HODL Bitcoin or Trade Bitcoin – Crypto Adoptees Reveal Preferences
HODLING. When investors purchase cryptocurrency with the intent of deriving long-term price appreciation, the objective is to incrementally increase BTC holdings over time. The thinking behind this methodology is rooted in the demand/supply function. The supply of Bitcoin is limited to 21 million BTC, and there are currently 18,163,812 Bitcoins in circulation, with 86.49% of Bitcoins already issued.
By deduction, steady demand will invariably lead to higher prices when supply is limited. HODLING is one technique used by adoptees to engage in the crypto market. It assumes a linear progression of the pricing mechanism. The expectation is that long-term appreciation in prices will ensue, allowing investors to benefit from holding this cryptocurrency. It works in a similar fashion to traditional stock market investments where you buy low and you sell high.
Crypto Traders Leverage BTC Price Movements
At a price of approximately $8700 per unit BTC, it is difficult for individual traders and investors to buy complete units of Bitcoin to HODL. Rather, many of these investors purchase fractions of a Bitcoin in the expectation that prices will rise. Another option which leverages the power of Bitcoin price volatility is speculating on the price movement without actually owning the underlying asset.
This is precisely how Bitcoin CFDs work. With Bitcoin CFD trading, it is possible to trade contracts that mirror price movements of Bitcoin based on the price in the underlying market. With CFD trading, leverage is in play. This means that it is possible to trade Bitcoin like BTC/USD with leverage of up to 1:2. Traders with £100 can trade up to £200 worth of BTC in their accounts. Given that this is a highly volatile market, reputable trading platforms limit the amount of exposure that each trader has to Bitcoin.
Consider that forex CFDs can enjoy leverage of 1:30, while stocks CFDs can enjoy leverage of 1:5 at leading trading brokers. With Bitcoin CFDs, no ownership of the underlying cryptocurrency takes place. All activity revolves around expected changes in price, with buy/sell positions taken out on these financial instruments. The volatility of BTC/USD, while a daunting proposition for some, is precisely the reason why it can be a lucrative financial instrument. Profitability in either direction is possible – up or down, provided the price moves in the direction of the contract at expiry time.
Naturally, there are inherent benefits to trading rather than owning Bitcoin. For one thing, CFD traders needn’t be concerned about theft of their digital currency at cryptocurrency exchanges, or via paper wallets, external wallets, et al. The security of regulated trading platforms ensures that the trades are locked up tight from inception to maturity. The multi-step process of registering for a Bitcoin wallet, depositing funds into an exchange, and worrying about safety issues is a nonstarter.
With reputable trading platforms, it is a simple matter of registering, validating account information, and trading Bitcoin CFDs. Perhaps the most notable benefit of CFD trading is that it is possible to profit in either direction, unlike traditional trading where appreciation must take place. While leverage is often regarded as a positive, it can cut both ways and caution is advised. Assuming you cover the spread with a Bitcoin CFD, you’re in the money.
Likely Price Movements with BTC
Source: Plus500 UK (BTC USD)
Current trader sentiment is strongly bullish with BTC USD. With a spread of around 36, and a spread percentage of 0.41%, leverage of 1:2, and an initial margin of 50%, the projection for the majority of Bitcoins CFD trades favors buy options. Over the past 1 month since December 16, 2019 when the price of BTC was $6,880, the price has appreciated sharply to around $8,700 per unit BTC, supporting current bullish sentiment. Hovering around 2-month highs, the price of BTC certainly warrants positive expectations. All trading decisions regarding BTC must be assessed under current market conditions which can change sharply, even at a moment’s notice.
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Michael Grub, Khareem Sudlow