If we were to make a list of some of the most volatile elements in the world, there is no doubt that cryptocurrencies would be at the top of it. Because of the tug-of-war-like action between buyers and sellers in the crypto market, the volatility in crypto and especially Bitcoin (BTC), can be extremely high, causing wild swings in prices. That’s exactly why savvy bitcoin traders love riding extreme fluctuations to make profits. However, while there are considerable profits to be made, it also carries the risk of hefty losses.
With the collapse of FTX, the second-largest cryptocurrency exchange in the world, cryptocurrency investors were rushed to withdraw their coins from unregulated exchanges. In just two days, cryptocurrency prices plummeted, with Bitcoin losing 24% of its value. Even as the crypto market calms and implied volatility continues to rise, it attracts some brave bitcoin traders who love to trade high volatility and high skew markets.
What Is Bitcoin Volatility?
Bitcoin volatility is the measurement of all price changes (Ups & Downs) within a certain timeframe. There will also be little volatility if Bitcoin price trades sideways when buyers and sellers are at a similar level. However, such phases are rare in Bitcoin and other cryptocurrencies, as their prices are usually characterized by wild fluctuations.
Bitcoin’s unrestrained volatility is one of the reasons new investors are so hesitant to invest in cryptocurrencies. While it is true that bitcoin traders have lost millions because of high volatility, many have also become billionaires because of it as well.
Nevertheless, Bitcoin volatility and resulting fluctuations in Bitcoin price aren't necessarily harmful. A rise in volatility does not always lead to a negative outcome, and it was volatility that caused Bitcoin's rise from $4,000 to $50,000 between 2020 and 2021.
There is a double-edged sword when it comes to Bitcoin volatility, which can either bring you substantial gains or increase your chances of losing everything. Bitcoin is a volatile asset that requires a great deal of caution and research before investing. And that’s the main reason why bitcoin traders are more inclined to ride on it in the short term for profit.
Important note: Anyone investing in cryptocurrency should be aware of the inherent risks associated with such markets. Prices can quickly dip or soar at any given moment, making for much more volatile market swings than any traditional market. Don’t take the risk unless you’re able to understand this market and are willing to invest in uncertain trade.
How do Bitcoin traders earn profits?
Bitcoin trades rely on timing the market, which basically entails the act of buying low and selling high. The difference between investing and trading is that investing involves holding Bitcoin for the long run, while trading involves
Trading cryptocurrencies like bitcoin requires short-term strategies that take advantage of price and market fluctuations. In most cases, traders don’t pay too much attention to the fundamentals of a cryptocurrency, instead choosing to speculate on how its price will change to make a profit within a short time frame.
Despite the fact that Bitcoin’s rally in 2022 has been marked by pullbacks and rebounds, resulting in lower positions than last year, it remains highly volatile, creating opportunities for short-term trading.
Bitcoin traders frequently use market news and technical indicators to make decisions about their trades. Conversely, as compared to investing, trading cryptocurrencies usually carries a lot more risk and requires more work than investing.
Why Is Bitcoin So Volatile?
The volatility of Bitcoin reached 8% between October 2017 and January 2018, double the level it reached in early 2020. The price of Bitcoin trades in April 2021 was $65,000. However, after China shut down mining farms and Elon Musk deemed Bitcoin’s environmental impact damaging, its price fell below $30,000.
Let’s take a look at the following factors to better understand why Bitcoin’s price fluctuates:
- Limited regulation: Crypto markets do not have a central authority that can intervene when volatility exceeds a certain level. Moreover, manipulators are more likely to run schemes that contribute to high volatility without targeted anti-market manipulation laws. While several anti-fraud laws exist that can stop market manipulation, tracking people through messaging groups who run and participate in pump-and-dump schemes is difficult.
- News events: The price of Bitcoin trades falls when bad news breaks and rises when good news breaks. As an example, Bitcoin’s price fell by 10% when Elon Musk tweeted that Tesla no longer accepted Bitcoin as payment. As soon as Tesla announced that it would restart Bitcoin trades once it mined BTC with cleaner energy, the price rose by 9.60%. Many Bitcoin traders make decisions based on crypto-related news. In the event that they hear good news about Bitcoin and see that the price is increasing, they become FOMO-driven and decide to stake their money in it.
