to a disciplined method, traders should Money Management and Risk Management policies that govern their trading activities.

xbt.social offers members the education and practice they need to develop a comprehensive trading methodology and money/risk management toolset.

Buy-and-Hold Bitcoin investors have endured a year of Bitcoin price decline with no profit (and, perhaps, even losses). Traders, who understand how to profit from both rising and falling markets, have had it good. They’ve been able to glean the same amount of profit from the Bitcoin price falling to annual lows as they did when it initially rallied to its all-time high.

Membership costs $95/month, and interested readers will receive $46 discount if they are amongst the first one hundred subscribers to apply. Visit https://xbt.social and use token first100 to qualify.

Images from Shutterstock.

Last modified: July 12, 2015 12:17 UTC

Venzen Khaosan @venzen

Market analyst and Open source developer with a keen interest in blockchain technology, consensus mechanisms and the decentralizing effect. He has found a solution to the PKI mechanism. Email me to discuss.