What is bitcoin?
The international Forex market is the product of an agreement to link the world's freely convertible currencies to the US dollar (to replace the gold standard that operated until the 1970s).
Each national currency is controlled and managed by the Central Bank of the country and the G-7 club.
So it was until 2009 when the group of anarchist programmers came up with an algorithm for mining digital currency bitcoin using mathematical calculations.
The genius of the idea was that the digital currency was not controlled by anyone and, being combined into a peer-to-peer network, could simultaneously serve as a means of payment and transfer.
Since 2009, people have used the novelty trying to transfer it offline - everyone knows the story of the purchase of pizza for an unthinkable by today's standards price of 10,000 bitcoins.
Awareness of the value of such factors as absence of control, anonymity, speed of mutual settlements, as well as freedom and ease of mining with a computer (it’s Jack London-style romantic but without dogs and hiking through the Yukon Valley pass while mom brings you sandwiches), brought popularity to the cryptocurrency, which can be equated to the US dollar. This led to a rapid growth of the cryptocurrency, which turned out to be faster than any market asset’s.
Unfortunately, the production of bitcoin is not infinite and tends to a value of 21,000,000 units.
All p2p network transfers are transparent, transactions are protected by mathematical validation and public, as well as the balance of the wallet tied to the payment address (available as a link to the platform https://blockexplorer.com). The electronic wallet is a permanent repository of bitcoins with the possibility of infinite address changes. Therefore, anonymity is achieved by changing the address, although it is not so easy to calculate the person behind the address that receives and transmits the payment anyway.
The idea of a decentralized digital currency, which is also a payment system, was in demand by the global community of users. By linking the cryptocurrency to the dollar and building exchange systems for real currency, bitcoin has entered the global economy, overshadowing the capitalization of many national stock exchanges.
Bitcoin is impossible to control: one cannot set a commission when transferring from a wallet or impose a ban on payments.
Where is bitcoin traded?
Bitcoin is the first cryptographic currency recognized by some world exchanges and brokers. It can be traded via Metatrader with Forex brokers through CFDs (LiteForex, Forex Club, InstaForex, FxOpen, Amarkets).
Regulation of bitcoin exchange trade as a digital currency on the part of state bodies is not well established yet. In this regard, the reliability of numerous private cryptographic exchanges that have recently emerged, is determined by the amount of funds passing through the website.
At http://data.bitcoinity.org/ a user can receive exhaustive information on how the turnover of the cryptocurrency is distributed among various world exchanges.
Such websites usually have a low leverage (1 to 3 maximum), and a high transaction commission of 0.2%. Trade is carried out on web platforms, and the attempt to use Metatrader, as suggested by the BTC-E exchange, will result in a poor result. This is due to the lack of experience in organizing trading on such a platform and low liquidity. As a consequence, quotes visually differ from the web platform. There are numerous cases of price slippage, orders are not executed, the connection often breaks, and the commission increases manifold with the use of the leverage.
Many exchange sites organized futures trading, maximizing the leverage to 1 to 20. Given the liquidity, it is obvious to choose Chinese stock exchanges that have introduced futures and have been improving trading platforms.
The first stock exchange that traded bitcoins (47% of the world's turnover) turned into a scam after seven years of existence.
MtGox, which replaced the original founders in 2009, by 2011 was officially registered with the Tokyo Chamber of Commerce. The bankruptcy procedure was started in 2014, after a series of hacker attacks that began in 2011. Hackers stole a portion of client funds by setting the current rate of bitcoin of one cent on the site. The owners' losses were estimated at $8 million.
The external management of MtGox found a hole of half a billion dollars – this is the approximate amount of the gap after a partial refund of creditors' claims.
The next exchange that shook the market with a crypto crash was Crypsty, which chose a development model that offered trading a wide range of so-called altcoins.
As shown by the experience of other exchanges, this approach (expansion of the range of cryptocurrencies) guaranteed a rapid increase in volumes. Crypsty was the first exchange with the largest line of such alternative products, which allowed hackers to repeatedly use the security gaps of the new cryptocoins and steal so much that it lead the site to bankruptcy in 2016. The amount of losses claimed by the creditors was $4 million.
In 2017, arose from Bitfinex, the third largest exchange in the stock exchange, had problems with payments. The force majeure was exacerbated by the actions of Chinese authorities that stopped the work of BTC China and other local exchanges.
In this situation, working with the cryptocurrency through a Forex broker is preferable, since the trader understands the risks of the selected broker, whereas an exchange platform is a black box with an incomprehensible regulation that will not save, as history shows, from ruin and loss of funds.
An obvious and common strategy is to hunt for spread. Despite the high commissions of the sites, the difference between the price of the buyer and the seller is substantial, which brings a decent profit for those who like to occupy positions on both sides of the spread, simultaneously placing trades for purchase and sale. This tactic is especially popular on weekends, since bitcoins are traded seven days a week.
Advanced spreaders use the Ripple network (cryptocurrency and payment system). Due to its peculiarities, you can make instant trades within the payment network on different stock exchanges, taking advantage of the difference in rates (arbitrage) and the size of the spreads.
Arbitrage operations are a thing of the past - different costs of bitcoin on various exchanges is covered by commissions for withdrawal from payment systems that play a protective role and eat any profits. But, as you can see from the picture below, the difference in prices between exchanges still gives an opportunity to earn:
The user needs to study electronic payment systems, open accounts to reduce the costs of deposits and withdrawals, and study specialized information resources (bitcoin-analytics.com).
Scalpers with skills of working with the order book who have chosen a liquid exchange market as a guide, can trade on the late reaction of other sites or, relying on large lots, catch the spread using market inefficiencies.
As trade analysis shows, the main trade participants are far from having ample trader's skills. Using investment tactics (buy and hold), they rely on a simple technical analysis and the pursuit of new emerging crypto-currencies in the hope that the growth of their rate in the future will repeat bitcoin’s performance.
Chinese steroids for BTC growth
Decentralization and complete anonymity of payments has become a heavenly manna for Chinese businessmen and ordinary citizens deprived of any other ways to withdraw funds from China.
Until 2013, the Chinese, as well as foreign citizens, were banned from any transfers, while the growth of the country's economy was falling at a rapid pace after the 2008 global crisis.
The massive opening of exchange sites gave rise to a huge demand for the cryptocurrency in the Asia-Pacific region, pumping up the rate to $1,000 in one year of trading.
After the fall due to the stock exchange scam, the surge in GDP growth and the legalization of part of China's payment systems for transfers abroad, the growth of bitcoin resumed amid the continually deteriorating economic results of the country and the series of falls on national exchanges.
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.