Short Term Archives

How can I invest in Bitcoin Profitably? – Part 1

Posted on February 20, 2017 | by [email protected]

Bitcoin has showed great character during 2016 and the start of 2017 as an investable asset providing good returns to its investors. Its high non-correlation with other commodities made it a very important portfolio diversifier which found its place in the portfolios of even institutional investors. With growing adoption levels, predicted potential and rising prices people have moved on over the question on whether they should be investing in Bitcoin. Rather, they are now exploring for ways to invest in Bitcoin and reap the benefits of steady increase in value and short term volatility. People have indeed stumped me with questions on how the investing procedure is different from currency trading or about its similarities with commodity trading. Given Bitcoin’s analogousness to Gold and its defined characteristics of mimicking a currency, it often becomes difficult to understand how to treat the digital asset in terms of investment. To clear out the uncertainty and let know people of various investment methods in Bitcoin, I decided to chalk out few means that might help everyone to the best of my knowledge. I broadly classified them into long term and short term basing on the time frame to expect returns.

Direct Investment – Long Term (Buy and Hold):

As stated already, Bitcoin acts both as commodity and currency. You can own Bitcoin as an asset or spend it as any other currency. This means that Bitcoin would be influenced by a unique set of fundamentals that might affect currency and commodity markets respectively. But more importantly, Bitcoin fundamentals relate to the increase in the adoption of the digital asset, venture capital movements, implementation of disruptive technology and Chinese market dynamics.

A long term investment in any market would involve investment of heavy capital with heavy reward expectations. In Bitcoin market, with the prices moving more than 150% in an year, a long term investment for good returns might range somewhere between just a few weeks to an year depending on the market momentum. For taking a long term position in the market, it’s always imperative to get a clear idea of the existing market trend. Since Bitcoin market is bullish in the long run and with the adoption levels always on the rise, it is wise to only go for buy side investments in the market. Shorting wouldn’t reap long term profits and might backfire if the market becomes heavily bullish. Therefore, with a good entry position having strong support and good risk to reward ratio, one can reap good amount of profits from the trade. More often than not, price targets would be a better judge of exit positions than the time period in volatile markets.

Direct Investment – Short Term (Algorithmic Trading):

Bitcoin markets are blessed with volatility that will attract automated trading practices which contribute to the dense volumes observed in the digital currency recently. Short term trades that help in quickly scalping money from Bitcoin markets can be done algorithmically. While these trades are very effective in making money in quick time, strict safeguards have to be placed for quick shift in market dynamics that might lead to losing heavy money if caught in the opposite direction of the market.

These trading soft wares have to be updated regularly to adjust to the changing market dynamics and updated compliance regulations.

Further investment methods to be revealed in consequent parts of the posts.

Bitcoin Price Analysis: Hyperinflation to push the price higher?

Posted on October 18, 2016 | by [email protected]

Second week of October has started off with a break out propelling the market to over $620 level. The bullish trend continued with the market trading all the way to $640 before turning sideways on short term frame. The market has traded scantily over the $620-$630 region with no good residual volumes. While the long term setup still looks bullish, let’s see if hyperinflation can push the prices higher for the coming week:

Fundamental Key Points:

The adoption of the cryptocurrency and its underlying technology has always been fundamentally positive for the Bitcoin ecosystem. Here are few highlights of the past week fundamentals that might continue to have effect on the prices:

Bitcoin Trading on LocalBitcoins surges in Europe to all time high, turnover in Turkey and Venezuela explodes due to hyperinflation
Japan to drop Bitcoin sales tax by 8%
SEC Seeks Additional Comment on Winklevoss Bitcoin ETF
Polish Parliament Holds Public Consultation on Cryptocurrency
The Russian Government is Testing Blockchain for Document Storage
Bank Trials Show India’s Blockchain Interest on Rise

From a macro perspective, there has been an increase in the trading volumes of Bitcoin in countries like Venezuela that are facing hyperinflation. This is because of the devaluation of the local currency; people preferred to convert savings into Bitcoin. Economies facing recession might opt this as a way out to save value. How SEC might react to Winklevoss’s ETF request coupled by hyperinflation effects might have impact on prices of the currency.

