Email

These Two Rules for Trading Bitcoin Could Save Your Wallet

11 | By Shah Gilani

Bitcoin, the well-known and most widely “circulated” cryptocurrency, is grabbing a lot of attention lately.

Here’s the thing about Bitcoin: It’s not an investment. It’s merely a tradable thing, that’s all. The same goes for all the other wannabe legal tender cryptocurrencies.

The new attention is coming from the fact that they’ve all soared in price… Or value, or whatever they calculate their worth against.

Goldman Sachs Group, Inc. (NYSE:GS), arguably the most elite and most profitable trading shop, investment bank, and government puppet-master in Wall Street’s checkered history, is weighing setting up a trading operation and sales desk dedicated to bitcoin and other cryptocurrencies.

But that flies in the face of what other heavy-hitters are saying. Jamie Dimon, CEO of JPMorgan Chase & Co. (NYSE:JPM), the largest bank in the United States with its own formidable global trading operations, said only two weeks ago that Bitcoin was a “fraud” and he’d fire any employee who traded it for being “stupid.”

So, what gives?

It’s simple really. Bitcoin isn’t an investment-grade anything. It’s a tradable “instrument” like gold, or carbon credits, or tulips. The reality is that both Goldman and JPMorgan are correct, but only if you understand the nuance of this brand new situation.

The only way to trade cryptocurrency, if you must, is to follow these two rules…

Behind the Cryptocurrency Curtain

If the description “cryptocurrency” doesn’t scare you off, the truth about all cryptocurrencies might.

Bitcoin doesn’t have any intrinsic value. None of the cryptos do. The only value bitcoin has comes from what the next person will pay for it. By the way, they pay for it in some legitimate currency or barter instrument, like dollars, or yen, or gold. Sometimes, it’s paid for with another cryptocurrency, which is crazily derivative stuff if you think about it.

The deal is that cryptocurrency isn’t issued by anyone, certainly not by any government. It’s mined, kind of like copper or gold. But, then again, not really.

Bitcoin is mined electronically. It’s the product of someone’s mystery code.

Someone created an electronic ledger domain (a blockchain), and let the world know they could use high-powered computers, all tied together like miners filing down a mineshaft, to mine other computers to find bitcoins.

I know, it’s wacky. But so are paper dollars, if you think about it. Correctly known as Federal Reserve Notes, our currency is issued by the made-up, yet government-legitimized U.S. central bank. It has value because we say it does, and cryptocurrency is the newest way we are exploring that concept.

It’s believed there are only so many bitcoins out there, underpinning a value proposition that implies that a limited quantity of something other people want is what gives it value.

Blockchain is what’s hot about cryptocurrencies. It’s about an open source ledger, meaning that if you can get onto an electronic chain of transactions, you can see each one and know where your bitcoins came from. Imagine a ledger book with entries of who bought something; in Bitcoin’s case, it’s actual Bitcoins. Thus, it’s proven who rightfully owned them and who rightfully owns them now.

The whole idea of a blockchain currency was that it wouldn’t be owned, issued, or controlled by a government. The value of it couldn’t be debased by massive printing of more bitcoins.

It’s a new kind of currency, and it’s the free market’s currency. At least, that’s the idea.

Of course, you can buy things with Bitcoin. But what you can buy is a matter of who will accept bitcoins in lieu of dollars, or euros, or a piece of plastic that’s backed by a credit facility.

How much you can buy with a Bitcoin is a matter of what that bitcoin is worth, as it is with any other currency. If Bitcoin is trading at $5000 apiece, as it did back in September, and you wanted to buy a used car from a dealer who accepted Bitcoin, you could buy a $5000 car on the lot for one bitcoin.

But to do that, you would first have to risk buying any Bitcoin at all.

There Are Two Sides to Every Bitcoin

Bitcoin isn’t special. It was all the rage when it was new and was touted as technology’s answer to government-issued currencies.

The cryptocurrency concept has been copied over and over, including by some not-so-reputable creators of other cryptocrap. Now Bitcoin is just another cryptocurrency.

But the real reason I think Bitcoin and all cryptocurrencies will only have limited uses and lifespans is that governments aren’t about to relinquish their control just to legitimize a new take on how citizens pay for goods and services. They’ll tolerate it, and can even endorse cryptocurrency concepts, but that’s because the value of all cryptocurrencies is only a drop of water in the oceans of government-issued currencies.

Another important question to ask is, why would any government let transactions take place that they can’t tax?

They wouldn’t.

Jamie Dimon and I agree. Bitcoin could turn out to be a fraud, and investing in it is “stupid.”

But Goldman Sachs also has a point. It’s a tradable thing. It has volatility and traders trade it. That makes cryptocurrency another instrument Goldman can make book on, can trade and manipulate, and make a ton of money. That’s what they do.

If you’re compelled to play in the cryptocurrency arena, I have two pieces of advice to offer.

  1. Don’t ever own it as an investment.
  2. Swing trade it, as you would a very expensive penny stock.

And, let me know how you do if you trade it. Crypto minds want to know.

