BITCOIN MARKET
What is the Bitcoin market?
Bitcoin market, also known as bitcoin exchange, is a digital marketplace where traders can buy and sell bitcoins using different fiat currencies or altcoins. It is an online platform that acts as an intermediary between buyers and sellers or, to use cryptocurrency language, between a “maker” and a “taker.”
A bitcoin exchange works like a brokerage, and you can deposit money via bank transfer, wire, and other common means of deposit. However, you will often pay a price for this service. If a trader wants to trade between cryptocurrencies, they will pay a currency conversion fee, similar to institutional banks when you trade money from different countries. Purchases and sales are based on the same ordering system as existing brokerages, where a buyer (taker) places a limit order which is then sold when a corresponding cryptocurrency is available for the seller (maker).
Bitcoin exchange platforms match buyers with sellers. Like a traditional stock exchange, traders can opt to buy and sell bitcoin by inputting either a market order or a limit order. When a market order is selected, the trader is authorizing the exchange to trade the coins for the best available price in the online marketplace. With a limit order set, the trader directs the exchange to trade coins for a price below the current ask or above the current bid, depending on whether they are buying or selling.
There is a special type of Bitcoin market known as the Decentralized bitcoin exchange. Decentralized exchanges, also known as DEXs, are marketplaces that are operated without a central authority. These exchanges allow peer-to-peer trading of digital currencies without the need for an exchange authority to facilitate the transactions.
There are a number of benefits to decentralized exchanges. First, many cryptocurrency users feel that decentralized exchanges better match the decentralized structures of most digital currencies themselves; many decentralized exchanges also require less personal information from their members than other types of exchanges. Second, if users transfer assets directly to other users, that eliminates the need for the transferring of assets to the exchange, thereby reducing the risk of theft from hacks and other fraud. Third, decentralized exchanges may be less susceptible to price manipulation and other fraudulent trading activity.
On the other hand, decentralized exchanges (like all cryptocurrency exchanges) must maintain a fundamental level of user interest in the form of trading volume and liquidity. Not all decentralized exchanges have been able to achieve these important baseline qualities.
How do you determine the Bitcoin Market
The Bitcoin market is heavily influenced by the supply of the coin, the market’s demand for it, its availability, and its competition with other cryptocurrencies.
Unlike investing in traditional currencies, Bitcoin is not issued by a central bank or backed by a government; therefore, the monetary policy, inflation rates, and economic growth measurements that typically influence the value of currency do not apply to Bitcoin. Conversely, the Bitcoin market are influenced by the following factors:
1. Supply: The supply of an asset plays an important role in determining its price. A scarce asset is more likely to have high prices, whereas one that is available in plenty will have low prices. Bitcoin’s supply has been dwindling since inception. The cryptocurrency’s protocol only allows new bitcoins to be created at a fixed rate, and that rate is designed to slow down over time. Thus, the supply of Bitcoin slowed from 6.9% in 2016 to 4.4% in 2017 and 4% in 2018.1 Bitcoin halving events, which occur every four years, generally correspond to a significant bump in its prices because it means that the cryptocurrency’s supply has been reduced.
2. Demand: While Bitcoin has yet to find favor as a medium of exchange, it has attracted the attention of retail investors. The locus of Bitcoin’s demand shifts based on economic and geopolitical considerations. For example, China’s citizens may have reportedly used the cryptocurrency to circumvent capital controls in 2020.2 Bitcoin has also become popular in countries with high inflation and devalued currencies, such as Venezuela. It is also popular with criminals who use it to transfer large sums of money for illicit activities. Finally, investor demand for the cryptocurrency has also risen with increased media coverage. All of this means that shrinkage in supply has coupled with a surge in demand, acting as fuel for bitcoin prices. Alternating periods of booms and busts have become a feature of the cryptocurrency ecosystem. For example, a run-up in bitcoin’s prices in 2017 was succeeded by a prolonged winter.
