6 Things You Don’t Know About Trading Bitcoin

     

     Retail investors who want to dip their toes into cryptocurrencies to diversify their portfolios are facing an extremely volatile market – virtual currencies have lost $350 billion in value year-to-date due to orders from regulators and hacking.

     The cryptocurrency market, which consists of bitcoin and several other major digital currencies, crumbled June 22 as the majority of the coins dipped by up to 10 percent due to six exchanges in Japan that were ordered by the Financial Services Agency, its financial watchdog, to improve their current practices, and as two exchanges were hacked within an 11-day period.

     Losing billions of dollars in market cap for cryptocurrencies is not unusual. In December, bitcoin reached a high of $20,000, but dipped to $8,500 by mid-March.

     The virtual currencies are encountering more losses due to hackers and within the past two weeks $70 million of cryptocurrency was seized. Bitcoin is now trading less than $6,000.

     Investors who want to invest in bitcoin, the primary cryptocurrency, and other virtual coins such as ethereum, ripple, litecoin and monero should follow these tips from traders.

     Expect lots of volatility. While a movement of 5 percent is a pretty big in equities, a movement of 20 percent within a single day in cryptocurrencies is "actually quite normal," says Mati Greenspan, a senior market analyst at eToro, a Tel Aviv-based social investment network.

"Blockchain technology is still considered to be in the experimental stage and there is always a possibility that any digital asset can go to zero," he says.

     Since all of the virtual currencies remain a speculative asset, investors should avoid buying them for their retirement portfolios, says Jason Spatafora, co-founder of Marijuanastocks.com and a Miami-based trader and investor. Cryptocurrencies made up less than 2 percent of his portfolio a few months ago, but he is no longer trading them because of the extreme volatility.

     

     Common sense doesn't apply for some traders. In October, Spatafora started trading bitcoin, litecoin and ethereum to learn about the market and understand whether any of the coins were undervalued. Instead, he found that many of the investors exhibited irrational exuberance in believing the virtual currencies would never stop their climb in the market.