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Wednesday , 3 April 2024

Key Considerations for Trading the 2024 Bitcoin Boom

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Bitcoin is once again positioned as one of the hottest investment narratives. After marked declines in 2022 and slow price action in the early part of 2023, the token went into bullish mode in the latter half of 2023, and that has continued into 2024. It is once again the talk of the town among both professional traders and retail investors. For reasons we will get into a bit later, many believe the forthcoming bull run will dwarf what we witnessed in 2021 when BTC rose to over $93,000 AUD. 

But what should traders and investors who have not yet entered the Bitcoin market do right now? Is it too late to jump on the bandwagon? Will there be a correction? What are the risks involved? Why is it different to the last time? We shall endeavour to answer some of these questions below, providing a broad guide for retail traders to enter the market. 

What is Bitcoin?

Let’s start with the most important question: defining what Bitcoin is. By that, we don’t mean the technicalities – we could spend all day explaining Bitcoin’s technical aspects – but rather asking what it is used for. That’s more important from a trading standpoint. And there are two answers: The first is that Bitcoin is a means of exchange, a digital form of currency. The second is that Bitcoin is a store of value, similar to gold. The consensus is growing toward the latter, and that’s something to bear in mind as a trader and investor. 

Why has Bitcoin been going up?

bitcoin performance

Bitcoin is approaching all-time highs again. 

Again, there are numerous reasons for this. First, is that Bitcoin is judged to be cyclical, rising and falling over a four-year period, with each cycle seeing higher highs and higher lows. Second, institutional investors are arriving, not least the world’s largest hedge funds, which gained approval in the United States for ETFs in January 2024. Finally, there is the upcoming “halving” in April, which will see the rate of Bitcoin produced via mining reduced. Of the 21 million that can ever be produced, almost 20 million are already mined. With the next halving, the rate of issuance will be lessened. Some investors are betting on a supply shock in the near future. Additionally, it should be noted that some countries, such as El Salvador, are adding Bitcoin to their balance sheet. This gives further credence to what was said above about Bitcoin being a store of value, not a means of exchange. 

READ  What are Futures in Crypto and Where to Trade Them?

Trading Bitcoin in 2024 

Bitcoin is worth just over $73,000 AUD at the time of writing, and that’s around three times greater than the cycle lows of the (Australian) summer of 2022. You can understand that many of those who were sidelined may be reluctant to enter. The danger is FOMO (fear of missing out), which means entering into the market irrationally for fear that you will be left behind. But nothing is a given in crypto. Bitcoin is a young asset, and just because the four-year halving cycle acted as a catalyst for a bull run before does not mean it is guaranteed to happen again. 

Betting against consensus 

If you are an investor, you should be patient in this market. While crypto is unpredictable, there are always major corrections in the market, which can act as entry points for investors who were originally sidelined. Corrections of 20 or 30% are not uncommon. The rise in the markets is rarely linear, so patience usually wins the day. If you are a trader, you can also bet against consensus, that is, the assumption that Bitcoin will reach all-time highs post-halving. Everyone thinks it will, but the markets don’t always do what we expect. Indeed, the halving could effectively be an example of “buy the rumour, sell the news”. 

A step into the unknown  

While we should always exercise caution, you can understand some of the excitement around Bitcoin at the moment. The ETFs from giant Wall Street hedge funds mean that those institutions must hold Bitcoin, and they have been adding the asset at a record pace. That, coupled with a limited and diminishing supply, has caused some to predict that the biggest Bitcoin bull run yet has just started, with astronomical figures per token quoted as possibilities. Take it all with a pinch of salt, of course, but many of the catalysts to smash previous all-time highs are there. 


Remember to look beyond Bitcoin 

Finally, a reminder that Bitcoin is not the only cryptocurrency worth looking at. It is King, of course, commanding over half the market cap of the entire crypto market. However, other assets are maturing too. Ethereum, for instance, which is the second largest cryptocurrency by market cap, is also being lined up for ETFs, subject to approval. We also have projects like Chainlink that may disrupt the entire banking system. The point is simple: If you feel gains are limited with Bitcoin, then you have an opportunity to look at trading other cryptocurrencies. Exercise caution, yes, but the opportunity is there. 

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