29 May 2018
Product in the Spotlight: Dash vs Bitcoin
Dash has gained much popularity, even over Bitcoin, because it not only values privacy more than the latter, but also allows instant transactions, with much lower fees. Dash is ideal for traders looking for higher transaction speeds. However, for now, Bitcoin remains the preferred form of cryptocurrency investment for a majority of traders. It has been found that the two digital currencies mostly have a positive correlation. So, instead of users buying 100% Bitcoins, risk can be diversified with some Dash investments. Diversification will smoothen out fluctuations in your digital currency portfolio and give you better chances at consistent returns. The imperfect correlation between the two will allow marginally lower risk.
What Drives Bitcoin Prices
1. Regulatory PressuresWhenever a government imposes a ban or restriction on Bitcoin usage, there is a drastic change in its price. Due to the anonymity associated with such coins, governments are struggling to implement blanket regulations. There are, however, proposals for supervision of exchanges by third parties, which will affect prices too.
2. Supply versus DemandMining Bitcoins and gold seem to have similarities; both are complex and time consuming – not to mention, the associated mining costs. The mining rate determines the supply. The demand, on the other hand, fluctuates over time. As the acceptance of Bitcoin increases, the demand will increase too. Against a limited supply, prices will surge.
3. Publicity IssuesPrices are affected by negative and positive publicity. News of thefts and hacking bring down its value, as does news of its association with drugs or money laundering. On the other hand, if a celebrity praises it, its price increases. The general vibe on social media – be it positive or negative – also plays a role in price fluctuations.
4. Influence of the Crypto CommunityBitcoin remains the most valued cryptocurrency, despite superior altcoins being developed. This is because there is a lot of trust within the community (users and developers). It has been around for longer than all other altcoins. As a trader, it is always wise to stay in touch with discussion forums, communities and chatrooms, to get an idea of the direction of price movements.
5. Technological DevelopmentsThe latest advancements in technology influence the price of Bitcoin. If it gets integrated into systems associated with high performance, or gets adopted by major tech brands, its price surges. This is because such developments bring it into the spotlight and spark interest in the cryptocurrency.
Psychological Strategies for Trading CryptocurrenciesThe cryptocurrency market is driven by investor psychology. Trading on fundamental analysis is complicated, since there is no economic calendar for cryptos, and no precedent regarding how the markets will react to a piece of news. Factors that drives crypto prices have so far been based on past reactions and price history. Many experts believe that the crypto market is too young to test indicators on past prices. Sometimes, it is possible to follow the forming of graphical figures (patterns), but the quotes are often unpredictable. Nevertheless, if you are hedging crypto coins against fiat currencies, you should be well-versed in technical indicators. Psychology is the ideal tool to formulate trading plans.
- Study the demand and supply in the market: If there is an order that covers more than 20% of the total volume in the ‘Market Depth’ table, it’s better not to invest. As a trader, your aim has to be minimising risks, rather than banking on the temporary growth of an unpopular coin.
- Diversify risks: Money flows from one cryptocurrency to another. Study the correlation between cryptocurrencies and find out the ones that have an inverse correlation. If there is a common rise in the market, you will gain anyway. In case of transfer from one coin to another, your potential losses will be minimised.
- Buy from the bottom: The cryptocurrency market is very volatile. A 20%-25% asset drawdown is normal, so buy at the bottom, when the price is seeing a correction.
- Ignore common emotions: Unlike the forex markets, forums are not very useful here. The market is unpredictable, and nobody knows how news will affect the quotes. Do not give in to common emotions here. Large investors use rumours as a tool for manipulating the markets.
- Trading volume on exchanges: Study the trading volume on different exchanges. If there is a significant trading volume on one exchange, it means someone is trying to push up the prices deliberately. Ignore temporary corrections.