3. Cost of production: Just as for other commodities, the cost of production plays an important role in determining the price of bitcoin. According to research, bitcoin’s price in crypto markets is closely related to its marginal cost of production. For bitcoin, the cost of production is roughly a sum of the direct fixed costs for infrastructure and electricity required to mine the cryptocurrency and an indirect cost related to the difficulty level of its algorithm. Bitcoin mining consists of miners competing to solve a complex math problem — the first miner to do so wins a reward of newly minted bitcoins and any transaction fees that have accumulated since the last block was found. In monetary terms, this means that the miner will have to spend money on racking mining machines equipped with expensive processors. The bitcoin-mining process also incurs costly electricity bills. According to estimates by some sites, electricity consumption for the bitcoin-mining process is equal to or more than that of entire countries.4 An indirect cost of bitcoin mining is the difficulty level of its algorithm. The varying difficulty levels of bitcoin’s algorithms can hasten or slow down the rate of bitcoin production and affect its overall supply, thereby affecting its price.
4. Competition: Though Bitcoin is the most well-known cryptocurrency, hundreds of other tokens are vying for crypto investment dollars. As of 2021, Bitcoin dominates trading in cryptocurrency markets. But its dominance has waned over time. In 2017, Bitcoin accounted for more than 80% of the overall market capitalization of crypto markets. By 2021, that share was down to less than 50%. The main reason for this was an increase in awareness of and capabilities for alternative coins. For example, Ethereum’s Ether (ETH USD) has emerged as formidable competition to Bitcoin because of a boom in decentralized finance (DeFi) tokens. On Oct. 13, 2021, Ethereum accounted for almost 18% of the overall market cap of cryptocurrency markets. Ripple’s XRP (XRPUSD) and Cardano’s ADA (ADAUSD) have also surged in popularity, while growth in stablecoins has attracted investor attention toward Binance’s BNB token (BNB USD). Even though it has siphoned away investment dollars from the Bitcoin ecosystem, competition has also attracted investors to the asset class. As a result, demand and awareness about cryptocurrencies have increased. As a standard-bearer of sorts for the cryptocurrency ecosystem, Bitcoin has benefited from the attention, and its prices have surged.
How do you benefit from the Bitcoin market at any time?
It is nearly impossible to predict consistently when the trends in the market might change. One can only make educated guesses, at the end of the day, that is all they are — guesses. People invest in Bitcoin for a couple primary reasons. First, there’s a speculative element to bitcoin prices which entice investors looking to profit from market value changes. For example, the price of Ether appreciated from $8 per unit in January 2017 to almost $400 six months later — only to decline to $200 per unit in July due to technical issues.
Apart from pure speculation, many invest in bitcoin as a geopolitical hedge. During times of political uncertainty, the price of Bitcoin tends to increase. As political and economic uncertainty in Brazil increased in 2015 and 2016, Bitcoin exchange trade increased by 322% while wallet adoption grew by 461%. Bitcoin prices also increased in response to Brexit and Trump victories, and continue to increase alongside Trump’s political controversies.
BULL MARKET.
What is the bull market?
The commonly accepted definition of a bull market is when stock prices rise by 20% after two declines of 20% each. It is the condition of a financial market in which prices are rising or are expected to rise. The term “bull market” is most often used to refer to the stock market but can be applied to anything that is traded, such as bonds, real estate, currencies, and commodities. Because prices of securities rise and fall essentially continuously during trading, the term “bull market” is typically reserved for extended periods in which a large portion of security prices are rising. Bull markets tend to last for months or even years.
During a bull market, market confidence is high and investors are eager to buy stocks with the hopes that their stocks will grow in value. Bull markets are characterized by optimism, investor confidence, and expectations that strong results should continue for an extended period of time. There is no specific and universal metric used to identify a bull market. Nonetheless, perhaps the most common definition of a bull market is a situation in which stock prices rise by 20%, usually after a drop of 20% and before a second 20% decline. Since bull markets are difficult to predict, analysts can typically only recognize this phenomenon after it has happened.
