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Trading Articles

What is Bitcoin and the pros and cons of trading Bitcoin

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You’ve no doubt seen the news stories about the incredible price increases that have made Bitcoin one of the most talked-about assets of our times. If you haven’t yet looked into the pros and cons of trading cryptocurrency bitcoin, read our guide to find out the relevant facts.

What is the Bitcoin cryptocurrency?

Bitcoin (BTC) is a decentralised virtual currency that was first made available in 2009. Mystery surrounds the creator, with the name of Satoshi Nakamoto being the only thing we know about him. Bitcoin can be used to pay online or to send money to anyone anywhere on the planet. Yet, the fact that the value of BTC has grown so much since its launch has also seen it become a popular type of investment. The currency is set up with a limit of 21 million coins that can never be exceeded. These coins are mined by users gradually, becoming more difficult and time-consuming all the time.

The pros and cons of trading bitcoin

The Bitcoin price volatility
The first thing you need to know about trading Bitcoin CFD is that its price has been incredibly volatile historically, with huge swings causing investors to potentially gain large profits but also creating the risk of losses. This isn’t the type of investment for someone who wants a safe, steady return on their money. The volatility issue can be seen as a positive for Bitcoin trading strategies, where you profit from either rising or falling prices.
The transparency and security
One of the key benefits of Bitcoin trading or investing is that it’s run on a transparent and highly secure open-source network. The risk of your money disappearing or someone committing fraud to access it without your knowledge is virtually non-existent.
The lack of regulation
Financial authorities do not regulate BTC and other cryptocurrencies, as it is entirely independent of these bodies. Since it has been around for a few years, people are now generally more accepting of it as a real currency, but not everyone is comfortable putting their money into a decentralised virtual currency with no central authority behind it.
The complexity of storing BTC
The high levels of security surrounding the Bitcoin cryptocurrency come at a cost, with the arrangements for storing it fairly complex. You need to set up a wallet or store it in an online exchange. Either way, the risk of losing access to your BTC is something to remember, as there have been cases of people losing enormous sums of money when their password key goes missing or some other problem strikes them. Trading BTC CFD gives an easier approach in this respect.

What other cryptocurrencies are the most traded?

BTC is the highest-profile cryptocurrency around, but it’s far from being the only one. The following are a few of the other tokens that are among the most widely traded.

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Ethereum (ETH)
Commonly called the second-biggest cryptocurrency after BTC, Ethereum uses an open-source blockchain approach that allows smart contracts to be created. This network has been active since 2015, with Vitalik Buterin being one of the high profile co-founders. The growing popularity of NFTs has put this network in the news a lot recently, but trading Ethereum currency remains an intriguing option too.
Ripple (XRP)
The Ripple currency has largely been focussed on international remittances, meaning that many banks have signed up to use it for their international transfers. Its price has been volatile, partly because of legal concerns and partly because of the announcements around new partnerships.
Litecoin (LTC)
Launched in 2011, Litecoin is one of the longest established altcoins and is notably similar to BTC in its technical specifications. LTC is one of the most actively traded cryptocurrencies and is highly volatile.
Tether (USDT)
Tether is the best-known of the stablecoins, which are linked to real-world assets. Here, a single USDT token is always worth a single US dollar, which is a set-up designed to remove the risk of price volatility.
Bitcoin Cash (BCH)
Created in 2017 as a fork from the Bitcoin cryptocurrency, Bitcoin Cash came about as a result of a difference of opinion in the online community. A year after this, Bitcoin Cash SV was launched following a further spin-off.

Will cryptocurrency be the future of currencies?

Opinion is split over many aspects of cryptocurrencies. However, one thing that seems certain is that some form of digital money will be widely used in the future. Several countries are preparing plans to launch their own national tokens, while the most popular digital currencies like Bitcoin remain hugely attractive for many investors.

There is no doubt that digital money has become a fascinating topic for many people in recent years, with new investors willing to try it. However, this remains largely localised, with some countries seeing a far higher level of cryptocurrency ownership than others. For example, some sources suggest that in the US over 20% of the adult population owns BTC.

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This would mean that 46 million of the estimated 80 million BTC users are American. Perhaps the key trend that would take cryptocurrencies to the next level is when they become popular on a truly global scale. At the time of writing, this appears to be a question of when rather than if, although there are still some obstacles to be overcome for cryptocurrencies to become mainstream.

Things you need to consider before trading Bitcoin

Your next step in terms of what Bitcoin is, is to understand the best way to start trading. The key to investing in Bitcoin or other tokens of this type is in analyzing the information and deciding whether the time is right to do so. Predicting future trends is challenging, but there is a lot of information out there for you. Look for price charts and trend analysis charts to see what appears likely to happen next.

You could also consider investing in Bitcoin directly or Bitcoin ETFs. This exposes you to the same sort of volatility that we have seen in the market to date, but as a recognised financial instrument that some people may feel more comfortable with. In Skilling we offer Bitcoin CFD trading, meaning that you can speculate on the price movement of the assets, without owning the underlying asset itself.

The next steps to start Bitcoin trading

If you like the idea of Bitcoin trading, there are some useful resources you can use to take the next steps.

Not investment advice. Past Performance is not indicative of future results. Trading cryptocurrency may not be available depending on your country of residence.

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