How Not to Speculate on Bitcoin

It appears the year has started with positive bitcoin movement.  For those of you who regularly watch bitcoin, you are experiencing multiple episodes of deja vu.  We've seen this before; the price steadily increases over a short period of time, a few mild investments are made, and then the market is flooded with last minute speculators employing the "buy high, sell higher" strategy, which of course ends in disaster for them as well as everyone else.

Here are a few tips to remember before you become crypto-crazy and the market starts to bubble again:

1. Get in before the price curve starts to exponentiate (Buy low, sell high)

2. If jumping in while the price is rising rapidly, invest long (In the bitcoin market, that could be as little as a month)

3. Buying a ton of cheap alt coins will not make up for missing out on past bitcoin rushes

Tip 1:

When the price of an asset starts to increase rapidly without clear cause, speculation is likely to blame.  The greater the speculation, the more potential for volatility within the market.  The following graphs show how major crashes were preceded by increased exponential growth.  

Tip 2:

If you can't resist the urge and must buy during a hot episode of market speculation, you will be attempting the "buy high, sell higher" strategy.  You should be ready for a potential crash with aims of cashing in later down the line.  If not, you will end up like the following:

This is the story of most bitcoin panic sells.  Understand that bitcoin is a technology that solves a problem, and that a lot of bitcoin users have adopted it for this reason.  The value bitcoin offers is more than speculative.  If you haven't done so, I would recommend purchasing a good or service with bitcoin.  This might ease the investor portion of the mind, and help paint a long term view of bitcoin's potential.

Tip 3:

If investing in a market, do so because of properties specific to that market.  Perhaps you feel the community's enthusiasm behind the market is a good indicator.  Perhaps the market has an long history of success.  Perhaps you are counting on upcoming events to lend an advantage to a specific market.  Perhaps this, perhaps that.  Whatever the case, do not invest in an alt market merely because you are sad from missing out on bitcoin in the past. 

Keep a calm head.  Understand the long term importance of the currency.  Let 2014 be a phenomenal year for bitcoin!