Why is it called a Bull market?
It’s uncertain where the name originated from. Some commentators believe it derived from the way in which the animal confronts opponents: bulls push their horns upwards, Others believe the bull refers to the New York Stock Exchange’s construction on the site of a 17th century Dutch cattle market.
A bull market is a time of expansion. They generally take place when the economy is strengthening or when it is already strong. They are characterized by:
● Strong gross domestic product (GDP).
● A drop in unemployment.
● A rise in corporate profits.
● High investor confidence.
● The overall demand for stocks will be positive, along with the overall tone of the market.
● There will be a general increase in the amount of Initial Public Offering, IPO, activity during bull markets.
Bitcoin, which was valued at around 8 cents when it was launched in 2010, experienced a bull market when it reached an all-time high of over $68,000 in November 2021. First used in a real transaction to buy a Papa John’s pizza, the cryptocurrency’s rapid growth has resulted in much speculation from nontraditional investors. Pundits routinely predict its demise based on tightening regulations and a strengthening U.S. Dollar.
What are the benefits of a bull market?
Bull markets serve as an encouragement for investors or buyers, this period is not permanent but it can last for months or years.Bull markets indicate that the economy is strong and unemployment rates are generally low, which can instill investors with even more confidence and provide people with more income to invest. This can result in some massive growth: Stock prices go up 112% on average during bull markets.
It is advisable for one to take advantage of a bull market. Investors who want to benefit from a bull market should buy early in order to take advantage of rising prices and sell them when they’ve reached their peak. Below, we’ll explore several prominent strategies investors utilize during bull market periods.
1. Buy and Hold: One of the most basic strategies in investing is the process of buying a particular security and holding onto it, potentially to sell it at a later date. This strategy necessarily involves confidence on the part of the investor: why hold onto a security unless you expect its price to rise? For this reason, the optimism that comes along with bull markets helps to fuel the buy and hold approach.
2. Increased Buy and Hold: Increased buy and hold is a variation on the straightforward buy and hold strategy, and it involves additional risk. The premise behind the increased buy and hold approach is that an investor will continue to add to his or her holdings in a particular security so long as it continues to increase in price.
3. Retracement Additions: A retracement is a brief period in which the general trend in a security’s price is reversed. Even during a bull market, it’s unlikely that stock prices will only ascend. Rather, there are likely to be shorter periods of time in which small dips occur as well, even as the general trend continues upward. Some investors watch for retracements within a bull market and move to buy during these periods.
4. Full Swing Trading: This process is the most aggressive way to capitalize on a bull market. Investors utilizing this strategy will take very active roles, using short-selling and other techniques to attempt to squeeze out maximum gains as shifts occur within the context of a larger bull market.
BEAR MARKET
What is the bear market?
A bear market simply means a declining market. It occurs when a market experiences prolonged price declines. It typically describes a condition in which securities prices fall 20% or more from recent highs amid widespread pessimism and negative investor sentiment. Bear markets also may accompany general economic downturns such as a recession. Stock prices generally reflect future expectations of cash flows and profits from companies. As growth prospects wane, and expectations are dashed, prices of stocks can decline. Herd behavior, fear, and a rush to protect downside losses can lead to prolonged periods of depressed asset prices.
One definition of a bear market says markets are in bear territory when stocks, on average, fall at least 20% off their high. But 20% is an arbitrary number, just as a 10% decline is an arbitrary benchmark for a correction. Another definition of a bear market is when investors are more risk-averse than risk-seeking. This kind of bear market can last for months or years as investors shun speculation in favor of boring, sure bets. Bear markets may be contrasted with upward-trending “bull markets”.
Why is it called a bear market?
The term bear may derive from the proverb about “selling the bearskin before one has caught the bear” or perhaps from selling when one is “bare” of stock. The bear market phenomenon is also thought to get its name from the way in which a bear attacks its prey — swiping its paws downward.