Technical Analysis:

Long Term Trades:

The Long Term chart has been in an uptrend from the start of this year, with no sign of any set up change currently. The market has traded constantly over $630 with very low residual volumes in the range of $620 – $630. There is a strong possibility that the market might trade again in these levels to close the gap. This might be a chance to enter into a long term position around the zone of heavy support. The previous swing low of the market at $594 can be the stop with swing high at $770.89 as the target.

To get apt entry positions for the long term trade, let’s take a closer look:

On the daily chart, in the recent period the market has been trending in a channel. Eversince market failed to penetrate the $594 price due to heavy support; it has been trending upwards with middle Bollinger as support. Taking a position at middle Bollinger around $624 with $594 as stop loss and target $770 would be an ideal long term trade that can be executed with good support.

Short Term Trades:

On a daily chart, 100 SMA has now joined the zone of heavy support around $620, with the middle bolligner, 9, 13 and 34 SMAs. Market is looking to test this region before taking to the Bull Run.

On shorter time frame (4 Hrs), the Bollinger bands have broken out and the market is bearish. All the support averages have been broken and market is moving towards 100 SMA. Good short term trades with 100 SMA as target and $640 as a stop on bearish side would be feasible. Since market could to be sideways in $620- $630 range, short term trading from both sides would be feasible for some period.

While taking long term positions, keeping an eye on macro factors would be really helpful.

Bitcoin Price Analysis: Yuan Devaluation on the cards, Bitcoin to go up further?

Posted on October 11, 2016 | by [email protected]

First week of October has seen a positive start for the cryptocurrency, with constant trading over $600 level. The bullish push came at the start of the second week, where market broke $620 and continued to trade higher. Market finally managed to surmount the long term resistance of 100 SMA at 618-620 level cruising to higher prices. While the setup looks bullish, let’s look into the price analysis for the coming week:

Fundamental Key Points:

China’s Renminibi added to IMF’s SDR as fifth reserve currency
FBI investigating into $1.3 Million Bitcoin theft of Bitfinex
Russian central bank trys first Distributed Ledger Transactions
UN testing Bitcoin and Blockchain for Remittances
Dubai to move all Government Documents on Blockchain by 2020

Adding to the above, from a macro perspective, addition of Renminibi to SDR might now see further devaluation of Yuan. As the Chinese have been holding off further devaluation till the review period of IMF, there is a good chance of further downward move. In any case, it would also depend on the timing of the news release and the trading prices at that point.

Technical Analysis:

Long Term Trades:

The Long Term chart has been in an uptrend from the start of this year, with no sign of any set up change currently. The market managed to breach the 100 SMA at $618 and close above it for three consecutive days. Now this 100 SMA can act as long term support and long term positions can be taken with adequate risks. The previous swing high at $770.89 can be a target.

On the daily chart, the Bollinger bands are still not trendy. The change from sideways to trending might be a slow one driven by good fundamental factor. Hence it is important to keep an eye on reserve currencies during this period. Long term trades from the bearish side look risky unless there is fundamental bearish news driving the markets.

Short Term Trades:

On a daily chart, the Bollinger bands are beginning to open out and indicating slow change into purely bullish trend. The market has been trending in the channel as indicated by the trend lines. 100 SMA has now joined the zone of heavy support around $600, with the middle bolligner, 9, 13 and 34 SMAs. Any short term bearish trades would be risky and futile in this period.

To get apt entry positions, let’s look into lower time frame:

On shorter time frame (4 Hrs), the setup is trending in the channel of the trend lines shown. 34 SMA has been the line of constant support and has provided good entry positions for short term trades. When the 100 SMA slowly turned from being the line of resistance to line of support was an indication to get in for the break out trade. During this change, it also crossed 34 SMA signaling even strong change which was the best indication.

While taking long term positions, keeping an eye on Yuan would be very helpful.