The Basics of Trading Bitcoin to USD
Although Bitcoins are not a traditional currency, they are also frequently available for Forex trading through many brokers, however whereas in the conventional currency market the fluctuation in value is measured in small fractions of a penny, the values of Bitcoins can fall and rise hugely during the course of a trading day, often jumping up and down in amounts of a whole dollar or more. This means that trading BTC to USD is exceptionally risky and is best only attempted by experienced investors. There are several issues connected to trading BTC/USD that are unique to this virtual currency. Unlike in traditional arbitrage, the volatile nature of the Bitcoin market means that traders must offload their currency rapidly in order to avoid falling victim to a crash in prices, but it is only when the digital commodity is held in the long term that the market will eventually see stability. This creates a catch 22 in USD to BTC trading. There is also a major tax implication in BTC/USD trading as Bitcoins are taxable and therefore whenever Bitcoins are cashed out for a fiat currency it is classed as an asset and is subject to tax. Also, there are issues around security and protection of Bitcoins which are vulnerable to hardware and software problems and also to cyber crime, as the virtual currency has recently been a major target for hackers.
What do you Need to Know About the Bitcoin?
Bitcoins are a type of digital currency, being held and created electronically. It is not controlled by any one authority or organisation and do not exist in a printed form like Euros or Dollars. Bitcoins are made by businesses and individuals who use computers and software to solve mathematical problems. Bitcoin is the first ever cryptocurrency and it can be used to purchase items and services electronically, in the same way that conventional currencies like Yen, Dollars or Euros can be traded digitally. The most important characteristic of Bitcoin which it apart from traditional currencies is that it is decentralised, with no central bank controlling it. Bitcoins were devised by Satoshi Nakamoto, a software developer, who proposed the cryptocurrency as a type of currency which would be independent of central authorities while being able to be transferred electronically instantly with minimal transaction fee. Bitcoins can only be created digitally being “mined” by a distributed network. This same network processes the transactions made in the currency, and as only 21 million Bitcoins can ever be created, the currency cannot be devalued in the same way as a standard currency can. Bitcoins are divided into smaller parts called Satoshis after the founder of the cryptocurrency, each one being a one hundred millionth of a Bitcoin. Unlike traditional currencies which are based on silver or gold, Bitcoins are instead based on mathematics, using a freely available open source formula.
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Anyone can set up their Bitcoin address rapidly and there are no fees to be paid and no questions asked. One of the other advantages of this currency is that it is virtually anonymous, with users being able to hold several Bitcoin addresses which have no link to any personal identification information such as addresses or names. That said, the currency is transparent in the sense that details of all Bitcoin transactions are held in the Blockchain, however there is no way of matching a person’s identity to their account. Bitcoin attracts only very small transaction fees and is very fast, making transactions virtually instant. The value of the Bitcoin varies hugely from day to day, but the current value of 1 USD to BTC is around $614.
Information About the US Dollar
The US Dollar is a traditional currency with its own very unique role in the world of international finance transactions. It is the most popular reserve currency with central banks around the world and is also the currency of choice when settling most financial international transactions. The US Dollar is known to be a stable currency and this is why many countries other than the United States itself have chosen to adopt the USD as their own currency while many more peg their own currency to the value of the Dollar. The USD is used in the setting of gold prices and in setting the prices of a number of other commodities. The Dollar is also the currency that is used by OPEC countries when conducting oil transactions. All of these factors combine to make the USD the world’s most important currency and it is the most traded currency in the world, with more foreign currencies trading against it than any other pairing. It is therefore important for any trader embarking upon Forex trading to understand the factors which influence the US economy to achieve success in their trades.
The US has the world’s biggest national economy in nominal terms as well as the 2nd biggest according to its PPP. It represents 22% of global nominal GDP and their GDP is around $18 trillion. America has plenty of natural resources as well as high productivity and a developed infrastructure which has led to a stable rate of GDP growth. They are the largest producer in the world of natural gas and oil and are also the 2nd biggest world manufacturer, responsible for a 5th of worldwide manufacturing output. Their economy is also highly reliant on the service industry.
Which Factors Affect the Price of Bitcoins?
There are many factors which affect the relative value of the Bitcoin to USD:
- Supply and Demand – only 21 million Bitcoins are permitted to be produced with around half that number being in current circulation. Bitcoin is subject to cycles of high public interest in the currency and when demand is high, the price of the Bitcoin dramatically increases.
- Banking blockades – if traditional banks block a particular business or organisation, they can still send and receive payments in Bitcoin.
- Traditional currency crises – when traditional currencies face a crisis such as a banking crash, the Bitcoin comes to the fore as it has no central bank or organisation to control it.
- Market manipulation.
- Government bans or regulation of Bitcoin currency – when a nation bans the use of Bitcoin currency, the value of the cryptocurrency will decrease.