Sincerely,

Shah

11 Responses to These Two Rules for Trading Bitcoin Could Save Your Wallet

  1. Tul says:

    Too many crypto currencies are surfacing lately yes, but still the Bitcoin is making up the 50 percent of the daily crypto market exchange volume. İt is a bit scary to think of it as a buy-n-hold investment in a long run but if one has the time to keep an eye on the daily volatile value of it it is a pretty good scalping material. Volatility is our friend when it comes to trading this crypto currency.

  2. David Clumpner/ Clumpner Archives says:

    Re Bitcoin and Cryptos:
    There’s another leg of this market that I deem u’v overlooked Shah…
    You touched on cryptos being a currency but stopped short of fluently
    using them as a trading vehicle just as the fed reserve note. Meaning
    I think u’r about to see some auction houses (probably hi end), beginning to accept them, Presently there are ICOs ‘in the hopper’, specifically geared around this venue. This should expand the auction trade, maybe exponentially and THIS is where you need to do some very very serious gumshoeing
    as to which ICO(s) you think have the biggest potential to payoff handsomely!
    (If I had the expertise, I’d do it myself but I’ll leave that up to you)

  3. Bob says:

    Following advice from Louis Basenese, I opened coinbase and bittrex accounts. I purchased 3 of the 5 cryptos he recommended, and within 5 weeks, I had doubled my investment. I got out, but left a wee bit in the accounts in the event that I want to jump back in. May convert some dollars to ethereum, if it drops down to $250 or so, as I have read that is the next most likely established crypto to increase its value against bitcoin.

  4. Whistleblower says:

    I had some BITCF that is sold on the NYSE and it appreciated almost 1000% in about one month. Like a tiny new stock, they are not Options approved. When trading became volatile because of a catalyst, it was much more difficult to get in and out. People still report that the blockchain takes too long. That can be a problem if the worth is volatile. Yet, if the currency had tangible assets in appreciation… for example: the asset value of ease and speed, and if it could find legal tax havens… then the developments might be fantastic. N.o.w. with the Equifax hack, everyone can see that it is much easier to be compromised on a grand scale than they ever thought possible.

  5. Carroll Lane says:

    Thank you for your truthful insight it is what I thought but did not know you may have saved me money as well as making me money with Zenith trades.

  6. Morgenstern says:

    Bitcoin (and the other crypto’s) seems to me not so different from what certain “gentlemen” like Kennedy, Kelly, Capone imported and sold.

  7. STEVEN MUSGRAVE says:

    JP MORGAN AND THE BANKING SYSTEM ARE CALLING THIS A FRAUD ONLY FOR THE REASON THEY WILL BE CUT OUT OF THE FEES AND HOPE TO CONTINUE TO STICK IT TO HARD WORKING AMERICANS WHILE THEY PAD THEIR POCKETS. DO THEY REALLY THINK WERE THAT NAIVE. ITS TIME FOR THE BIG PAYBACK FELLOWS STICKING IT TO U FOR A CHANGE.

  8. ByteTheBit says:

    Well Shah, I’m surprised on your Bitcoin opinion. Especially in light of other published Money Morning articles on Bitcoin written by your associates.

    You state, “But the real reason I think Bitcoin and all cryptocurrencies will only have limited uses and lifespans is that governments aren’t about to relinquish their control just to legitimize a new take on how citizens pay for goods and services. They’ll tolerate it, and can even endorse cryptocurrency concepts, but that’s because the value of all cryptocurrencies is only a drop of water in the oceans of government-issued currencies.”

    Hmmm, I wonder why Japan has already legitimized Bitcoin as a currency then? Furthermore, given Bitcoins P2P nature it needs no legitimization by governments in order for any person to transact with it. As a matter of fact, (short of shutting down the entire globalized internet or declaring it illegal in the highly regulated commercial arena), governments have no viable means to prevent Bitcoin transactions from occurring between two willing parties.

    And regarding losing control… the only control they rightly lose is their ability to arbitrarily confiscate our stored wealth, most especially the ongoing silent theft via inflation due to unjust currency manipulations.

    You also state, “Another important question to ask is, why would any government let transactions take place that they can’t tax?”

    But Bitcoin transactions can be taxed just as easily as a nation’s fiat currency. The same mechanisms in place for taxing a nations fiat currency in the commercial arena (imposts, excise, sales, property and income taxes) will work just as well for taxing Bitcoin transactions.

    The sweet thing about Bitcoin is that you can safely hold and have COMPLETE control over ALL of your funds (your stored value of wealth), eliminating all risks of it being arbitrarily frozen somewhere in a bank account or worse yet being arbitrarily confiscated (stolen) by some government agent.

  9. robert says:

    Dominos already excepts bit coin, as does overstock dot com. burger king just joined and AMAZON just signed up and will start excepting Oct 25, and hundreds of other places also,, so yes to all you who say it is a fraud, continue to believe the banks just like the government. and you will stay behind.
    And with bit coins stock value today being 4,806.14 . yep its all smoke and mirrors.

Leave a Reply

Your email address will not be published. Required fields are marked *


eight × = 48