For the newbies, a point of clarification.
The architecture of bitcoin is a radical departure from most of the financial world, but not all of it. In absolute terminology, they are a structured derivative. Most likely if they survive (I am betting they will), they will ultimately be absorbed into the financial industry as that product type.
While "swapping paper back and forth" is a useful metaphor, the fact is virtually all derivatives and currencies are already digital. I have not ever in my two decades actively trading transacted any paper for any other paper, aside from a brief foray into the trading floor where there were actually paper tickets, but even those represented something else, not the paper.
In the last year I have bought and sold soybeans, wheat, corn, natural gas, gold, platinum, palladium, crude oil, euros, yen, SA Rand, and option on several of those as well.
I have only been to a soybean field once ever. Didn't like it. Have enjoyed the occasional edamame with my sushi. I couldn't pick out a spring wheat from a winter wheat from a tumbleweed in a line-up, but I am a professional consultant advising wheat farmers and end users for risk management and price protection. I have no natural gas pipeline or storage facility, I have no idea where my gas goes when I sell it or where it was when I bought it. I have never held a yen in my hand, have had a few euros on occasion for spending. It is all digital.
The difference between trading natural gas or soybeans or yen is a matter of making a secure digital transaction over an exchange. Having knowledge of the markets (and yes, if you are a GOOD technical analyst it is immensely helpful, however if you are a bad technician god help you) is important. Having a deep understanding of risk management and refined trading skills is vastly more important.
You are all speculating on bitcoin. I don't care what your premise is, the cardinal rule of trading is the future is unpredictable. Thus you must understand the mental environment of a successful speculator to trade bitcoin, or anything else. Anything that fluctuates in value and has an available counterparty is a vehicle for speculation. In this way bitcoin is no different than any other commodity we trade, save for the much higher potential of high sigma price fluctuation. Which is a good thing. If you're a speculator.
Make no mistake, those of you who believe you have reinvented the wheel and are knocking the old hands in this game, we will watch you ride your emotional rollercoaster, and in the end we will quietly, cautiously, mop up the floor with what is left of you. Trade humble, or go broke. It is a law. Write it down.
later...
[edit- Thanks all for the props above, always appreciated...)
Great post jballs, but I fear it will fall mostly on deaf ears. You see most of the bitcoin true believers are 20 somethings who have never traded professionally or for an extended period of time for that matter. They have never traded during a speculative bubble like the late 90's tech bubble or the 2008 oil bubble. They think they have everything figured out and that older people have no idea what they are talking and nothing to add to the conversation.
They think bitcoin will take over the world in short order and render the dollar, euro, yen, gold, Fed, ECB, BOJ, investment banks, hedge funds, stock and bond markets completely obsolete and useless. According to them bitcoin does not follow any of the old rules of trading. Charts, technical analysis, risk management, profit taking, trading experience are completely worthless. Bitcoin is a completely new animal. In short, "this time its different."
Jesse Livermore, one of the greatest speculators of all time, once said, "There is nothing new in speculating. There can't be because speculation is as old as the hills. Whatever happens in financial markets today has happened before and will happen again."
) to start a bitcoin exchange, but until then, there are safe ways to trade.
