Benefits and Risks of Trading Forex with Bitcoin
August 1, 2018
Bitcoin is digital money or the cash for Internet and people are often referring to it as a cryptocurrency. Whatever Bitcoin is/is not, it is increasing in popularity and, more importantly, in value.
These days Bitcoin is trading above $7000 on the dollar and, if anything, we should all look at what bitcoin is and what are the benefits if any, of trading Forex with it. For a relatively new thing, Bitcoin is both popular and a mystery.
What is Bitcoin?
Bitcoin is basically a new payment system, a digital money based on a consensus network. This network is not controlled by any specific authority or person but belongs to all users around the world.
There is a set of rules for the software needed, and therefore Bitcoin can only work correctly with a complete consensus among all users. Hence, a strong incentive is created.
Trading forex can be done in any currency the broker allows for opening a trading account. This can be a physical currency, a gold backed account, or, why not, a Bitcoin backed account.
From this point of view, trading forex with Bitcoin is similar as trading forex with any other physical currency. The only difference is that the loss or profit of the trading account will be denominated in Bitcoin.
Benefits of Trading Forex with Bitcoin
Bitcoin is being viewed as an investment opportunity for the future and traders interested in the longer-term perspective, may find this as a great way to diversify their portfolio. For example, let’s assume the EURUSD is believed to reach 1.70 in a five years’ span.
If the trading account is having the U.S. dollar as the base currency, if the EURUSD pair is reaching that value in the next five years, a profit will still be made, but it will be related to the value of the U.S. dollar. Because the dollar weakened, the opportunity cost of trading the EURUSD with a different trading account is lost.
If on the other hand, the account was Bitcoin-based, and the Bitcoin surges in that same period of time, it means that the profit will not be only the one from the actual EURUSD trade, but also will be influenced by Bitcoin increasing in value.
This is how any trading account should be aligned for a long-term investment. However, there are other benefits to trading Forex with Bitcoin.
Such an advantage will be the fact that the cryptocurrency can be easily used for electronic payments. Such payments are made from a wallet application, working exactly like an app does.
But the biggest advantage is being given by payment freedom. It is possible to pay with Bitcoin in any parts of the world, any amount you wish. This is a problem with other current payment systems.
Risks of Trading Forex with Bitcoin
The main risk is related to the fact that Bitcoin is not regulated. There is no authority involved in regulating it, and this is a difference when compared with other currencies.
For example, the ECB (European Central Bank) is the authority behind the Euro, the Federal Reserve is behind the dollar, and so on. For Bitcoin, there is nothing but a software that is still in beta testing.
Another thing to consider is the volatility of Bitcoin’s value. It may be that in time it will prove a worse investment than people think now, as no one really knows who the market will move.
All in all, it seems that Bitcoin is here to stay, but many people are still unaware of it. This is both a positive and negative thing for Bitcoin, as early users may have a competitive advantage.
The only thing that matters when trading forex with Bitcoin is that in the end the value of the investment to still be the same, meaning Bitcoin should not lose its value. Otherwise, the account holder will regret the decision of using Bitcoin to fund a trading account.