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Well-known cryptocurrency trading strategies and scams

Practice has shown numerous trading strategies associated with Bitcoin and other cryptocurrencies, but perhaps the most widely used among them include ”arbitrage” and ”buy & hold”.


arbitrageOne circumstance, which has heightened the appeal of Bitcoin and other cryptocurrencies over the past years, is the existence of arbitrage opportunities. The latter are present, when you purchase Bitcoins at a crypto exchange offering a relatively low price for the asset and then sell the coins at another exchange offering a higher price.

Let us provide an example. At present, Bitcoin trades at $6,333.50 on BTC-E, while its current price on Coinbase is $6,336.50. The apparent difference in prices is possible, as the two markets are not directly linked and the trading volume, at times, is sufficiently low. This way it is possible for the price not to adjust to its average level immediately.

1. In order to purchase 100 Bitcoins at BTC-E, you will need to invest $633 350.

2. If you wish to sell these coins at Coinbase, you will receive $633 650 from the sale.

3. As a result, you will generate a net income of $300 from the arbitrage.

However, there are several circumstances, which you need to be aware of, before deciding to implement such an approach:

1. The transaction volume on each of the two crypto exchanges is of utmost importance. If it turns out that the daily limit for Bitcoin purchases on the more expensive exchange has been reached, you will not be able to sell the amount of coins you purchased at the cheaper exchange.

2. You will need to check the fees, which each of the two crypto exchanges will charge you for their services.

3. If you trade a considerable amount of coins, the majority of crypto exchanges will usually require multiple verifications of the transactions.

4. It is possible that the time needed for verification of the purchase and the sell orders adds up. Thus, you may expect to see changes in Bitcoin quotes at the two crypto exchanges during that period of time.

5. Transacting conventional currency is usually a time-consuming process. Transfers may take several business days depending on what payment method you have chosen.

Buy & Hold

Buy & Hold is a passive trading approach, which focuses on purchasing and holding Bitcoin or other cryptocurrency over a long period of time, very often more than 1 year. The strategy emphasizes a trader’s expectations of reasonable returns in a long term. Short-term (daily) fluctuations in the value of Bitcoin against the US Dollar, the euro or some other national currency will be of little or no importance at all.

You may use such a strategy, if you expect the value of Bitcoin or another cryptocurrency to increase in a long term. Therefore, before taking action, you should carefully examine price data and look for a discernible bull trend (uptrend).

Pump & Dump

As far as cryptocurrency scams are concerned, perhaps the most popular scheme is the so called ”Pump & Dump”. It is mostly used with small-cap altcoins, since one may need a significant amount of funds to implement it with Bitcoin. Individuals or communities having remarkable buying power employ such a scheme in order to increase their wealth fast at the expense of other investors by boosting the value of a certain cheap and not that popular cryptocurrency. Cryptocurrency ”Pump & Dump” schemes are not necessarily considered as illegal, because crypto exchanges in many parts of the globe still remain unregulated. In comparison, such schemes are deemed illegal, when it comes to government-regulated stock exchanges.

The individuals or communities who plan to artificially inflate the value of a certain altcoin will usually spend some time buying that asset up. Next, they will initiate an aggressive campaign involving the promotion and endorsement of the altcoin on web forums and chat boxes in order to trigger wider public’s interest. At some point, this creates a buzz and scores of investors rush in to buy the coin. With trade volume rising, the altcoin’s value also increases. In other words, the ”pump” phase begins.

As soon as the coin’s price reaches a ”targeted” level, the perpetrators of the scheme (those who bought the cryptocurrency initially) begin selling their coins in small amounts as fast as possible. Since they sell at these exceptionally high price levels, they are able to earn considerable profits. Their actions indicate that the ”dump” phase of the scheme is about to begin. Once all the perpetrators leave the market and the altcoin’s price fails to go any higher, a wave of panic selling is triggered. In other words, the ”dump” phase finally begins. Since more investors begin selling their coins, the value of the cryptocurrency decreases sharply. Because they bought the coin at an inappropriate moment, many investors are now left with no other choice than to sell at a loss, only to leave the market.