Bitcoin investment

Investing in bitcoin is markedly different to investing in other assets or currencies. That is true for any trader, whether their bitcoin investment is direct via an exchange or by using derivatives such as spread bets or CFDs. There are two key ways in which bitcoin differs from other investment assets:

Bitcoin volatility

For one thing, bitcoin is an incredibly volatile currency. Only 21 million bitcoins will ever come into existence – though each bitcoin can be broken down to a hundred million places – which means that any major announcement about the crypto-currency can produce wild movements in price.

Those extreme swings in value can be off-putting to those who are considering bitcoin as a payment method or alternative currency: the fear is that bitcoin will have lost a large amount of value even in the time it takes to process a transaction.

Attractiveness to the markets

Traders, though, are far more familiar with that volatility. Bitcoin’s rise to prominence in 2013 coincided with a long period of record-low interest rates that had the effect of quashing volatility in forex pairs. Commodities, too, were uninspiring. Gold spent much of 2013 losing value, and oil ended the year worth almost the same amount as it started it. .

Bitcoin’s rapid rise in value caught traders’ imaginations, bringing the crypto-currency into the spotlight in a big way.

Commodity or currency?

That bitcoin rose in prominence during a quiet time for forex and commodities is no coincidence. For consumers, bitcoin exists as an alternative to fiat currencies. Its key differences to other currencies are what mark it out, but in scope it is still a payment solution.

For traders, however, bitcoin has a different make up altogether. While its use as a form of payment is crucial to its long-term success – every merchant who accepts bitcoin increases its liquidity and legitimacy – on the markets bitcoin sits somewhere in between commodities and currencies.

Differences to forex pairs

Unlike forex pairs, bitcoin’s success is not tied to the relative performance of any economy. It is also not in the thrall of any central bank – central banks can only really affect the price of bitcoin with threats of regulation. Instead, bitcoin is released via mining, a process that was devised to resemble the rate at which commodities like gold hit the market (hence the name, ‘mining’).

Bitcoin also has no inherent usefulness except as a means of payment. Like gold, it relies on mass acceptance that its value will remain when converted back to fiat currencies.

Replacing bitcoin?

However, bitcoin is still a fledgling technology, and new merchants are accepting crypto-currency continuously. Because its scarcity is not derived naturally, but instead written into its code, there is always a danger that another form of crypto-currency could come to replace bitcoin.

Financial traders speculating on bitcoin with IG are able to trade the crypto-currency both as a forex pair against the US dollar, pound, euro, yen or yuan and as a commodity, listed as bitcoin ($).

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