In the last few years Bitcoin has held the headlines in many financial newspapers/websites, with pro and con camps trying to explain the benefits or dangers of this strange cryptocurrency. Inevitably, as Bitcoin has grown in value and popularity, so has the rate it is being traded at – although as we will see a little later, it is more like gambling. It comes as no surprise then, that many traders are seeing Bitcoin as a new path to make a quick buck – but whether this path to wealth is viable or not – remains to be seen.
The way that the financial system has been built, and the way that it functions, makes it difficult for something like Bitcoin to exist. Yet here we are a few years on, and Bitcoin is most definitely prevailing. Many merchants now even offer it as a viable currency alongside the mighty US dollar, but is it really as good as it seems?
As with many things, it’s not that simple. Central banks and analysts around the world have given warnings about the dangers of owning Bitcoin as a currency. They say it needs to be regulated, like the Federal Reserve for the US dollar, the ECB (European Central Bank) for the Euro, the BOJ (Bank of Japan) for the Yen, and so on.
With all ‘normal’ currencies, every Central Bank meets regularly to assess the state of the economy of the country in question. They set their own monetary polices accordingly, and regard every change in the value of their currency in acute detail. This is currently impossible for Bitcoin.
First of all, there is no ‘jurisdiction’ for it, in the sense that there is no economy to compare it to, because it belongs to a virtual environment. Having no ‘real’ territory, classical economic concepts can’t be applied with Bitcoin. We are entering completely unchartered territory with this cryptocurrency, and who knows whether the wind will blow in its favour or not.
Secondly, technical analysis concepts like the Classical Bullish Divergence (shown below) do not really work in the case of Bitcoin, simply because there is no counterpart currency to weigh it against when it comes to fundamental analysis. And we all know that technical and fundamental analysis should go hand in hand when it comes to trading.
Last but not least, considering how new Bitcoin is, there is no historical data to base any analysis on. If you try to open a Bitcoin chart on any broker and look at the monthly chart, the result will look something like this:
Successful trading has always relied on historical prices and a huge amount of thorough analysis. One should look at the biggest time frame possible – scrutinizing the whys and hows of every peak and trough – with the analysis running all the way up to the present day. No one can trade BTC based on the monthly chart because the number of candles is far too small. Hence, you have nearly an equal chance of succeeding with bitcoin gambling as with trading this cryptocurrency.
In the end, Bitcoin simply needs more time, and more history behind it to see what pattern is forming in the market. It is impossible to tell what direction it is going to take in the future, so at present, trading in Bitcoin really is a gamble.
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