Bitcoin trading has become extremely popular with the cryptocurrency’s rise in value. Here are some pros and cons to Bitcoin trading:
Pros of Bitcoin Trading
Bitcoin is decentralised, which means there are no regulations or rules set by a central bank. This makes Bitcoin trading very attractive due to its simplicity and lack of costs associated with transferring money between countries. There are also typically low fees attached to each trade that is made, making it an affordable option for many people wishing to buy into Bitcoin. You can also visit Brexit Millionaire for further details.
Bitcoin prices are purely market-driven, meaning there are no fundamentals involved when determining price. This provides an opportunity for traders who can profit from short-term fluctuations in value by buying during moments of panic, or selling during times of euphoria.
Due to Bitcoin being a digital currency, it is quickly transferred between any two points digitally. This means Bitcoin traders can buy and sell Bitcoin on exchanges from anywhere in the world at any time they desire, without having to go through rigorous verification processes.
Bitcoin deposits are not subjected to withholding tax or capital gains tax, making trading Bitcoin attractive from a financial perspective. Withdrawals of Bitcoin profits in many jurisdictions are also free of any taxation (although this may vary depending on the jurisdiction.)
Cons:
While Bitcoin has no regulations set by a central bank, there is still an element of price manipulation that can be present due to the lack of regulation. Centralised exchanges that trade Bitcoin often function with fractional reserve banking practices (meaning they do not have the Bitcoin to back up the Bitcoin being traded.) As Bitcoin becomes more popular, this could become a bigger issue.
There are very few professional Bitcoin traders in the world. This means that when Bitcoin is falling rapidly in price, inexperienced Bitcoin traders may panic selling their holdings because they are less likely to understand what is happening. Because of this, Bitcoin trading is not recommended for beginner cryptocurrency users.
Bitcoin exchanges are constantly targeted by hackers who wish to steal money from these repositories. If an account at an exchange is hacked into and the user does not have two-factor authentication enabled, then all of that person’s funds will be stolen if they attempt to withdraw them without any other form of protection in place. This has happened many times over the past eight years and is one of Bitcoin’s biggest drawbacks.
Bitcoin can be mined by anyone with a powerful computer, which means Bitcoin trading is not something that only serious investors can get involved in. Anyone who purchases Bitcoin at its current price and then forgets about it will probably find themselves waking up to huge profits in the near future (at least if they bought during periods such as these.) This has led to Bitcoin being known as ‘digital currency for idiots’.
Bitcoin exchanges are not insured against cyber attacks or hacking, meaning that any money deposited at an exchange could be lost forever if said exchange is hacked successfully. There have been several high-profile examples of this occurring over the past few years, including the $460 million Bitcoin exchange Mt. Gox hack, and Bitfinex’s $72 million Bitcoin theft in August 2016.
Bitcoin is open to value manipulation by big players such as governments and central banks who can push its price up or down at will through large-scale purchases of Bitcoin on exchanges. This happened in May 2010 when a Bitcoin was bought for $0.10 and then sold for $32 three months later, doubling the price overnight and making many people multimillionaires practically overnight (at least if they had enough money to purchase any Bitcoin at this time.)
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Bitcoin trading is not regulated meaning that traders are exposed to greater risks from speculating with Bitcoin than traditional securities trading methods provide. Bitcoin exchanges may suspend Bitcoin for hours or days at a time, subjecting Bitcoin traders to losses due to Bitcoin
Another problem with trading is that there can be periods of high volatility where buying and selling Bitcoin on an exchange is difficult as the price swings back and forth rapidly. This means market orders (bidding at a certain value) may become impossible to fulfil, but stop-loss orders (selling if the price falls below a certain level) are still possible. As well, traders must work quickly in order to exit their positions before the price begins swinging again at the position’s disadvantage.
