How to Trade Bitcoin Safely: Trustworthy Bitcoin Trading
- The collapse of cryptocurrency exchanges, such as FTX, means trustworthy Bitcoin trading is becoming increasingly important to all crypto investors.
- Bitcoin trading is safer when traders implement steps to prevent risk, such as choosing a reliable Bitcoin exchange that focuses on transparency, privacy, and regulation.
- Steps can be taken during trading to reduce risk and improve trade security. These include doing your own research and implementing buy and sell orders.
Bitcoin trading has always been risky business, as with any type of trading. However, as cryptocurrency and blockchain technology expand into art, virtual reality, gaming, music, record keeping, and more, Bitcoin (BTC) still offers lucrative investment opportunities.
Bitcoin remains the king of crypto and to many is seen as the safest crypto trading option, alongside Ethereum (ETH). However, with confidence recently shaken in cryptocurrency security, it is more important than ever to know how to trade Bitcoin safely.
Why Is Trustworthy Bitcoin Trading Becoming Such a Hot Topic?
Over the past year, crypto has suffered from the collapse of some major crypto players, including Terra, Three Arrows Capital, Celsius Network, Voyager digital, and most recently, the crypto exchange FTX. These events have highlighted some of the issues surrounding investing in crypto, from rug pulls to hacks, and even fraud.
As the dust settles and Bitcoin begins to see a slight rise in value once more, investors are looking to avoid past mistakes, opting for safe trades and a trading experience that promises asset security and privacy. Most importantly, investors and traders are looking for a Bitcoin exchange they can trust, that will not freeze their withdrawals, and where their crypto will be safe from theft, fraud, and questionable practices.
Bitcoin has risen from its lows of $16,500 USD in January 2023 to $24,400 in February 2023. This has meant increased interest in trustworthy Bitcoin trading.
Bitcoin price chart for Dec 2022 to February 2023. (Source: coinmarketcap)
What Threats Exist When Trading Bitcoin?
Regardless of one’s trading experience, trading Bitcoin can be risky if not done properly and with due diligence. FTX’s collapse offers a good insight into the risks associated with trading Bitcoin on a Bitcoin exchange, from misuse of customer funds, hacking, price crashes through dumping, and more.
Bitcoin trading on decentralized security protocols may avoid the issue of misuse of funds by the centralized governing bodies, however, many of the same risks remain. Additionally, decentralized exchanges (DEXs) are often harder to navigate, leading to risks in security, privacy, and loss of assets through mistakes.
Some of the threats to Bitcoin trading highlighted by the recent collapse of FTX are:
Fraud and misuse of customer funds on Bitcoin exchanges: FTX’s co-founder Sam Bankman-Fried, or SBF, is accused of having opened a line of credit worth $65 billion USD from FTX customer wallets to his other company, Alameda Research.
Security and privacy on Bitcoin exchanges: FTX stated that during the price slip, hackers were able to steal $450 million USD of customer funds from the platform. This raises questions over security protocols and transparency, with some believing the money was taken by SBF and his associates.
Market manipulation: A dump of any crypto by a large investor, or whale, will cause investor panic, asset selloffs, and consequently a drop in value. This was seen when Binance stated its intentions to sell off its $529 million USD supply of FTX’s FTT token. The selloff sent the value of the asset plummeting, further investors to pull out, and FTX to declare bankruptcy. It also affected the rest of the crypto market, creating a crash that took Bitcoin’s price with it.
How to Avoid Risky Bitcoin Trading: The Basics
Choose a trustworthy Bitcoin exchange
A trustworthy Bitcoin exchange is the first step in creating a safe trading experience. Using an exchange that lacks transparency, user protection, and regulation can mean unnecessary risk and loss of assets.
To find a trustworthy Bitcoin exchange, ensure you use an established platform with trustworthy and transparent regulations and safety measures. The Phemex crypto exchange emphasizes trustworthiness because it’s never been hacked and has launched transparent proof-of-reserves for users to verify their own fund security. If using a DEX, check if the blockchain runs on a trusted security protocol and ensure that you know how to use the DEX independently and securely. For both options, read user feedback and reviews online first.