The causes of a bear market often vary, but in general it can be caused by:
● A weak or slowing or sluggish economy,
● Bursting market bubbles,
● Pandemics,
● Wars,
● Geopolitical crises,
● Drastic paradigm shifts in the economy such as shifting to the online economy.
In addition, any intervention by the government in the economy can also trigger a bear market.
For example, changes in the tax rate or in the federal funds rate can lead to a bear market. Similarly, a drop in investor confidence may also signal the onset of a bear market. When investors believe something is about to happen, they will take action — in this case, selling off shares to avoid losses. Bear markets can last for multiple years or just several weeks. A secular bear market can last anywhere from 10 to 20 years and is characterized by below-average returns on a sustained basis.
What are the benefits of a bear market?
Bear markets are a fact of life. However, it can be hard to anticipate them, know how long they will last, or how severely they will impact stock prices. Because bear markets are a natural part of market cycles, not only can one survive them, one can also position oneself to benefit from them.
Below are some strategies that can help to benefit off of a bear market:
1. Buying Short- and Long-Term Puts: A useful strategy is to buy inexpensive short and long-term puts on the major indices. Keep in mind trading derivatives often comes with margin requirements — and that may require special access privileges with your brokerage account. A put is an option that represents rights for 100 shares, has a fixed time length before it expires worthless, and has a specified price for selling. If you buy puts on the Dow Jones Industrial Average, S&P 500, and Nasdaq and the market declines, your puts will gain in value as these indexes are falling.
2. Selling Naked Puts: Selling a naked put involves selling the puts that others want to buy, in exchange for cash premiums. In a bear market, there should be no shortage of interested buyers. When you sell a put contract, your hope is that the put expires worthless at or above its strike price. If it does, you profit by keeping the entire premium, and the transaction ends. But if the stock price falls below the strike price and the holder of the put exercises the option, you are forced to take delivery of the shares with a loss. The premium does give you some downside protection. For example, let’s say you sell a July 21 put with a $10 strike, and the premium paid to you is $0.50. This gives you a cushion of down to $9.50 for which to maintain break-even. With naked puts, you are on the receiving end of a derivative transaction so the best strategy can be to keep selling short-term puts on solid companies that you wouldn’t mind owning if you had to, especially if they pay dividends. Even in a bear market, there will be periods where stock prices rise, giving you profits from these short-term put sales. But be warned: If the market continues to drop, those short puts can generate large losses for you.
3. Finding the Assets That Increase in Price: It is helpful to research past bear markets, in order to see which stocks, sectors, or assets actually went up (or at least held their own when all around them the market was tanking). Sometimes the precious metals, like gold and silver, outperform. Food and personal care stocks — often called “defensive stocks” — usually do well. There are times when bonds go up as stocks decline. Sometimes a particular sector of the market, such as utilities, real estate, or health care, might do well, even if other sectors are losing value. Many financial websites publish sector performances for different time frames, and you can easily see which sectors are currently outperforming others. Begin to allocate some of your cash in those sectors, as once a sector does well, it usually performs well for a long period of time. Bear markets can also have different catalysts, so this strategy can also help investors allocate accordingly.
CHOOSING THE BEST MARKET
The direction of a market can have a huge impact on any investor’s portfolio. Aninvestor always look at the wider market conditions before making any decisions. Whether it’s a bull market or a bear market could impact one’s strategy, although there are benefits to investing in both.
Advantages of the Bull market over the Bear market
● Bull markets are always seen as optimistic, confident of investors, and expectations for a long-term profit. All you need is a better financial plan to allocate your debt, gold, equities.
● During a bull market, losses are usually minor and temporary; an investor can typically actively and confidently invest in more equity with a higher probability of making a return. In a bear market, however, the chance of losses is greater because prices are continually losing value and the end is often not in sight. Even if one decides to invest with the hope of an upturn, such investor is likely to take a loss before any turnaround occurs. Thus, most of the profitability can be found in short selling or safer investments, such as fixed-income securities.
