About 2 months ago, when bitcoin was hovering at around $120/BTC, we – my wife (who has a much more sensible head with money than I do) and I – considered investing. We quickly ruled out buying BTC directly – the exponential rise it had seen at the time was readily apparent, and we decided we’d missed that boat. But we looked quite seriously into mining it (and also Litecoin, which is a little easier to mine).
Long story short: we decided that the profit in mining would be marginal, and that we’d missed the boat in straight investment. So we left it be.
Roll forward to 2 weeks ago, when we checked again. The price had jumped to around $700/BTC! And the meteoric rise did not seem like it was going to stop. We bought some the following day (albeit with a small amount of money), at $800/BTC. And again a little more the day after, at $877/BTC.
And roll forward to today – when we sold all our bitcoins (yielding about twice our investment!), while the market was “correcting” (as I write, bitcoin has dropped from about $1200/BTC two days ago, to about $700/BTC right now). It’s been a really really fun two weeks, and I can’t begin to tell all the stuff I’ve learnt (and the stupid mistakes I’ve made!).
So why this post? Well, this is the instructions I wish I could give myself 2 weeks ago:
- Read the babypips forex trading guide.
- Get familiar with the software analysis tools. The obvious one here is metatrader 4 (aka mt4), which is free. But there are numerous online sites now that offer equivalent (or better) analysis tools – eg. tradingview.com, bitcoinwisdom.com, and www.bitcoinity.org (to name but a few – there are many others).
- Don’t use the Mt Gox exchange for day-trading. It’s too unreliable. I’ve seen it crash twice in the last few days, and while we were lucky enough not to lose money on it, many others were not so lucky. Sometimes, especially if you day-trade, you need to buy/sell fast!
- Don’t use cryptsy.com, at all. I’ve watched an IRC chat while they literally lost about 20% of the trades that the people in the chat were doing there. And they have a bot that replies to all support tickets after 24 hours and closes them! (really! No human will even look at your ticket unless you re-open it!)
- Sign up for a bunch of exchanges, and start the verification process on each. It takes from 3 to 10 (or more) days to complete verification. And do a small test trade on every exchange before putting serious money in – you’ll be amazed at the problems that pop up.
- Read, follow, and try to understand this blog. I honestly don’t think I’ve ever seen a more concentrated source of useful info anywhere else on the web.
- Never, ever, buy-in on a pump & dump. If you own the coin beforehand, then ok, but do not attempt to catch it early and buy in – you’ll lose money. Anyone who is organising a pump & dump is trying to take your money.
- Keep abreast of all the news related to cryptocurrencies in general. You must know the news first. I’ve found twitter particularly useful, and also /r/BitcoinMarkets and /r/Bitcoin. And of course you can search google news also. Bad news takes about an hour to hit the price, good news takes considerably longer (maybe a day). So it’s much easier to make money on good news.
- Don’t read the trollboxes. You’re wasting your time and they’ll just feed your doubts.
- Don’t go to bed in a risky position. Aside from the fact that you won’t sleep anyway, you’ll probably lose your money. If you absolutely must, then at least set up a stop before you go.
Disclaimer: I am, of course, a complete amateur at this kind of thing. So keep that in mind
Edit: One more thing – Bitcoin is here to stay. I have no doubt about this whatsoever. Currently my expectation is that it’ll settle somewhere between about $1300/BTC (the Bank of America estimate) and about $35000/BTC (the Winklevoss estimate) next year, and longer term it will become the standard currency on the internet.
Edit (June 2014) – 7 months later: Well it pisses me off when I find posts like the above on the net, and then wonder whatever happened the guy. So here’s what happened us:
- We sold all as I said above, when things began to take a dive. We had approximately doubled our initial investment at this point.
- For the next few months, bitcoin dropped in value gradually (down to about $430/BTC). I day-traded for a while during this fall in an attempt to profit from it. But I’m not particularly good at day-trading, so, we didn’t make any money from this. (but at least we didn’t lose any either).
- Through an accident I lost the use of one arm for about a month. This gave me a lot of time to think, and a break from the usual work pressures. I put this time into writing (slowly – with one hand) a trading bot. [Aside: I can highly recommend one-handed coding as a way of writing really good code!]
- This bot is proving to be very successful (although it has become less-so over time – as more people write similar bots), and increased our holding of BTC by about one third.
So, as I write, BTC is starting its meteoric rise once again (it’s up around 50% in the last two weeks) and our holding has increased substantially. And I also get to sleep more since I stopped day-trading
Edit (Jan 2015) – another 7 months later: Well, bitcoin continued to fall (now hovering around $250/btc), but the bot has proved very successful. We have more than trebled our holdings (when measured in BTC) since we started. We’d also be up if we were to convert back to fiat, but there’s little reason to do that now: while the gains provided by the bot continue to outpace the losses in BTC value, we’ll remain as we are.
Edit (Feb 2016) – 13 months later: So the bot is running for around 2 years now. Still turning a tidy profit, and maintaining it serves as a hobby which I quite enjoy.