I first started writing about cryptocurrencies in 2013, and mined Bitcoin from my laptop that year. I also had the pleasure of being quoted by Minyanville for an analysis in my article titled, Bitcoin Arbitrage, Scalping Market Inefficiencies, and Currency Market Share Gradual Shift, which appeared on Yahoo Finance. Fast-forward to today, and the market for alternative investments has grown exponentially. 139 billion as of Forex systems fxopen mt4 14, 2017.
Bitcoin’s price rise has been in 2017. Needless to say, Bitcoin’s place as an alternative digital asset among cryptocurrencies has become entrenched, despite likely headwinds it will continue to face as it evolves further. After going over the three ways to trade Bitcoin, we will extend our exploration into the pros and cons of each way, and then provide a bottom line for each category and an overall summary further below. Buy a publicly listed security related to Bitcoin and hold shares with an online stockbroker. Taking the first option listed above, which is to buy the underlying, you become the direct holder of the digital asset.
From there, you can transfer the crypotocurrency to any bitcoin address or wallet address using your private key that verifies you control ownership of the asset. This responsibility to safeguard your private key which controls the digital asset also comes with some additional risks, as explained below. First, we will go over the positive sides of owning the underlying digital asset. You control the actual underlying digital asset. No thirdparty counter-party risk when the private key is held in cold storage offline. Technical knowledge may be required to carry out operations. If the private key is stored at the exchange where you bought the Bitcoin, it could be hacked and your Bitcoin could be stolen from the exchange.
It is important investors realize not all exchanges and brokers that offer delivery of the underlying Bitcoin are created equal. Some firms have fallen victim to theft by hackers who have stolen Bitcoin belonging to clients whose money was held at the exchanges. Nonetheless, choosing an exchange that meets your needs is important. Bitstamp to offer actual deliverable Bitcoin. And Japan-based GMO Click Holdings, another one of the largest forex brokers by volume, has launched its GMO Coin offering for Bitcoin investors. Trading a CFD or derivative on Bitcoin negates the responsibility to safeguard any private keys. Brokers may be able to offer lower transaction fees, although spreads may be slightly wider or marked up, depending on the liquidity sources the brokerage uses.
Margin trading means there is a chance of a negative balance occurring in the case of huge market volatility, a gap, or other Black Swan systemic event. In such cases, counterparty risk falls on the broker, which means if the broker declares bankruptcy, investors may suffer substantial losses and not receive priority among creditors. Bitcoin using an online forex broker will provide them with 24hour trading, potentially lower margin, and the ability to go either long or short. Because of counter-party risk, choosing a broker is just as important as finding one with the best trading tools or commission rates. Trades as a publicly listed security on exchange under exchange guidelines.