Bitcoin Trading in 2020: The Definitive Guide [Revised]
.png)
Bitcoin trading has grown to become more popular than ever in 2020, and while some feel as though they missed out on the more lucrative early days of cryptocurrency trading, others can see that 2020 is primed to be one of the biggest years to date for global virtual currencies.
2018’s long bear market ended in December of that year to allow 2019’s renewed upward price movements and a sign that the trend had changed to being positive once more.
As is the case throughout the life of Bitcoin, upcoming halvenings, like the one in 2020, are typically preceded by increase price growth, which culminates once every 4 years with new meteoric all-time highs.
We’re going to run through all of the important Bitcoin trading considerations in 2020, including what Bitcoin really is and how its technology stands out, the difference between trading and investing Bitcoin, the largest Bitcoin trading platforms in 2020, and the most popular Bitcoin trading strategies available today.
What is Bitcoin
Bitcoin is the most well-known cryptocurrency, as well as being the first to be created way back in 2008 when an anonymous individual or group called “Satoshi Nakamoto” released a research paper outlining their plan for a new type of fully-digital currency.
For much of the earliest parts of its life, Bitcoin lived in absolute obscurity, with only a very small group of people really caring about cryptocurrency at all.
Many people that did come in contact with Bitcoin at that point viewed it as either some kind of scam or just did not trust it because of its low price point at less than $1 back then.
Over time it gradually grew in popularity and usage, and as more people began to make transactions using Bitcoin, its price began to rise exponentially.
Over the years Bitcoin has had 4 major bull runs, one culminating in 2011, two culminating in early and late 2013, and to date, the most well known is the epic bull run that ended with Bitcoin’s current all-time high in December 2017.
How Does Bitcoin’s Technology Stand Out?
While there have been many attempts at creating viable digital currencies in the past, almost all completely failed, with none of them gaining the widespread adoption and usage that has been seen with cryptocurrency.
Nakamoto’s creation was superior to all those that came before, although in truth it was actually a combination of some new ideas with many computational mechanisms which had been invented by others previously.
It’s the clever combination of these different mechanisms that have made Bitcoin resilient to government intervention and hacks from nefarious parties.
One of the most important features of Bitcoin and cryptocurrencies as a whole is their use of blockchain technology, and in particular the application of “Proof of Work” consensus mechanisms.
Proof of Work is used in the way that Bitcoin functions, and is the driving force behind the incentivization of new users to want to contribute to securing the network.
Users can download the Bitcoin software onto a computer, and begin running a program that lets their computer compete in a global competition where thousands of computers are all trying to solve incredibly hard cryptographic puzzles together.
In each 10 minute periods, the computer that solves the puzzle first is rewarded with free Bitcoin, as well as being able to select the next group of transactions to be officially added to the Bitcoin blockchain.
This process incentivizes users to try to solve the puzzles, with the current reward of 12.5BTC being worth over $100,000, while also meaning that any one party doesn’t control who can make Bitcoin transfers.
Trading vs. Investing — What is the Difference?
By far the most common activity undertaken by Bitcoin users in order to make money is some kind of buying and selling of the crypto-asset in order to generate profit.
Both trading and investing fall under this, and both are fairly similar. However, there is a clear difference between trading Bitcoin and investing in Bitcoin.
Trading
Bitcoin trading is one of the most popular ways to make money online in 2020 and has grown from being a few thousand people using simplistic trading exchanges to now being a multi-billion-dollar industry run by some of the most sophisticated technologies on the planet today.
The crux of Bitcoin trading is that relatively short-term trades are made and that this typically involves multiple repetitive trades being made as a part of the strategy.
Bitcoin trading may encompass trades that last for a day or two, or could be anywhere as short as lasting a few milliseconds between a purchase and a sale being made.
Algorithmic trading bots manage a large percentage of all trades being made in the cryptocurrency industry today, and where a human could make a trade every 10 seconds if they were pushing it, bots can be used to make hundreds of quick trades during that same period of time.
Investing
Investing in Bitcoin and other cryptocurrencies have been one of the most reliably profitable activities that could have been taken over the past decade, if not the most reliably profitable.