- Public perception and speculation: Bitcoin trades are often viewed as having no intrinsic value, instead they are viewed as a form of trust. As a result, public perception is crucial. Since Bitcoin trade is decentralized, its value is determined by speculation. Most people invest in Bitcoin because they hope its price will rise in the future, unlike the stock market, where they invest based on a company’s performance. As a result, there are a lot of guesses and speculations.
When people invest in stocks, they know they will receive dividends, but with Bitcoin trades, there are no dividends, and there is no guarantee that they will see a return. The whole point of the Bitcoin trade is to make good guesses. If you predict the price will go up and buy before it does, you will profit. When the price of Bitcoin goes down, you will also make money from short-selling it. As a result of these speculations-based bets, Bitcoin trades have an extremely volatile price.
Take a closer look at why experts think Cryptocurrencies are solely used for speculation.
How To Profit from Bitcoin’s Volatility?
If you’re new to crypto, high volatility may seem daunting, but successful crypto traders agree that it’s not a bad thing. If you have a solid trading strategy, you can profit massively from Bitcoin volatility. Here’s an effective strategy for Bitcoin traders to succeed in volatile markets.
Short and Long Bitcoin
Essentially, long and short positions represent the two possible directions in which the Bitcoin price can move. Long positions are taken by Bitcoin traders in the hope that a price increase will occur from a certain point on. The trader is said to be “going long,” or buying the cryptocurrency. Consequently, a Bitcoin trader “goes short,” or sells the cryptocurrency, when he expects the price to decline from a given point.
A bullish market will, therefore, have more long positions than short positions, as more traders wish to benefit from the price rise. Consequently, in a bearish market, short positions are generally more prevalent than long positions. In any case, this is merely an observation and not a rule. Professional Bitcoin traders typically buy dips and sell rips – i.e., they open long positions when the Bitcoin price retreats from its recent peaks and sell it when it tests resistance levels.
Bitcoin can be actually traded long or short without being bought or sold, which is different from spot exchanges. It is possible on derivatives exchanges where CFDs, futures, options, contracts for differences, and other derivative products are offered. Using derivatives, you can trade long and short positions on cryptocurrencies without owning or dealing with them physically.
Bitcoin Trading: What is the best time to open a ‘long’ position?
Traders should buy Bitcoin when they expect its price to rise!
Depending on the time frame with which you are operating, you may be interested in going long when the price of a Bitcoin trade is about to go up. For instance, a trader who trades on a daily chart and believes that the price will go up in the following days or weeks could consider going long.
More than anything else, it is crucial that any decision you make is supported by fundamental or technical analysis. Furthermore, in order to accurately understand the market sentiment, you should be very active on social media and read the news regularly. You can also examine the charts for patterns and determine, for instance, if there have been any breaks above important resistance lines, which could indicate the continuation of an upward trend.
It doesn’t matter what kind of analysis you use, if you plan to go long, you should be confident that the price will go up. You’ll end up going against the market otherwise.
Bitcoin Trading: What is the best time to open a ‘short’ position?
Shorting a Bitcoin is a good strategy when traders expect its price to decrease!
When you expect the price of Bitcoin to decline for some time, you may want to consider going short on it. However, as discussed above, you should base your decision on solid market analysis. An overbought market, i.e., one that has increased for a long period of time and the uptrend might have saturated, is usually when short-sellers open their positions.
It is also a good idea to go short when the price can’t break a resistance level and is deviating from it. Cryptocurrencies are still at an emerging stage, so Bitcoin and altcoins are prone to sharp fluctuations without a clear fundamental basis to back them up, making the analysis process tricky. If you wish to go long or short in the market, you should always keep an eye on all the factors impacting it.
Bitcoin Trading: Where can you go long or short?
