Bitcoin – Buy? Sell? Or Sit Back and Enjoy The Show? 17/12/20

Bitcoin is famous for putting on a show but it is currently excelling in terms of price volatility even by its own standards. It’s a high-risk market and there are chances to make dramatic profits or losses. Is this a buying opportunity, a shorting opportunity or a chance to sit back with some popcorn and enjoy the show?

From the low point of the 26^th of November to the high-water mark of the 17^th of December Bitcoin has increased in price by 46.25%

Source: Tickmill

The peak to trough price change in the two trading sessions of Wednesday and Thursday of this week have posted a price increase of 22.94%

Source: Tickmill

Who are the buyers?

Some experienced players in the crypto market have been asking who is behind the recent buying activity. The price rise is eye-watering even for Bitcoin, which suggests a groundswell of buying power.

Is Bitcoin going mainstream?

Speaking with Yahoo Finance, Lucas Huang at the currency exchange platform Tokenlon said it was “surprising” that Bitcoin had hit an all-time high. He added, “It may be a sign that institutional buyers have a bigger play in this bull run.”

Source: Yahoo Finance

Reports that adoption of the crypto will become more mainstream come and go. Noises currently emanating from the market are that Starbucks and Microsoft might look to use Bitcoin more widely. Whether that comes to fruition is debatable; Bitcoin is a long way from being the crypto best suited for making transactions.

Fears about fiat currencies could be spurring on the Bitcoin price

The US Federal Reserve met on Wednesday and gave the six-weekly market update. Few were surprised to hear that Fed chairman Jerome Powell would be pumping extra liquidity into the financial markets.

It’s strange to think an unregulated internet-based accounting system developed within the last 12 years could be regarded more highly than the US Dollar. But the price move could partly be put down to BTC’s role as the ‘new gold’.

New regulations will restrict the ways you can buy Bitcoin

Those who are half-tempted to take a position would do well to note that new regulations are coming into place in January, which will make it harder for UK investors to trade Bitcoin using CFD instruments.

As outlined here, those who already hold a position won’t be forced to sell, but they won’t be able to add to their position. UK traders make up a small percentage of the global market; however, if retail investors with CFD accounts are rushing to buy Bitcoin while they still can, it would add to the price momentum.

All of the above suggests that the Bitcoin market might at the moment be too volatile for many investors. But you don’t need to be right to make a profit; you just have to know which way price is heading.

There are ways to develop your understanding of the markets and quite how volatile cryptos can be, but not take on any personal risk. The current situation would likely be one where for many, trading using a Demo account and virtual funds is the best way forward.

Nigel Frith

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