Where other assets might grow by 300% over 5 years, many cryptocurrencies have grown in value by 10 times that, or more, during a much shorter period.
As a good example, Ethereum is the world’s second-largest cryptocurrency, and the difference in price between its all-time low of $0.42 in 2015 and its all-time high of $1432.88 in 2018 is an ROI over 3 years of over 341,000%.
The distinct difference between trading and investing is that while trading is made up of many relatively short-term trades, investing consists of a smaller number of longer-term trades.
A Bitcoin investor might buying $100,000 of Bitcoin and then hold that for years before selling.
What are the Largest Bitcoin Trading Platforms?
PrimeXBT
PrimeXBT is the world’s largest multi-asset margin trading platform, having built a reputation for providing first-in-class cryptocurrency trading tools, with the addition of important, unique features like no KYC requirements.
The platform lists a wide range of crypto-assets like Bitcoin, Ethereum, EOS, XRP, and Litecoin, as well as a bevy of traditional assets such as the leading stock indices, forex pairs, commodities and metals.
Throughout 2019 PrimeXBT saw expansive growth in its user base as well as trading volume, in part as a response to the continual release of new tools and functionality, in part a result of its widely successful 4-tier referral program, and in part as a byproduct of Bitmex’s well-published exodus of its clients following multiple scandals.
PrimeXBT offers high leverage of all asset classes, with up to 100x on all cryptocurrencies and up to 500x on all traditional assets listed on the site.
The platform’s fees have also been noted by many as being consistently lower than other crypto platforms, with their flat fee of 0.05% being almost 10 times less than Binance’s fees for some users.
Binance
Binance is one of the better known platforms in the cryptocurrency market, and this stems from the successful launch of their own cryptocurrency, BNB, in 2017.
Unlike other cryptocurrency exchanges, Binance has chosen to focus solely on listing crypto-crypto pairs and excludes fiat currencies all together on the site.
While for some this makes sense, it also precludes the ability for users that would like to trade crypto against USD or EUR from doing so, and during that process has somewhat reduced the scope of the platform.
Saying this, Binance has always pushed to list a wide range of crypto-assets on its platform and has also continually developed new concepts and ways to trade.
In early 2019 Binance suffered a large $40 million hack of user funds, which brought into question the platform's security measures. Since then upgrades have been made, however, but it will be interesting to see if these upgrades have now fully secured all funds on the site.
Coinbase/Coinbase Pro
The crypto brokerage, Coinbase, and its exchange counterpart, Coinbase Pro, are two of the more well-known crypto trading platforms online, and in particular, are quite popular amongst institutional investors.
While Coinbase has remained as an important part of the industry, the platforms high fees have alienated a large number of traders, while remaining acceptable for larger investors.
This, and the platform’s poor customer support have been two unfortunate complaints that been commonly echoed by traders.
While this is surely a shame, the platforms have also remained as two of the mainstays in the cryptocurrency marketplace.
What are the Most Popular Bitcoin Trading Strategies?
HODL
“HODLing” is crypto-slang for buying cryptocurrency and holding it for a long period of time, no matter the ups and downs of the market.
This strategy has taken an iconic place in the psyche of the cryptocurrency industry and has become the source of a large number of memes and chatter on various social platforms.
The simplicity of this strategy is its main appeal, especially when considering the significantly higher volatility of crypto-assets compared to their traditional counterparts and the risk that actively trading then involves.
Also throughout the life of the cryptocurrency, HODLing has been one of the most lucrative ways to make money over the long term as a result of the tendency of the value of cryptocurrency to increase over time.
Bitcoin Margin Trading
Bitcoin margin trading is a strategy where traders will borrow funds from brokerages in order to create trades that would typically not be possible but can be some of the most profitable trades that can be made.
Margin trading can be neatly broken down into leveraging and shorting.
Leveraging is the process of borrowing funds in order to create trades that are much larger than would be possible normally.
For example, a broker like PrimeXBT provides leverage of up to 100x, and for any trade that is leveraged at that rate profit that is generated is 100x higher than a normal unleveraged trade.
