Bitcoin is a highly volatile asset and due to these price movements and the ability to trade it with different currency pairs, it attracts traders from all over the world. Since the swings can be big and aggressive, that makes for wider spreads to take profits. Of course, If you can time the market, money will be made, while those who fail to time it correctly lose big time.
If you long bitcoin by trading with one of the hosts of trading strategies, you can profit when the price of bitcoin increases; longing bitcoin is for those who are bullish on the price and think it can only go up and are willing to take a sizable bet on that movement. Alternatively, if you’re bearish on the price, you might rather consider shorting bitcoin instead.
In both trading options, this allows you to increase the size of your trades using leverage.
As you can tell, going long bitcoin can easily lull you into a false sense of confidence if it goes your way, and you may think you cannot lose and increase your position sizes; this can be very dangerous and can cause many a trader not only to wipe out the previous gains made but their entire portfolio.
What is going long bitcoin?
When you long bitcoin, you essentially open a bet that you think the price of Bitcoin will increase to a certain price. If the price of Bitcoin does increase, to your point price prediction or more you’ll profit.
If it drops instead, you’ll make a loss.
The whole process is quite simple. To fund your long you will use some of your funds and some borrowed funds. By pooling these funds together, you will buy bitcoin on leverage. Once you’ve bought bitcoin and hold this larger position, the aim is to sell the Bitcoin you bought for more than you bought it so you can pay back what you borrowed and claim the profit.
Alternatively, if the market price falls, you’ll only be able to sell the Bitcoin for less than you bought it for. In this case, you’ll make a loss.
An example of going long bitcoin
To get your head around it, let’s consider the following, the price of Bitcoin is 10,000 USD. You open a 1 BTC long with 10x leverage at 10,000 USD, using BTC as your funding currency.
1,000 USD is taken from your account as the margin, and the remaining 9,000 USD is borrowed from the exchange.
The price of Bitcoin rises to 11,000 USD, and you close your position.
The 1 BTC is now worth 11,000 USD, a 1,000 USD difference. Of course, you must return the 9,000 USD you borrowed.
From the 1,000 USD profit, you will pay trading fees and a small amount of interest depending on how long you borrowed the funds; let’s say that was $100 in total.
Once that expense is covered, the remaining profit is all yours, and from $1000 investment, you made $900, a 90% return.
How to long bitcoin?
There are different ways of going long Bitcoin or different types of long trading concepts. Some of the known ones are the following:
Margin trading is said to be the easiest option. Several cryptocurrency exchanges support margin trading or leverage trading. In this trading type, you borrow bitcoin from a broker to execute a trade. By borrowing money to increase your position, you can increase your profits but lead you to greater loss.
Usually, the broker offers you a certain percentage of the money you can borrow from the exchange and use for your trading. Also, after a given number of days, you will need to return the money you have borrowed and settle down the transaction.
Like any traditional asset, Bitcoin, too, has a futures market. In a futures trade, you are buying security with a contract. The contract specifies when and at what price the security will be sold. If you buy a futures contract, you are betting that the price of bitcoin will go up.
So you can get a good ROI and sell the contract for more than you paid for it.
CFD stands for contract for differences. It is a financial strategy that pays out money based on the price difference between open and closing prices for settlement. The CFD option is a similar concept to bitcoin futures as they are betting on the bitcoin price. So when you purchase a CFD, you are betting that the price of bitcoin will rise.
Hence, you are going long Bitcoin.
There are also binary options for longing bitcoin, too. There are two options to choose from, namely, call and put options. When using options, your goal is to buy the currency at today’s price and sell if the market price rises later.
The final method of going long bitcoin is through prediction markets. This is pretty similar to the mainstream markets. As a trader, you can create an event to make a wager based on the outcome. You must predict that the bitcoin price will rise by a certain margin or percentage. If someone takes up on the bet, you will earn a profit if your prediction comes true.
Risk and rewards of longing bitcoin
Going long bitcoin may seem easy on the surface, and with these modern services, getting a long position is easier than ever, but that doesn’t mean you have any less risk. If the market doesn’t go as per your expectations, you will lose money, and if you’re not sizing your positions properly, you can get cleaned out rather quickly. If you want a quick overview of the risk and rewards of longing bitcoin, they are as follows:
- Without proper market analysis, you can face infinite losses.
- You may need to have a margin account to start selling longWe review the trading strategy known as shorting bitcoin, what it means, how it works and how shorting bitcoin affects the price and market conditions.
- Margin interest incurs with long selling.
- Long trades bring you an excellent opportunity to earn high profits.
- It requires minimal initiation capital to start.
- With long trades, you can leverage investments to multiply returns
Stay humble, stack sats and hold
While we all believe in bitcoins’ long-term price appreciation, trying to time the market is not something you fall into, and most traders thinking that they can predict bitcoins movements in the short term will get it wrong. The reason why the best traders make outsized gains is that there is a large cohort of those getting it wrong.
There is nothing wrong with being bullish on bitcoin or a certain time frame but allocate your risk accordingly, don’t try to risk it all and compress your gains into one trade. The mistake many new traders make is thinking they’re too bright for the market and finding out they’re not, by getting their accounts wrecked, get taken off the playing field, bruised, and battered quickly.
Remember who you are trading against; algorithms, expert traders who have advanced strategies, while exchanges and trading platforms encourage you to take these risky bets and offer these complex financial products for a reason, because they are profitable for the house, not for most traders. You might think you have an edge, and you might win sometimes, but overconfidence can lead to you taking risks you don’t fully understand or leave you exposed to situations you never expected.
If you’re taking on more risk by trading bitcoin, by all means, go ahead, don’t let me stop you. But be warned and remember trading shouldn’t be your only strategy; it should be part of various trades to hedge your risk.
In most cases, you’ll be better off leaving the ape games to the fund managers and speculators and stack sats for the long run. Remember, they’re not making many more of these bitcoin, so you might not only lose your current bitcoin position today, but future purchasing power you could have tapped into had you only held on to that bitcoin.