Bitcoin Markets & Price
Bitcoin’s unique features make it valuable in the eyes of its holders. Notably, its scarce, auditable supply is not controlled by a government or other monolithic entity.
Backing a currency is a method to control the value of its price by connecting it to another commodity. Bitcoin is not backed by any other asset. Gold and fiat currencies are not backed by anything either.
Financial markets facilitate the trading of financial assets across many participants. These markets are usually owned by a company who pairs buyers and sellers of different assets and maintains the market’s fairness.
Bitcoin has historically been a volatile asset. This volatility is primarily due to the nascency of the currency, and is expected to decline as the market matures.
Dollar-cost averaging is a popular investment strategy because of its risk mitigation, simplicity, and wide applicability to almost any asset class.
The Bitcoin network is supported by miners, nodes, and users, who may be retail investors, traders, or merchants. Increasingly, institutional, corporate investors are entering the Bitcoin market as well to preserve their treasuries.
Uncontrolled hyperinflation in Zimbabwe caused the monetary system to become virtually ineffective, reducing the quality of life for its citizens and stunting development progress.
The Bitcoin price is determined through supply and demand. Because the market cap of bitcoin is small relative to the market capitalization of other currencies, small changes in demand or supply can produce price volatility greater than that of fiat currencies with theoretically unlimited supply.
Bitcoin is connected to the global economy. Bitcoin’s price can be affected by the health of economies, other asset prices, and legislation. Bitcoin mining is heavily affected by the energy market.
A bear market is characterized by declining asset prices and negative investor sentiment. Bitcoin markets may experience a bear market at different times than equity markets.
With a market cap of about $1 trillion, bitcoin accounts for less than 0.1% of all of the world’s aggregate wealth (somewhere north of $1 quadrillion). Other competing stores of value include gold, bonds, real estate, and high art.
A bull market is characterized by a sustained increase in asset prices, investor optimism, and positive news. Bitcoin markets may experience a bull market at different times than equity markets.
A Bitcoin ETF is an exchange-traded fund that tracks the price of bitcoin, allowing investors to gain exposure to bitcoin without owning or storing the asset itself. Bitcoin ETFs have only been approved in a few countries, although that is expected to change in the near future.
A stablecoin is a digital token that is intended to maintain a constant peg with some other asset, usually a fiat currency. Stablecoins are often issued on their own blockchain or an existing blockchain and are almost always backed by a centralized party.
Collateralized loans are utilized in house mortgages, car loans, business loans, and margin trading. Bitcoin can be utilized as collateral for fiat currency loans.
A candlestick chart visually represents the size of price movements of an asset. Candlestick charts are used by traders to make short-term predictions about price action.
Technical analysis is used by traders to identify and predict trends in asset prices based on historical price movement, volatility, and volume.
The stock-to-flow model is used to create a standardized metric of asset scarcity. Investors use the model to gain insight about the fair market value of Bitcoin.
The Efficient Market Hypothesis states that asset prices reflect all available information and trade at their fair value. Therefore, through passive investing, consistent risk-adjusted excess returns are impossible.
Fundamental analysis aims to determine the real value of an asset based on any available information. Even though Bitcoin lacks cash flows, fundamental analysis can be performed based on its inherent value given its use cases as a currency.
Performance metrics help investors assess the success of an investment or portfolio. Performance metrics are not inherently different for Bitcoin investments, although the characteristics of the asset create a unique profile of metrics which make the most sense.
There are many ways for investors to transact. Market and limit orders are commonly used to trade assets, but more sophisticated strategies that utilize these orders are also possible.
The bitcoin market has grown rapidly in recent years as a result of a growing variety of market participants, including financial institutions, regulatory shifts, and derivatives products.
Deflation is a general decrease in the price of goods and services. This change will influence the economy in several ways, but is primarily negative.
As Bitcoin markets mature, financial institutions are creating new products that allow investors to gain exposure to the market. These derivative products have distinct features that potential investors must to be aware of.
Brokerages and exchanges are two different models that allow traders to buy and sell assets. The functional differences impact how traders and investors can use the two types of platforms.
A depth chart articulates the supply and demand of a particular asset, such as Bitcoin. Understanding a Bitcoin depth chart is useful for trading and investment decisions.
Portfolio management is the selection of assets and investments to ensure that an investor’s portfolio is consistent with their financial goals. The ideal portfolio is unique to the investor’s financial goals and risk tolerance.
Leveraged Bitcoin trading magnifies positive and negative returns as Bitcoin’s price changes. This allows an investor to gain additional exposure to Bitcoin without the burden of producing capital.
A Bitcoin flash crash is a large and rapid decline in Bitcoin’s price. This can be triggered by algorithmic trading issues or individual orders large enough to move the market.