Q: Why haven’t big companies gotten involved and pushed people out? There are reports of major traders like JP Morgan and Goldman Sachs visiting Bitcoin exchanges. Since trading is anonymous, it’s impossible to know if they’re getting involved or just keeping an eye on a future opportunity. Most guess that if they are not involved yet, they will be eventually.
But you shouldn’t worry about huge banks going all-in on Bitcoins simply because they have better things to do (if you had a couple billion lying around, you’d probably feel the same way).
With those caveats out of the way, it’s time to decide on your investment strategy. Are you in it for the long haul, or are you trying to get in and out and make a few bucks? Both are okay, but you should be clear on your plans ahead of time. If you want to make money quickly, you will need to spend a lot of time online looking at exchange rates.
The goal, as they teach in every Business 101 class, is to buy low and sell high. As a day trader you are looking for sudden spikes for selling and sudden dips for buying.
It’s easier if you work in just one traditional currency such as dollars or Euros, but it’s possible to make more money if you are freely trading amongst all three. If you go this route, keep careful tabs on how much money you’ve earned or lost.
It’s easy to get emotionally involved in the process and feel like you’re doing well, when you really aren’t. If you find that you are consistently losing money, you either need to try a different approach or accept that you don’t have the knack for day trading.
If you are particularly disciplined, you can even start off with some virtual trading. Give yourself an amount of money and then just note when you would buy or when you would sell, and calculate the changing value of your portfolio (don’t forget about those transaction fees).
After a few days, see how you did and try to find ways to improve your performance. A dry run can expose flaws in your plan before you burn through your savings.
If you want to take a longer approach to Bitcoin investments, then you really just need to decide on two numbers: how high or how low does Bitcoin have to go before you sell? Choosing the high number determines how much money you consider a good return on your investment, and the low number is how much you are willing to risk.
Checking prices once per day is enough to keep tabs of a long-term investment, though you should rush to the exchanges if you hear about any major news that could affect Bitcoin. One last thought; it doesn’t always make sense to go along with the herd.
If Bitcoins are plummeting you might want to sell what you have to limit your losses, but when everyone else is worried that they might cease to exist, it could be the best possible time for buying in.
If the Bitcoin is ever severely depressed in value, then you will have the opportunity to make a high-risk, high-reward investment, just like the early adopters did.
This is not saying you should do it, but you should be aware of the possibility so that you can make your own decision, instead of just going along with what everyone else thinks.
We’ve mentioned before that every new block puts more Bitcoins into circulation, currently 25 BTC per block, but that amount will continue to half until it effectively reaches zero and then no new Bitcoins will be produced. In theory there will be 21 million BTC in circulation at that point, but the reality is that there will be quite a bit less.
Every time someone loses a wallet or a private key, the Bitcoins that were lost are truly lost. Not just to that individual, but to the entire Bitcoin economy. Even before new Bitcoins cease to be produced, the stream will slow to a trickle, and the value of the currency will begin to deflate.
In other words, Bitcoins will become worth more and more over time. There are plenty of examples of out-of-control inflation, just think of post-war Germany or Zimbabwe a few years ago.
But, we’ve never seen steady deflation before. It’s a unique situation and one of the reasons that some people are making long-term investments in Bitcoins. You’ll have to do your own research and make
up your own mind about this, but if you believe that Bitcoins will still be used twenty years from now, then they will almost certainly be worth quite a bit more. Compared to traditional currencies, which will certainly be worth less, that’s a pret- ty good deal.
That’s a great question, and frankly no one knows the answer. The only consensus is that there will be slow, steady deflation.
Most economists agree that steady deflation is bad for a currency, but then most economists thought that the world economy was perfectly stable in 2007 — therefore take their opinion with a grain of salt. The reality is that there has never been a steadily deflating currency, so we’ll just have to wait and find out.