The SEC and the CFTC have not issued their own guidance around scalping trading, despite their role in regulating certain activities.
What is a scalper?
Scalping is the buying for a brief period of time, with the buyer paying for it later on at an inflated price.
How are scalpers allowed to buy?
Because of the rapid nature of the bitcoin price swings, it is technically possible that large investors with the capital to buy will do so and they will reap big profits.
A key problem with this, however, is that there is no set limit on how much of an “instant” profit can be made.
The Bitcoin Investment Trust, for example, was trading at $300,000 when it was created. But the stock is currently trading at less than $5,700 per share.
How are institutional investors allowed to benefit from the current price fluctuations?
A key issue is that some institutional investors who have access to massive amounts of capital may end up with very high marginal returns on their investments.
How do you know when an investor is a scalper?
Most institutional investors, at some point, will face losses on their bitcoin holdings. It’s likely that they will begin to question whether their investments can remain worth their money.
If you or your client are a part of this, you have many options when it comes to mitigating your losses.
These options include:
Stopping losses altogether.
Reducing purchases in a way that protects your investment.
Selling your bitcoin.
Investors should also be wary if they are buying with the expectation for a short-term gain. If there are high frequency trading fees attached to it, then it is likely that the value of their bitcoin may have increased significantly in the last 24 – 48 hours.
What can you do to protect your bitcoins?
For a well-run portfolio, it’s always best to have a diversified portfolio of stocks, currencies and assets that move in different directions.
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