Set up 2-factor authentication and use a strong password
When creating an account on a Bitcoin exchange, it is important to consider user protection. To maximize privacy and reduce risk, set up 2-factor authentication as well as a strong password. This will reduce the threat of hacking.
Choose a secure wallet
Choosing a secure hot or cold cryptocurrency wallet is essential for trustworthy Bitcoin trading. When making trades, it is important to have a low-risk, reliable location where you can keep your cryptocurrency safe yet quickly accessible.
Hot wallets have the advantage of being quickly accessible for fast trades, as they are always connected to the internet. Cold wallets are safer because they are only connected to the internet when plugged into a physical device, making them harder to hack. However, cold wallets will slow down trading as there is the added connection step. Phemex uses a Hierarchical Deterministic Cold Wallet System to assign unique wallet addresses to every user and imbue an additional layer of security.
Keep your private keys safe
Your wallet’s private keys are essential for Bitcoin trading, since without them you will lose access to your funds. Private keys cannot be replaced, so it is essential that you keep them in a trustworthy location and offline. Never share your private keys with anyone. If you’re trading on a custodial exchange, make sure to pick one like Phemex that prioritizes security and has not suffered hacks in its lifetime of operations.
A Bitcoin price analysis platform. (Source: Photo by Anne Nygård)
How to Make Safer Bitcoin Trades: Trustworthy Trading
Do your own research
Trading Bitcoin blindly may net you some wins through luck, but in the end it is a probable way of losing money. Performing fundamental analysis on the market and seeking reliable information from trustworthy sources is essential, as it will not only improve your returns but will also make you a better trader.
Inform yourself on the latest market trends and movements, find out which platforms to avoid and analyze the current financial climate. The Phemex Academy is a great resource for research because it holds over 1,000 articles on blockchain and trading knowledge.
Use technical price indicators
Performing specific technical analysis is the next step after completing overall fundamental analysis. Technical indicators are great tools used to identify patterns and trends in cryptocurrency price graphs. Using multiple technical indicators can help to create a more reliable price prediction — as the more technical indicators correlate in their predictions, the safer the prediction is in general.
When Bitcoin trading, remember that technical price indicators are just indicators — they are not 100% reliable price predictors and do not lead to risk free trading, but they can lead to a more trustworthy investment.
Set buy and stop orders
Market, limit, and stop orders are automated orders that can be placed by a trader to instantly trigger a buy or sell order if certain pre-set circumstances are met. They are handy and reliable tools to help investors make trades in a safe way even when they cannot manually make the trade at that moment.
Market, limit, and stop orders can trigger a sell if the price goes too low, or a buy if the price begins to rise. It is important to set these orders on a trustworthy Bitcoin exchange like Phemex that will reliably trigger the order. If the Bitcoin exchange is not reliable, then your orders may not be triggered, resulting in heavy losses or missed opportunities.
Don’t invest more than you can afford to lose
Investing more than you can afford to lose can mean losing everything before gaining enough trading experience to make safer, more lucrative trades that will result in bigger returns in the long run. Understanding the trading psychology of greed and fear can help traders make better trading decisions without playing it too safe.
When trading cryptocurrency, Bitcoin may be the obvious choice as the main coin in your wallet. However, diversifying your portfolio can be a safe strategy. Consider reducing your exposure to risk by investing in a couple of different cryptocurrencies.
Investors conducting risk analysis online. (Source: Photo by Scott Graham)
Trading cryptocurrency may never be completely reliable, due to the inherent risk of market losses. However, steps can be taken to ensure user protection and privacy for a more trustworthy trading experience. This includes choosing a trustworthy Bitcoin exchange with a focus on transparency, regulation, and security. Make sure you can set up a strong password and 2-factor authentication, use secure wallets, and keep any private keys safe.
Additionally, when trading Bitcoin, steps can be taken to make safer trades. This includes doing a thorough price analysis by consulting trustworthy sources and using reliable and trusted technical indicators, as well as setting up automated buy and sell orders to reduce risk of loss or missed opportunities when not actively trading. Finally, although simple, it is important to understand the psychology of trading and to not invest more than you can afford to lose. This stability is further improved through portfolio diversification.