A few words about Bitcoin mining and the core of this strategy
You all surely know that Bitcoin hasn't appeared out of thin air and that new Bitcoins are created by mining. The mining process consists of algorithms that are solving hard mathematical formulas and trying various mathematical combinations. The successful attempts of these algorithms create new Bitcoins.
Mining is an interesting business field with already a lot of involved participants and institutions. But, we are not going to go into it in this article. Instead, here we are now going to dive into the insider information and the core of this strategy.
The mining process becomes increasingly harder over time as more and more Bitcoins are extracted. And because of this the mining process also becomes more expensive due to the energy needed to run the computer machines as well as other costs involved.
The insider information for this strategy is based on the mining costs for extracting Bitcoins. Currently, in this situation, as of May 2019, $5,000 - $6,000 price per 1 Bitcoin is the price where it is worth for mining companies to continue with the mining operations.
Around the price of $4,000 - $5,000 per 1 Bitcoin, the mining process is about Break/Even. The exact costs and profits, of course, can vary around these prices for each miner depending on their electricity costs and initial investment for the mining equipment. Electricity costs also vary greatly from country to country and tend to be much lower in less developed countries.
Below $5,500 per 1 Bitcoin, it starts to become difficult for miners to maintain the mining process profitable.
The Profitable BTC strategy
Now you have it!
Highly valuable information thanks to which a simple and very profitable strategy can be created. There is already more than $114,000,000,000 involved in Bitcoin - this is its current market capitalization - and you can bet that mining companies and groups holding huge amounts of Bitcoin would like to be profitable over the long run in their business.
The result is that these insider companies will do their best to hold the price of Bitcoin at least above $6,000 to stay profitable in the business. Unless they will discover an innovative way to make the mining process less expensive so they wouldn't mind if the price of Bitcoin would go lower. Bitcoin miners are the group that has one of the highest interests for Bitcoin´s price to continue rising in the long-term.
The chart below and Price Action show are a case in point.
As you can see in the chart below, Bitcoin was bouncing nicely from this price zone every time it reached the zone for the most part of 2018 before breaking it to the downside toward the end of the area.
The result was a steep decline below this area after which Bitcoin stabilized just above $3000 for about 6 months before rising again above the $5,000 threshold.
How to trade this BTC strategy?
Trading this strategy is simple and can be very easy.
Simply look to buy Bitcoin as soon as the market bounces from the aforementioned price zone of around $5,000 - $6,000. As soon as you feel that BTC is bottoming and especially when you will see a nice bullish candle bouncing from this price zone, it is the right time for buying the BTC within this strategy.
Knowing when to close the trade in a loss is an extremely important part of risk management. With this strategy, we set the Stop-Loss below the $5,500 price level. Simply if BTC would break through the price zone, the trade should be closed as per this strategy.
The main risk of this strategy is the one that we noted above - if Bitcoin miners would come up with some long-term innovation - optimizing the costs of the mining process that would enable them to mine at sustainably lower costs. In this case, Bitcoin could break this price zone and a new similar price zone would probably be created at lower levels as was already the case during the brief period of November 2018 - April 2019.
To determine profit targets with this strategy simple resistance zones to the upside can be used.
For example, as can be seen on the chart below, during the stable period between February 2018 and November 2018 around the $5,000 - $6,000 price zone, using the falling resistance trendline (blue lines on the chart) to place profit targets was a successful strategy.
Similarly, in future instances, resistance zones alike, or resistance zones based on some other technical or fundamental factors, can be used successfully to place profit targets.
What to say at the end of this article?
A simple, yet extremely effective trading strategy. Trade simple Price Action, trade what the market is doing and you will be trading well. As long as BTC mining will continue there will be an interest of miners to keep the price of BTC above certain price zone to keep the BTC mining profitable.
Only remember that no matter how bullet-proof this strategy may look at a given point in time, there are still risks that at some point in the future things could change and Bitcoin could break the already established price zone. This is why it’s essential to always use and execute the stop-loss orders if/once the price zone is broken.
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