Several financial sector regulators, including the US SEC and multinational financial institutions, have classified Bitcoin as an asset. Although it was initially created to serve as a currency, beginner or experienced investors treat BTC as an asset.
Different traders – whether beginner or experienced – have different approaches to buying Bitcoin. This article covers how to buy cryptocurrency if you are either beginner or experienced crypto trader/investor.
How do Beginners Buy Bitcoin?
Mostly Trend Following
For beginners, the crypto market can seem overwhelming at first. They are not well-versed in market analysis and the dynamics of price action. Remember that price fluctuations in the crypto market are heavily driven by market sentiment.
For beginner traders, one of the simplest ways to buy BTC is by using simple trend and momentum indicators like Moving Averages, MACD, RSI, Fibonacci Retracements, and Stochastic oscillators.
These indicators show whether the market is trending, the potential areas of reversals, overbought, and oversold regions. It makes it easier for them to enter and exit the market at the most optimal price points.
Trading the Spot Market
Over the years, the crypto market has evolved, with several derivatives being currently traded. So, what is spot trading? Spot trading involves buying Bitcoin and holding it until you decide to sell.
There is no short selling or use of leverage in the spot market. This makes it ideal for beginner traders who might otherwise be prone to greed by using leverage – they reduce the risk of exposure.
Since no leverage is involved, traders’ financial downside is significantly reduced. More so, since trading in the spot market means that traders take possession of the BTC, they can, therefore, opt to use their Bitcoin for transactions or exchange them for other cryptos on any reliable and best crypto exchange.
Rely on Signal Services
As we’ve mentioned, getting started in the crypto market can be daunting for beginner traders. However, given the increase in reputable signal service providers, beginner traders and investors don’t have to worry themselves with market research. In most cases, the trading can be automated.
Crypto signals are expert advice on when to buy and sell cryptocurrencies. These signals are generated automatically by programmable trading bots or manually by traders who continually analyse the market to identify suitable trading opportunities. Once you receive the signals, you can open the trade manually or use an auto trader to trade on your behalf.
How do Experts Buy Bitcoin?
Experienced traders and investors have a longer-term perspective with their portfolios, and they prefer HODL. Remember that as an asset, the Bitcoin’s value is bound to appreciate in the long term.
Expert investors understand that any short-term price fluctuation is just market noise. These investors reduce the impact of volatility on their portfolios by using the Dollar-cost averaging (DCA) method.
This means that the investment amount is divided into smaller portions and purchased at regular intervals. It allows them to profit from market price movements over a long period.
Typically, when experienced investors often prefer to add to their portfolios, there is a short-term price drop. They take advantage of the fear in the market by snapping up cheap BTC and holding for the longer term.
Trading Futures Market
Presumably, experienced traders fully understand the market risks posed by trading BTC with leverage and are familiar with proper risk management techniques.
The futures market allows pro traders to take advantage of leverage and margin trading. This increases their exposure in the market, significantly increasing their profitability.
In the futures market, traders can go long or short the market, allowing them to profit from short-term price fluctuation. Over the years, the trading of crypto derivatives has surpassed trading in the spot market.
It now accounts for more than 54% of total transactions in the crypto markets. The futures market doesn’t just allow traders to profit from short-term volatility; it also allows them to hedge against potential risks on their positions in the spot market.
Heavily Rely on Technical Analysis
Although the crypto market is largely driven by market sentiment, experienced traders can find optimal entry and exit levels using technical analysis. This is especially the case for day traders and swing traders.
They heavily rely on technical analysis to find the best entry and exit points within a suitable timeframe. This is the opposite of HODLing since these traders do not keep their portfolios for long.
Apart from the trend and momentum indicators employed by beginner traders, experienced traders also rely on complex volume and order book analysis. Remember that supply and demand impact the price of BTC.
The volume shows the number of BTC traded over a specified time; this helps identify potential trends by analysing whether demand exceeds supply.
Similarly, order book analysis helps show the depth of the market. It shows the bid and ask prices by the traders. This also helps show the potential trend in price fluctuation.
As is with any asset, like gold or agricultural commodities, the value of BTC is primarily driven by the market forces of demand and supply.
Given its limited supply and the steady mainstream acceptance of cryptos, it means that the value of BTC is bound to appreciate steadily in the longer term.