Bitcoin is a digital currency that relies on public adoption and confidence when it comes to claiming a stake in the “medium of exchange” market share. Demand can only rise when Bitcoin performs beyond expectations, as was the case in 2017 when it rose by over 150%, closing the year trading on $12,000 per BTC. The steep rise in the value of Bitcoin subsequently resulted in more investors, spearheaded by speculative investors who were drawn by the media frenzy.
Bitcoin defied all the odds when making its first blow in futures trading on CME, a derivatives marketplace, towards the end of the year. This drew many people to trade with Bitcoin because they were seeing it as a first step in Bitcoin regulation in the US, something they deemed would quickly transcend into other markets and countries.
Despite all this, however, Bitcoin still faces two major stumbling blocks, which are government regulation (besides Canada, there are no other governments that explicitly and legally recognize Bitcoin as a legal medium of exchange) and Bitcoin recognition by some of the world’s top business and finance experts. Wall Street, City of London, SocGen, and JP Morgan, among others, have all come out to openly express their negative feelings about Bitcoin.
With the debate raging on, many wonder if it’s safe to invest in Bitcoin and how it compares to other forex-related products. The answer is not a clear-cut one, but by breaking down the core tenets of currencies and investment, I hope to answer these complex questions.
A Look at Volatility
When anyone invests, the aim is to yield some profits, irrespective of whether you’re using Bitcoin, forex, stock, or securities as your method to do so. Price fluctuation is crucial when it comes to investments. Thus, the concept of volatility is one of the most important in deciding your investment choice. Bitcoin and other cryptocurrencies come with high volatility, which can range from 5% to 15%. Forex, on the other hand, has relatively low volatility rates, with 1% percent on average on the popular currencies and 0.5% on the less-popular currencies. It’s safe to say based on these figures that Bitcoin, therefore, suits high traders more due to its high volatility.
One of the key differences between cryptocurrencies and fiat currencies is that on the former there is no central authority, while on the latter there is a central authority. The presence of a central authority results in a uniform demand for fiat currencies, while the absence of a central authority has an uneven demand effect. This, in turn, causes difficulty for Bitcoin investors to trade at higher BTC volumes even if they have the financial muscle to do so. For forex, as long as investors have the capability, they can trade any amount desired.
To balance the scales of economy, we have to consider supply as well. Bitcoin is less liquid than the forex market, and therefore it may be extremely difficult to dispose of BTC on hand. However, it’s important to keep in mind that during times when price fluctuations are high, the problem is not deep-rooted.
Inflation, Inflation, Inflation
Inflation is another crucial factor when it comes to investing. With regards to forex, inflation is one factor that can make investors lose or gain considerably. Many of the world’s trusted currencies (US dollar, British pound, and the EUR) are generally stable, which means they are not affected by inflation on a large scale. However, in times of financial crisis, they are prone to devaluation and can pose huge risks to investors. This is not, however, the case with Bitcoin. Bitcoin has a $21 million cap which makes it inflation-proof, but still susceptible to price-level inflation. Although this is the case, the risk is considerably low.
Understanding How Bitcoin Works
Now that you’ve seen how Bitcoin investment compares to other forex-related products, let’s take a closer look at how Bitcoin actually works. While many regular internet users, including online shoppers and gamers, are already more than familiar with this cryptocurrency, there are many who are not at all sure how it all works from a practical point of view.
To start with, Bitcoin is not alone and is one of several so-called cryptocurrencies. What this means is that these types of currencies only exist within the realm of the internet and are not physically available. The only way that you can use your Bitcoin money in a physical sense is if you exchange through various online websites for conventional currencies such as dollars, Euros, or pounds. However, aside from not being available within real-world applications, Bitcoin, along with other cryptocurrencies such as Ethereum, are becoming the preferred option for making fast and secure online payments and transfers of funds.
There are a number of additional advantages to exchanging your particular currency for Bitcoin. For one, the use of Bitcoin does not require the user to register any personal details online, or even to register their credit card information online. The main reason for this is that terrestrial currency is exchanged at various online Bitcoin exchange websites for Bitcoin via a Bitcoin e-wallet. From that point on, the user can then make safe and secure online purchases, transfer Bitcoin to another user, or make anonymous deposits of Bitcoin with any online website that accepts it.
Aside from the myriad of attractive investment factors that have been associated with Bitcoin, this wholly decentralized cryptocurrency has made many other spheres of online endeavor possible, which had previously been restricted. A perfect example of this is online gambling, where the use of Bitcoin allows for total anonymity whilst online. This means that online gamblers are able to make safe, secure, and anonymous deposits with various online gambling sites (online casinos, sportsbooks, and so on) that accept Bitcoin as an official payment option.
The anonymity factor also makes Bitcoin ideal for gamblers who would otherwise be restricted from depositing funds with online gambling sites, such as those sites that restrict US players from signing up. Being able to deposit in non-terrestrial currencies (such as dollars) and not needing to withdraw to terrestrial clients (such as banks) neatly sidesteps the US laws governing online gambling activities for US players.