With the popularity of Bitcoins increasing by the day, more investors all over the world are expressing interest in this cryptocurrency. Also known to the world as altcoins, investors are on the lookput for more information on how it can be traded like its more traditional counterparts: forex and gold.
Bitcoins, in spite of their stark differences from gold and forex, also bears some similarities with them. It makes a unique and viable investment and trading instrument. Bitcoin can be thought of as a hybrid combination of gold and forex and can be traded regularly in a volatile market using stop loss markers and profit orders to retain the capital involved.
Related Article : What is Bitcoin
Some investors liken Bitcoins to long-term investment instruments such as gold. They give it the name digital gold for Bitcoins, which can be mined online using code that is specially used for encryption of equations to maintain the integrity of the existing blockchain. The blockchain is akin to a general ledger which holds all the transactions that have been conducted with Bitcoins ever since they have been invented. Bitcoins are also share decentralized characteristics similar to forex and gold.
Theoretically, in a manner similar to gold, the demand for Bitcoins can increase its value over time when the supply becomes limited. However, one unique factor about Bitcoins is that only a maximum of 21 million Bitcoins can ever be mined. Therefore, its supply is controlled and it does not get printed often like dollars and other currencies of the world. Using the same logic, it is also important to note that the currency would suffer a huge amount of deflation if it becomes very widely used because it has a fixed monetary base.
Towards the end of last year there were exactly 14,594,075 Bitcoins that were in circulation among the users and 6,425,925 that remained to be mined. Many financial experts, however, are of the belief that the true value of the Bitcoin will be revealed only when the last Bitcoin has been mined. Many popular online exchanges currently value one Bitcoin at about $800.
Bitcoin Vs. Forex
Bitcoin is also linked to forex in that their prices are based on supply demand factors. In forex, leveraged contracts are traded to increase the gain. When the leverage ratio in forex trading is high, the risk is also high. Bitcoins can also be margined and can be structured in a manner that is identical to stocks that trade with extreme volatility and price swings.
The main difference between forex and Bitcoins is governed by their liquidity factors. Whereas forex is currently a 5 trillion market, Bitcoin is merely a 3 billion market. Therefore, the price stabilization of Bitcoins follows this inflation rate. The forex values depend on the economic picture of the countries concerned.
The value of Bitcoins is based on the climate of the cryprocurrency ecosystem. Because of the small market size that Bitcoins have, the price change will be very noticeable even when the volumes traded are low. This creates a volatile trading atmosphere. Whereas Bitcoins can be traded 24 hours online for all seven days of the week, forex can be traded only for 24/5 because of the schedules fixed by traditional financial institutions.
Bitcoin Vs. Gold
Bitcoin, a virtual currency, may be sold, bought, traded or held through peer-to-peer or established exchange services. The Bitcoin is not controlled by any government or financial institution and its value is solely determined by demand and supply factors. Currently its value is pegged to that of the US dollar and can be converted to the same just as any other currency like the yen, euro or the Canadian dollar.
All other crypto-currencies are pegged to the value of the Bitcoin. The value and success of any cryptocurrency are dependent on factors such as their acceptance by merchants, adoption for mainstream transactions, consumer confidence, and its use in the real world. A thriving decentralized economy will help to create a strong trading platform for the currency.
Bitcoin is virtual in nature and not physical like gold. They can be stored anywhere online where the owner chooses to store them. Bitcoin wallets are identified by public and private address keys. Offline cold storage locations are preferred by the owners to store Bitcoins safely. These storage areas keep the Bitcoins from being hacked or stolen by cyber thieves and criminals.
The Public key is used for incoming deposits and sales. Your public key is your actual address (‘addy). It is a set of numbers that you share with the public so that they can send in your payments. The Private key is not to be shared with anyone. Meant for withdrawals that are outgoing and payments, it is to be kept absolutely safe. If someone acquires your Bitcoins by getting to know your Private key, there is a zero chance of getting the money back. Whereas the Public key can be compared to a bank account number, your Private key is equivalent to the password of your account. However, a user can have any number of Public and Private keys to segregate the Bitcoins for various uses.
The Bitcoin has a virtual floating exchange rate that does not have a base physical asset. However, gold is a physical commodity. In both the investments the final value is dictated by the factors such as prevalent market sentiment and investor confidence. When trading any of the aforesaid instruments, stability is a factor that should be checked by the investor first.
Whereas gold has a historic track record as an instrument for investment, Bitcoin can be considered to be still in its infancy. Some economic experts believe that there are many more years left before it can stabilize. Gold is limited in its supply and difficult to mine and refine. It therefore commands a high value. The ease of divisibility and its durability have made gold the time tested and long standing choice of investors. Investments in gold are believed to provide security, safety and stability in times of economic uncertainty.