How To Make Money on Bitcoin Fluctuations

The recent decline in the value of cryptocurrencies has opened up new opportunities for profitable opening of new long positions both for those who have just entered the most dynamic and profitable market in the world and for those who already have open trades.

Functional Factors of Bitcoin Value

Fiat currencies and cryptocurrencies are different. National currencies are subject to centralized management. For example, in the U.S., the value of the U.S. dollar is regulated by the Federal Reserve. If the Fed decides that it is necessary to weaken the dollar to support the economy, it will start using special tools: reducing the interest rate, launching a quantitative easing program. Interventions are also possible.

The market price of fiat currency depends on the state of the economy. In a recession, the currency goes down, and if the situation in the economy is stable, the exchange rate rises. This is not the case with Bitcoin and other cryptocurrencies. Cryptocurrency is decentralized. How much Bitcoin is worth does not depend on the economic state of the country or on the actions of central banks.

Initially, the value of Bitcoin depended on how expensive it was to mine. This included the cost of electricity to mine the coins and equipment. Since Bitcoin began to be traded on exchanges and attracted the attention of major market players, its price also began to depend on supply and demand factors.

Market Factors of Bitcoin Value

Pricing in the cryptocurrency market largely depends on the balance of supply and demand. The law of the market states: the higher the demand, the higher the price. If demand goes down, the price goes down, too.

Let’s look back at 2017. In January, Bitcoin was below $1,000, and by the end of the year it had soared to almost $20,000 per coin. What caused such a rapid rise in price? The faster the price rose, the more investors decided to invest in this asset to make a profit.

In 2018, “cryptocurrency riots” emerged in Asian countries. The authorities of some countries began to restrict earnings from Bitcoins. Fears that the new asset would not take root in the market due to the prohibition of regulators led to a drop in demand: investors began to sell coins, closing purchase deals, which lowered the value of Bitcoin. Not much time has passed since then, but it is already possible to say that the cryptocurrency market has reached some, albeit initial, stage of maturity. And although the main factors influencing the price have not changed, there are additional factors as well.

Supply and Demand of Major Players

How much Bitcoin is worth depends on the distribution of supply and demand. We are mainly talking about the big market players whose investments in Bitcoin amount to millions of dollars. It is they, not the market crowd, who make the main price movements. Bitcoin traders make money when they can forecast price movements. To understand where the big players will move the price of Bitcoin, you need to keep track of technical analysis factors.

Usually you can see traces of big players on the chart by phases of position accumulation (price consolidation in a narrow range) and subsequent impulse price movements. Short-term, intraday, it is not always easy to predict the price direction, but on the medium timeframes you can see the trading benchmarks for the Bitcoin value.

Excitement and News

In 2017-2018, the cryptocurrency market reacted very sensitively to news related to bans and permits from the authorities to mine and trade Bitcoin, news about cryptocurrency exchange hacks, etc. Now the news continue to have an impact, but to a much lesser extent. The difficulty in this issue is that news on cryptocurrencies are impossible to predict (except for those related to the network). Therefore, when it comes to making money on Bitcoin, you need to focus mainly on technical analysis.

Limited Supply

As already noted, the number of monetary units of fiat currency is unlimited. The central bank can print more liquidity, which will expand the supply and cause the national currency to fall. Bitcoin, on the other hand, is limited to 21 million coins. That’s why some experts believe that Bitcoin is the best asset for investment amid the crisis. Now the world’s leading central banks have launched quantitative easing programs, increasing liquidity. National currencies are falling due to increased supply, which does not threaten Bitcoin.

Safe Haven Asset

There is now talk among investors that Bitcoin could become a new safe haven asset, along with gold, the U.S. dollar and the Japanese yen. So far there is little sign of this trend, but over time, as the market matures further, using Bitcoin as a safe haven could become a global trend. In this case, Bitcoin’s value will rise in turbulent times.

Follow The Trading Rules

In order to keep your trading deposit safe and your trading risks prudent and balanced, it is crucial to adhere strictly to the rules of technical analysis, especially in times of correction. After all, despite the fact that a correction is usually a very powerful movement of quotations, it still has a short-term impact on the market, eventually ending in a return to the initial trend.

As for the cryptocurrency market, it is important to remember that in the current early industry environment, the trend is characterized as strictly upward. This defines only one direction for making deals. Thus, when the price reaches minimum price values, traders and investors can profitably buy a temporarily cheaper cryptocurrency.

Current Market State

Considering that we are dealing with a correction of the price from the level of $20000, it is important for us to understand that the opening of short positions, which allows you to earn on the fall in CFDs, is still a work against the trend. It creates additional risks, while limiting the potential for profit, so a more promising option would be to determine the point of entry into a long position.

That is to buy the asset after the resumption of an uptrend, the prospect of which by and large does not limit the possible profits, but opens up opportunities for both short-term trading and the conclusion of long-term investment deals. For this purpose, we should determine the key price levels that allow us to identify the points at which a new upward impulse can be formed, which will be able to send the Bitcoin price above the current price of $20000.

Major Price Levels

If we look at the Bitcoin price chart, it becomes clear that the key price point to which the correction can continue is the $18,000 support level. Passing this level will most likely mean a trend reversal, and buying from this level will be a sign of buying at the lowest price in an uptrend. On the way to the level of $18000 we can observe the presence of intermediate price values, such as $19000 and $18500. They are psychological levels below which traders are not willing to sell the asset.

Thus, due to the technical analysis data we get accurate landmarks, which allow us not to act at random, but to make clear and balanced decisions, based on logic and information.