This article was originally published by the Santa Barbara News Press on May 27, 2023. You can view the original article here.
When the cryptocurrency, Bitcoin, first came to the marketplace in 2009 at $0.0009 per coin, most of us in the financial services world thought of it as an odd concept at best and a scam at worst.
Jamie Dimon, one of the great minds on Wall Street, thought of it as a Ponzi scheme of sorts.
Here we are, 14 years later, and Bitcoin, as well as many other cryptocurrencies, are as prominent as ever! Bitcoin got as high as $68,789 per coin!
Today it is trading in the $26,000 range.
Prominent politicians, such as Miami Mayor Francis Suarez and well-known athletes such as Odell Beckham, Jr. receive their salaries in Bitcoin. A lot of money has been made and lost with Bitcoin! Just imagine, if you were the first trader of Bitcoin, (5,050 coins for just over $5), today that trade would be worth $131,300,000!
A cryptocurrency is an algorithm.
It is any form of currency that exists digitally or virtually and uses cryptography to secure transactions.
Cryptocurrencies do not have a central issuing or regulating authority. Cryptos instead use a decentralized system of recorded transactions and issue new units. It’s a digital payment system that doesn’t rely on banks to verify transactions.
Cryptocurrency is a “peer-to-peer” program that can enable anyone anywhere to send and receive payments.
Instead of being physical money carried around and exchanged in the real world, cryptocurrency payments exist purely as digital entries to an online database describing specific transactions.
Cryptocurrency received its name because it uses encryption to verify transactions. The aim of encryption is to provide security.
The first crypto was Bitcoin, which was founded in 2009 and remains the best known today.
While many choose to hold onto their digital assets for the long term, others are enticed by the potential quick profits offered by short-term crypto trading. Much of the interest in cryptocurrencies is to trade for profit, with speculators at times driving prices skyward!
Short-term trading allows investors to capitalize on price volatility within the crypto market. Traders aim to exploit price fluctuations, profiting from both upward and downward movements. By leveraging technical analysis and market trends, skilled traders can identify short-term opportunities and potentially generate significant returns.
Cryptocurrency markets operate 24/7, providing traders with ample liquidity for executing trades. Unlike traditional financial markets with limited trading hours, the crypto market’s constant availability enables traders to enter and exit positions swiftly.
Short-term crypto trading may allow investors to diversify their portfolios beyond traditional assets. Cryptocurrencies also have a low correlation with traditional financial markets.
By incorporating short-term crypto trading, investors can potentially mitigate risks and explore new opportunities in a rapidly evolving sector.
While volatility can be an advantage for short-term traders, it is a double-edged sword.
Cryptocurrencies are notorious for their price swings, which can result in substantial gains or equally significant losses within short timeframes. The unpredictable nature of the market exposes traders to heightened risk, making it crucial to employ robust risk management strategies and set stop-loss orders to limit potential losses.
Short-term trading demands constant attention and quick decision-making. The fast-paced nature of the crypto market can induce emotional pressure on traders, leading to impulsive and irrational decisions.
Fear and greed often drive short-term trading, which can cloud judgment and result in poor trading outcomes. Maintaining discipline and a rational mindset is paramount for successful short-term trading.
Short-term trading can involve frequent buying and selling, leading to increased transaction costs. Crypto exchanges charge fees for every trade executed, which can eat into profits, especially for high-frequency traders. Additionally, tax implications vary across jurisdictions, and short-term trading may bring higher tax liabilities due to the increased frequency of trades.
Short-term crypto trading can be a lucrative endeavor for skilled traders who are well prepared, disciplined, and capable of managing the inherent risks. While it offers the potential for quick profits and portfolio diversification, it demands constant attention, knowledge and emotional control.
Cryptocurrency, an investment that seemed silly in 2009, has developed into an important part of the current investment arena.
Invest prudently, and remember to stay the course!
Tim Tremblay is president of Tremblay Financial Services in Santa Barbara (www.tremblayfinancial.com).