You can trade cryptocurrency long or short on any exchange or trading platform!
There are a variety of different trading strategies that you can use when trading bitcoin, including going long or short. Typically, shorting bitcoin is used as a way to profit from downward price movements, while going long is used to take advantage of upward price movements.
Some factors to consider when deciding whether to go long or short bitcoin include market conditions, your risk tolerance, and the amount of leverage available to you. Before making any trading decisions, it is important to carefully assess these factors and develop a trading strategy that aligns with your individual goals and risk tolerance.
If you are new to bitcoin trading, it can be a good idea to start out by practicing in a demo trading account before risking any real capital. This will allow you to get comfortable with bitcoin trading and develop strategies that work best for you. With the right approach, you can potentially achieve significant returns when trading bitcoin, regardless of whether you are going long or short.
However, for Crypto trading to be successful, you must choose the right platform and equip yourself with the right tools. The first step in Bitcoin trading is to register with a crypto trading platform, buy digital assets with your currency, and trade them for one another.
How to choose the bitcoin trading platform?
There are a number of factors to consider when choosing a bitcoin trading platform. These include the fees and commissions charged, order types available, and the level of security provided. You should also look at how easy it is to use the trading platform, whether there is customer support available, and how liquid the market is for bitcoin trading. If you are new to crypto trading, it’s important to do your research and choose a platform that is suited to your needs and experience level. This will help ensure you have the best possible experience trading cryptocurrencies and maximize your returns over time.
What is the future of bitcoin trading?
There is no doubt that bitcoin trading will continue to be an important and growing market in the years ahead. As more people become aware of bitcoin and its many benefits, we are likely to see increased demand for this digital currency and a corresponding increase in bitcoin trading activity. Some experts even predict that bitcoin could eventually replace traditional currencies as the global standard for financial transactions.
Whether bitcoin trading continues to grow and evolve in the coming years will largely depend on regulatory and legislative developments around the world. Some governments have expressed concerns about bitcoin’s potential impact on their national economies, while others are actively working to develop new regulations and policies that will support this growing market. Ultimately, bitcoin trading may continue to be volatile as it continues to gain traction and acceptance as a mainstream financial asset. However, with the right approach and proper risk management, bitcoin trading could provide significant returns for traders of all experience levels in the years ahead.
Advantages of Trading Bitcoin with a Leading Platform
AximTrade is a multi-award-winning global retail brokerage devoted to providing clients and partners with comprehensive financial services to help them achieve their financial goals. Transparency and integrity are at the core of AximTrade’s corporate values and quality standards, making it the best broker worldwide.
- Wide variety of cryptocurrencies: With AximTrade, crypto traders of all levels have access to 36 cryptocurrencies, including Bitcoin, Ethereum, Binance Coin, Dogecoin, and nearly every other top cryptocurrency, to create a comprehensive crypto trading experience.
- Top Payments Tokens: AximTrade allows cryptocurrency traders and advocates to deposit and withdraw USDT(TRC20), USDT(ERC20), and BEP-20 in a matter of seconds from anywhere. Moreover, cryptocurrency withdrawals at AximTrade are commission-free.
- The Lowest Spread and Margin: AximTrade’s spreads and margin requirements are among the lowest in the market. Bitcoin traders have access to a variety of tools and trading instruments in order to execute their trades with confidence. Consequently, you will be able to generate impressive earnings and reduce the risks associated with Bitcoin volatility.
- Secured Trading Accounts: All client money at AximTrade is transferred into a separate account that complies with the requirements of the Financial Services Commission. The funds you invest with AximTrade will never be used for operational activities or connected to any hedging counterparty.
- All-In-One Trading App: Experience a whole new level of trading with the AximTrade mobile trading app. With the AximTrade app, you can manage your accounts with just one click, equipped with all the necessary tools and features for seamless and effective trading. AximTrade trading app is available both on App Store and Google Play for mobile trading.
Hopefully, this article has helped you gain a better understanding of Bitcoin trading despite sky-high volatility. Now is the time to put your knowledge to work for you.