Small movements in the price of Bitcoin can still generate large returns with the use of leverage.
Shorting is the process of borrowing an asset from a brokerage, selling that asset and then waiting for the price to go lower in order to rebuy the same amount for less, repay the broker, and keep the change.
Shorting is an important part of any trader’s arsenal, as it allows for profit to be generated during bear markets as well as bull markets.
Bitcoin Trading Bots
Trading bots are computer programs that are designed to follow a set of guidelines for when trades should be made.
The aim of using trading bots is to generate profit without the need for a human to constantly watch the markets and make analysis and decisions about it.
There are a wide range of strategies that suit using trading bots, including arbitrage of various different flavors, market making and other forms of HFT (high-frequency trading).
Many pre-built trading bots are available online with a simple search, and for anyone more technically inclined, programming languages like Python and C++ can be used to design and build custom trading bots.
While trading bots sound like the ultimate autonomous money-making machines, widespread competition in the crypto market means that setting up a profitable bot can take a large amount of research, learning, and planning.
The Biggest Risks When Trading Bitcoin
While there are many good reasons to trade Bitcoin and other cryptocurrencies, there are also many risks that it’s important to understand and mitigate against.
The fact that cryptocurrency is largely unregulated has been the reason that people have been able to make fast money in the space, but that risk is also a double-edged sword that is worth understanding as best you can.
Shady Exchanges
The platforms we’ve listed above are not shady, and are actually widely respected in the industry with strong track records for serving their clients well.
However, there are many other trading platforms that are either out-and-out scams or that operate within the grey space between stealing from crypto traders and providing a legitimate service.
Probably the best example of this is the now widely-scorned Bitcoin platform, Bitmex, who has suffered a number of scandals throughout 2019.
Although an investigation by the U.S. CFTC into illegally allowing US citizens to trade on the site was a bad start, the follow up of leaking their client's personal details, as well as being strongly accused of actively trading against their own clients for huge profits has all but destroyed the once clean reputation of the site.
Doing your own research on which platforms are risky, and using common sense and intuition, are all important because many traders have fallen afoul to malicious exchanges over the years.
Listening to “Crypto Trading Gurus”
There are many really smart traders in the cryptocurrency, and some of those are even happy to provide advice publicly on Twitter and other places.
However, there are also a large number of traders who were waiters and taxi drivers 2.5 years ago, who are now spouting crypto trading “gems”, and who really shouldn’t be.
Gathering advice from many sources is useful sometimes when trying to understand sentiment across the market, but basing your trading decisions on any one “guru” is 9 times out of 10 going to be a bad move.
It’s easy to go searching for others that proclaim to be trading experts, and it’s tough to invest the time, effort and money into properly learning about how trading works, but in one of these cases you are basing your decisions on the knowledge you’ve built up from experience, and in the other you are putting your money at huge risk potentially.
Not Having a Solid Plan
Saying that “trading” or “investing” are the right thing to do doesn’t make sense, because both of these activities are comprised of a wide range of different ways to do them.
A quick search for trading strategies will reveal that there are dozens of different ways that money can be made with cryptocurrency.
The best move is to find a strategy that you feel makes sense and is within your capacity to successfully execute, and then to focus on understanding it and everything that is connected to it.
Developing a solid plan is the quickest and easiest way to reduce some of the risks of cryptocurrency trading, and is the best way to stop yourself from diving into trades half-cocked without having plans in place for how to deal with adverse price actions.
In Conclusion: Bitcoin Trading in 2020
There is a wide range of different strategies available for trading Bitcoin in 2020, and an even wider range of different Bitcoin trading platforms to choose from.
Before diving into trading Bitcoin, it is important to consider the options available and look to find the methods and platforms available that when combined will provide the greatest chance for high returns, with the lowest risk possible.
Starting out by researching some of the platforms we’ve mentioned here is a good move, as they are the creme-de-la-creme of the cryptocurrency industry.
Also research the range of different ways that money can be generated on each site is also prudent and may lead to you discover new ways to generate profit using Bitcoin.