What is Bitcoin: An introduction
Bitcoin is one kind of digital currency. Before we get deeper into this, we need to understand what bitcoin is and how it works. It is a sort of cryptocurrency or virtual currency encoded with cryptography. Crypto is a prefix originated from Greek which means concealed or hidden.
With the application of cryptography, bitcoins are prevented from double-spending or counterfeiting. Cryptocurrency works using blockchain technology which is a network of computers aka nodes. Currently bitcoin is connected with over 10000 nodes and this number is upping each day and it is almost impossible to exploit this system. It is one of the most conjectural assets in the history of finance to date.
How it works: understanding bitcoin principles
Like the stock market, bitcoin also uses the strategies of Moving Average or MA.
MA is used for forecasting and foretelling how the process of bitcoins is going to change using some complex mathematical and statistical equations. But here we are not going to use mathematical jargon to avoid confusing our readers. Let’s explain it this way, it is not a rational model but mostly hypothetical or theoretical. Bitcoin prices follow a random pattern.
There are two types of investors in bitcoin. When type A investors are more optimistic or pessimistic, they buy from or sell to type B investors and vice versa. Trading signals and trading volume can be predicted using the laws of MA mostly depending on how the moods and decisions of the investors change. That is why it is called a risky asset.
Data analysis: how it is processed
Bitcoin trades are constantly and electronically happening globally. Daily price up-downs of bitcoin is available on the trading news and research website Coindesk.com. Even the Wall Street Journal uses this site as a reference. A strong rival of bitcoin is another cryptocurrency called Ripple.
Its statistics are obtained from the site coinmarketcap.com. The daily risk-free rate and market access return aka MKT are obtained from several websites. Exhibit A- the website of Kenneth French. But these daily or weekly risk-free rate assumptions not necessarily have a meaningful economical impact on the results.
So if you are trading in bitcoins, you are taking chances and gambling with your assets. A stock market index called the S&P grew from 1$ to 2.65$ in the period of a year. Over the same period, the market price of bitcoins grew from 1$ to 103,453 $. So even though it’s a risky investment, if the algorithms of the price change are understood properly, it sure can be a very profitable one.
Bitcoin has a higher Sharpe ratio than MKT which means it has better chances of profit according to the investment. The term Sharpe ratio refers to the measurement of performance of the investment of an asset according to its risk. Bitcoin technical analysis sure seems like a complicated one but once the algorithm and the concepts are perceived properly followed by a clever strategy, it can make the investors very rich overnight!
Bitcoin technical analysis: a deeper dive into the ocean of virtual trading
Bitcoin is the first amongst the digital currencies which utilized peer-to-peer technology to make instant payment happen. The participants in the Bitcoin network ( both independent individuals and economic organizations) consist of nodes or miners. Miners are the participants who process the transactions on the blockchain. They are driven by rewards or new bitcoins and all transactions are done in bitcoins. Miners can be explained as the authority figures who operate the bitcoin blockchain network.
Blockchain can be defined as the technology which keeps records of the bitcoin network. It is a very familiar concept in banking, investing, and cryptocurrency. Blockchain is digital information or blocks which are saved in a public database known as the chain.
Thus the naming of blockchain. One of the most asked questions about blockchain technology is that is it private? The answer is – no! People or companies in the blockchain gets the latest news whenever the blockchain gets updated. But the participants in the bitcoin transactions can remain anonymous only revealing their digital signature or username.
Conclusion based on the information and technical analysis
Bitcoin was invented during the period of the housing market crash. It was invented by a person called Satoshi which is a pseudonym. It offers us a lower transaction cost and is operated by an authority scattered throughout the world. Even though its rapid growth in price, it has experienced some major market crashes as explained in an article by Fortune magazine. It has been being used as a method of payment in numerous fields and it is being used by the various self-employed people as a means of their income.
It is the earliest cryptocurrency that has gained so much popularity and success and it has its risks unlike fiat currency. So even though it’s a speculative business, if followed the right strategy and moves, its definitely a win for fellow investors. Digital currency like bitcoins can bring a revolutionary change in the sector of commerce and our day to day lives if it is not misused and played by the rules.
Despite its risks, we can conclude that with proper knowledge of the algorithm it is worth the uncertainty. It is worth a try who is new to this sector but to prevent any losses the investors have to be clever enough and have to possess a good sense of assuming the results.