Should You Start Trading Cryptocurrency?
Watch Wunderbit's Evgeny Latyshev and Kirill Osaulenko talking about cryptocurrency trading on Dukascopy TV!
Cryptocurrency investment strategy
So, imagine, you are mining cryptocurrencies, you're getting some rewards, should you start trading? What do you reckon? In case you have no experience in that, should you touch this area?
No, you should trust someone who knows how to do that. That's the key for sure. Because otherwise, it's going to be very frustrating for you. You have a very, very steep learning curve so you need to spend quite a lot of time to understand what to do and how to do it, and this is a full-time job.
So, if you are working and cryptocurrency mining is your hobby, like your side investment, then there is an opportunity for you to accumulate more of the cryptocurrency that you mined and use it for cryptocurrency trading purpose. But if you don't have the opportunity to do that, then you better trust somebody who knows how to do that. And this is what these social trading platforms are for.
So, there is a solution of how to stay in the crypto space using your mining as an initial investment and then to trade and accumulate more of the cryptocurrency without spending too much time.
Usually, when you trust a trader to manage your funds, you would have to transfer the funds. Thus, there is a risk that you would lose your crypto, is that correct?
Not with the social trading platforms, because they work in such a way that you don't actually transfer the funds, you only provide the trader with the API access that allows him to buy and sell a cryptocurrency, but there is no way for him to withdraw the funds. And this is a very good way to see the transparency because you can see all the trades that the trader makes and at the same time, this is a very secure way to provide somebody with the funds and to accumulate more. Most of the copy trading platforms will ask for some kind of commission from a trader so you will have to pay the trader something because he is doing the job for you. But this varies from one platform to another.
All right. So, basically, you're left with the risk that the trader will make unprofitable trades and that's it?
Yes, pretty much. As soon as you choose the trader that you would like to copy-trade, the only risk is that he will be not very successful in terms of making profits.
Alright, let's get back to mining. So, we've discussed briefly what are the main ways of crypto mining. Let's just make a quick summary. What do you reckon, as a person who actually heard the whole story, would you like to start mining?
I think the most important thing here is to understand what are your goals. Is it a long-term investment for you? Is it actually something that you would like to have the short-term gains and to maximize your current profits? If we're talking about the long-term investment, then yes, I think mining is a very good starting point and one of the tools that you can use for a long-term investment. So, start with the GPU mining rigs, select the cryptocurrency you would like to mine and then start accumulating it. But, as we mentioned, it should be combined with some other form of, at least, short-term trading or some strategy that you will have in mind in order to accumulate more and not to rely just on the price of the cryptocurrency at this particular moment. That's my view. What about you?
Well, in my opinion, it really depends on several factors: 1) you have funds to create a significant investment, 2) you really understand where you would allocate this mining production, 3) what's going to be the electricity cost.
If all the factors say that the breakeven point would be quite short, for example, three or four months, maybe six months with the existing prices of bitcoin, and you can afford to allow the bitcoin price to fall to as low as, let's say, 3000 BTC/USD and you would be still happy to continue mining, then probably yes, why not.
Again, this business plan should be compared to any other business plan that you can imagine or you have in your mind. If that performs better, if that has better numbers, then absolutely.
Cryptocurrency Trading vs Cryptocurrency Mining
Trading is actually a wide topic. As a trader, maybe you could comment what do you think about trading?
Well, there are two aspects. First of all, obviously, you need some knowledge, skills and practice to trade profitably. That's one thing for sure. And if you just start with mining, for example, and you have no clue of how to make a transaction on exchanges, then there is a solution for you as well, which is called social trading.
So, you can connect your wallet from the exchange to the social trading platform and then follow one of the traders. So, all the trades will be done by that particular trader. And then your account will copy every trade that this trader did in certain proportions. And that's one of the solutions for you.
Another one, if you are a long term investor, let's call it this way, you can actually distribute your portfolio in certain portions so you can, even if you mine, just Ethereum, for example, you can then buy Bitcoin, Ethereum and some other altcoins in order to accumulate the USD price of it, for example, higher in one year. So, the idea is that you diversify your portfolio and then you sell it off in a year's time, or you can use whatever the bitcoin maximalists call - a strategy is just holding it.
So, whatever you mine, you just transfer the operation costs, so you basically have to cover just those and then the rest will stay in the cryptocurrency that you mine. Or if you mine Ethereum and you would like to HODL bitcoin, you just transfer everything to Bitcoin. However, this, from my perspective, is not a very efficient way to actually hold your cryptocurrency because it's such a volatile market, it's very hard to make a projection of what is going to be in one year, in particular, so even though your, for example, electricity cost is more or less stable, you know how long your hardware is going to last for, but the huge problem is the price.
My strategy would be to actually set up a certain cutoff point. So, if the price of Ethereum, for example, goes below 200 dollars, I will sell everything straight to dollars and then cover my costs and keep everything in dollars, as soon as it starts reaching above it, I will convert everything back to Ethereum and everything that a mine will stay in Ethereum.
Okay, I've got a question for you. So, for example, at this point, you're mining, imagine you are a cryptocurrency miner, and the cost of Ethereum is not very high, it's actually below 200 dollars right now, and the cost of electricity is sort of high for you. At this point you're negative. What would you do? Would you stop mining or would you accumulate Ethereum until the price would reach a breakeven point? Or will you follow it further?
That's a good question. I think it totally depends on the price of that particular cryptocurrency at the moment. If we talk about Ethereum, I think that right now it is not very profitable to mine and it's quite hard if you're not, for example, short-selling, using this as a trading strategy. It's quite hard to have a breakeven point if you're just buying the cryptocurrency, buying low, selling high. The typical trading strategy. For now, I would think that mining, in particular at this moment in time, is not very profitable.
So, you better shut it down for some time, as soon as the price is going to reach at least 200, you can switch it back on, and we're talking about Europe right now, so the cost of electricity is quite high.