How to Trade Cryptocurrencies
We often get asked about cryptocurrencies and if they are safe investments to add to a portfolio. For investors unfamiliar with the term, a cryptocurrency is basically a digital token, or coin, that trades on a distributed and decentralized ledger called a blockchain.
The most popular, and well known, is Bitcoin which made its debut in 2010 and dominates cryptocurrencies in terms of market capitalization and user base. It has truly been fascinating to watch the rise of Bitcoin as it first traded at just a fraction of a penny in 2010 to an all-time high price of $73,794 on March 14th.
Bitcoin has become extremely volatile over the years and currently trades for about $60,000. Bitcoin has formed a near-term base at $54,000 after topping out in late July just above $70,000.
Other cryptocurrencies, such as Ethereum, Litecoin, Cardano, Dogecoin and Polkadot have also garnered renewed optimism and represent an alternative to Bitcoin. However, there are literally thousands of cryptocurrencies available to trade with each carrying there own set of risks and rewards.
There are a number of platforms available to trade cryptocurrencies, with the most popular being Coinbase (COIN). The cryptocurrency industry has seen its share of fraudulent coins and shady exchanges but Coinbase has largely avoided any controversy and is a publicly traded company. Robinhood (HOOD) is one of favorite stocks to trade and also offers an extremely easy-to-use app.
Once you choose your trading platform, all you need to do is fund your account, pick a currency, and do your homework. Of course, the safety of any platform is something else to consider as the cryptocurrency industry can be vulnerable to hackers and temporary delays in trading from time to time.
While Coinbase and Robinhood represent alternative stock investments, another way to trade Bitcoin indirectly is through the ProShares Bitcoin Strategy ETF (BITO). It is basically an exchange traded fund that invests in Bitcoin and mirrors the price action, but at a much lower cost basis.
The chart shows BITO recently held key support at $16.25. This level also served as prior resistance last October. A breakout of the descending triangle (black lines) and close above $20 and the 50-day moving average would be a bullish development.
Bitcoin will always be a fascinating story to talk about and we expect price action to remain volatile throughout 2024.