● Bull markets can make investors lots of money by simply buying and holding. No complex investing strategy is necessary.
Advantages of the Bear market over the Bull market
● Having a bearish view, an investor may look forward to a significant correction or downfall in the stock market as now he/she can buy low at a relatively lesser price and then thereby profit when the stock market goes up in value in the future.
● If an investor is of the opinion that particular security may decrease in value, he may prefer a short position (Sell the stock by borrowing it) or may even buy a put option if he feels the security may go down in value. Hence it is this bearish view that facilitates and supports short trades.
● When an investor or hedge fund manager spots a new opportunity that is likely to have the underlying go down in value, that goes on to facilitate profit-making and capitalization on such opportunities.
● Warren Buffett is often attributed as the person who said “when the tide goes out, you find out who’s been swimming naked.” In bull markets, investors might take on too much risk in the form of leverage or borrowed money. Bear markets quickly send over-leveraged investors to the exits as margin calls are issued and positions liquidated.
● When bull markets are raging and money is flying into stocks, it’s easy for scammers to lure in unsuspecting victims. Fear of Missing out, FOMO, is a powerful force and many otherwise smart investors lose money in bull markets attempting to keep up. A bear market reveals who has legitimate business interests and who is just trying to make quick (and often unearned) money.
How to enjoy both Bear and Bull Markets
There are various ways to profit in any type of market. Both bear markets and bull markets represent tremendous opportunities to make money, and the key to success is to use strategies and ideas that can generate profits under a variety of conditions. This requires consistency, discipline, focus, and the ability to take advantage of fear and greed.
1. Ways to profit in the Bear market are as follows:
a. Short positions: Taking a short position, also called short selling, occurs when you borrow shares and sell them in anticipation the stock will fall in the future. If it works as planned and the share price drops, you buy those shares at the lower price to cover the short position and make a profit on the difference. For example, if you short ABC stock at $35 per share and the stock falls to $20, you can buy the shares back at $20 to close out the short position. Your overall profit, therefore, would be $15 per share.
b. Put Options: A put option is the right to sell a stock at a particular strike price until a certain date in the future, called the expiration date. The money you pay for the option is called a premium. A put option increases in value as the underlying stock falls. If the stock moves below the put’s strike price, you can either exercise the right to sell the stock at the higher strike price or sell the put option for a profit.
c. Short ETFs: A short exchange-traded fund (ETF), also called an inverse ETF, produces returns that are the inverse of a particular index. For example, an ETF that performs inversely to the Nasdaq-100 will drop about 25% if that index rises by 25%. But if the index falls 25%, the ETF will rise proportionally. This inverse relationship makes short/inverse ETFs appropriate for investors who want to profit from a downturn in the markets, or who wish to hedge long positions against such a downturn.
2. Ways to profit in the Bull Market are as follows:
a. Long positions: A long position is simply the purchase of a stock or any other security in anticipation that its price will rise. The overall objective is to buy the stock at a low price and sell it for more than you paid. The difference represents your profit.
b. Call options: A call option is the right to buy a stock at a particular price (the strike price) until a specified date (the expiration date). Calls go up in value as the underlying stock’s price rises. If the stock price rises past the option’s strike price, the option buyer can exercise the right to buy the stock at the lower strike price and then sell it for a higher price on the open market, thus generating a profit. The option buyer can also sell the call option in the open market for a profit, assuming the stock is above the strike price.
c. Long ETFs: Most ETFs follow a particular market average, such as the Dow Jones Industrial Average (DJIA) or the Standard & Poor’s 500 Index (S&P 500), and trade like stocks. Generally, the transaction costs and operating expenses are low, and they require no investment minimum. ETFs seek to replicate the movement of the indexes they follow, less expenses. For example, if the S&P 500 rises 10%, an ETF based on the index will rise by approximately the same amount.
