Why trading coins makes less profit and why frequent trading is not advisable

08/18/2023 19:05 • AI & Tech Insights • 200 views

Why trading coins makes less profit. In the past few years, the price of Bitcoin has experienced significant increases. Ethereum is currently one of the most profitable cryptocurrencies. However, with the increasing attention to decentralized finance (DeFi) in the market, the rise of decentralized finance (DeFi) and decentralized exchanges (DEXs) gradually started.

Although the emergence of DeFi brings more speculative opportunities and trading volume, due to the unclear regulations, many people have turned their attention to the field of digital assets, as they believe that these projects may be more suitable for speculative investors.

Therefore, experts suggest that investors should consider investing in digital currencies or blockchain-related stocks and other high-risk investment categories – especially some emerging investment targets, rather than simply trading coins. So why does this situation occur? Let’s look at the reasons below:

First, in the traditional financial world, funds are usually used to purchase goods and services; whereas blockchain technology is a tool for creating wealth for people.

In this sense, it means that people can buy or sell a specific type of product or service in any way. “When you use a blockchain network, it is actually a smart contract.” This is a major feature of Internet applications – it can transfer value and data without a central institution.

Secondly, globally, the price of Bitcoin has been on an upward trend and has surpassed $10,000, reaching a historical high of $24,000 on March 24th of this year, and then dropped below $20,000 again.

Thirdly, looking at this phenomenon from another angle: Bitcoin is constantly increasing in value, and its supply will decrease to zero; at the same time, its scarcity makes it an attractive form of payment. Although such demand has not yet been seen, Bitcoin is becoming more mainstream.

Fourth, an explanation for the rise in Bitcoin prices: “I believe that the future of Bitcoin will be a huge growth and may be higher than ever before,” which means that the success of Bitcoin as a new asset class will definitely be recognized by more people, thereby promoting the development of the entire economy and causing greater market fluctuations. However, the rise of Bitcoin is fundamentally different from that of gold because it is driven by supply and demand, so its P/E ratio is lower. Additionally, two factors determine the value storage attributes of BTC: the contradiction between supply and demand.

Finally, if the number of BTC holders is less than one million, Bitcoin will decrease by more than half. For most investors, the main advantages of Bitcoin lie in its predictability, liquidity, and stability improvement.

Fifth, the network effect of Bitcoin. The small number of blocks mined by miners can easily lead to hacking attacks. The total computing power of Bitcoin is second only to gold, at around 900PH/s.

Why frequent trading is not advisable

According to the Financial Times, the number of leveraged long and short positions in digital currency trading platforms is divided based on different market conditions, so frequent trading is important in the cryptocurrency industry. For cryptocurrency beginners, one should not be too greedy or seek quick profits, but rather maintain a certain position. If there is significant market volatility or a sharp decline in prices, one can reduce risk exposure appropriately. However, the occurrence of fund losses caused by rapid oscillations and drastic price changes within a short period of time is relatively rare.

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Why trading coins makes less profit and why frequent trading is not advisable

Why frequent trading is not advisable

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