Cryptocurrencies, notably Bitcoin, rose to prominence a few years ago for a number of reasons. Firstly, blockchain technology has attracted quite a large following due to the fact that the encryption used in BTC (Bitcoin) is more advanced than anything else within the financial industry. This is why cryptocurrencies quickly became popular amongst technologically savvy financial geeks. The security of the data is paramount. Secondly, cryptocurrencies presume a large degree of anonymity, not being controlled by any government or international organisation. This has attracted a large number of users who prefer to be under the radar. The flip side of this is the attractiveness of using Bitcoin and other cryptocurrencies for questionable or downright illegal transactions. These new currencies became the easiest way to transfer money without leaving a trail. BTC’s growing popularity has seen it develop as a payment method used for purchasing all types of goods and services, especially the ones that entail a large degree of privacy. While still largely used online, in recent years, users have seen Bitcoin payments offered in local stores and Bitcoin ATMs popping up in major cities across North America.
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Initially people were ‘mining’ Bitcoins and using them as a currency for trading goods and services. However, the rapidly growing popularity of Bitcoin led to extremely erratic BTC/USD exchange rates with the value soaring and plummeting within short periods of time. While it is possible, though very rare, to see a 2-5% volatility on EUR/USD or other major currencies, Bitcoins can easily, and often do, fluctuate some 20-25% within just a single day. Even though BTC is often traded without any leverage or with minimal gearing such as 5:1, it is still a very popular asset for day traders. It could be said that due to such little leverage Bitcoin gambling does not really exist on the market, with most participants seeing themselves as traders, not gamblers.
When NOT to trade BTC
Most Bitcoins are traded on their respective exchanges or via brokers. These are the companies that hold BTC for you and allow you to exchange your USD to BTC and vice versa. As there is no governmental authority or oversight, there is also no additional security protecting your funds. For example, if you have $50,000 USD worth of Bitcoin suddenly disappear from the exchange you are holding them on you have no one to file a complaint with and demand the funds be returned. With that major downside, there is some upside. What makes this currency so great is that you can keep it just on your hard drive, safe in the knowledge that you have full possession of your BTCs as long as your hard drive is safely stored . As mentioned, dramatic Bitcoin fluctuations are common, with greater volatility and higher risk levels than traditionally seen in the financial markets. The primary risk is not necessarily an unpredictable move of the market, this is what traders accept as how they will make or lose money, but the risk of seeing the company acting as your exchange closing up without notice. This is why you should never keep funds at the exchange when a dramatic fluctuation is approaching. So what can you do then? Let’s find out!
What should you do with your BTC?
There are a few things you can do with your crypto assets when you don’t want to change them back to USD and do not wish to trade due to the risk of exchange bankruptcy. One of the easiest options is to actually use BTCs to cover purchases, but this is only applicable if the exchange rate is acceptable. Think about bills and goods and services you would normally use that can be paid in Bitcoins. The fiat currency saved is the investment profit or loss, as the case me be. There are now many instances where you can use BTC as the means of payment and not as a trading instrument. There are a few Forex brokers that accept Bitcoins as the payment system and you can:
a) just deposit your BTC, convert them into USD and then reconvert to BTC (hence, trade, without using an exchange)
b) simply trade other assets that are not BTC related, while making your deposit in BTC. Although if you are not familiar with other markets then it would be more akin to Bitcoin gambling.
If you are risk averse and enjoy games of chance you can try engaging in actual Bitcoin gambling in one of the online Bitcoin casinos which have recently appeared. This is of course pure recreational gambling and not investing. Nevertheless, it is little different than spending an evening at the local casino or buying scratch cards or lottery tickets.
Bitcoin is becoming a very popular alternative currency that is great for intraday trading due to its volatility. There are bound to be opportunities for a variety of different investors. Yet it is important to keep your risks low when the market is nearing a major fluctuation, whether hype or a correction. However, you can still find the ways to put your BTC to work even if you want to keep the cryptocurrency on your hard drive and not risk an exchange.