Bitcoin is credited as the original and most well-known cryptocurrency. It was created by a person or group of people under the name Satoshi Nakamoto in 2009 and was intended to be used as a method of payment free from government supervision, transfer delays or transactions fees. However, bitcoin is not yet widely accepted for all transactions as some consider them too volatile to be a suitable method of payment.
Bitcoin relies on two underlying mechanisms in order to function – the blockchain and the mining process.
What is the blockchain?
The blockchain is a shared digital ledger which holds a record of all bitcoin transactions. Each cryptocurrency transactions are grouped together into ‘blocks’ by miners. The transactions are then cryptographically secured before they are added to the existing blockchain. Each ‘node’ or computer connected to the network automatically downloads a copy of the blockchain which allows everyone to track transactions without the need for central record keeping.
The blockchain is accessible to everybody at any time. The shared record can’t be changed without the agreement of the rest of the network.
What is mining?
Mining is the process of attaching new transaction records as blocks to the existing blockchain. Once a block is secured, new units of cryptocurrency known as ‘block rewards’ get credited to the miner. Miners can inject these units directly back into the market. Due to their crucial role in the process, miners can exert ownership of their bitcoin within the blockchain.
When you buy bitcoin on an exchange, the price of one bitcoin is usually quoted against the US dollar (USD). In other words, you are selling USD in order to buy bitcoin. If the price of bitcoin rises you will be able to sell for a profit, because bitcoin is now worth more USD than when you bought it. If the price falls and you decide to sell, then you would make a loss.
With CMC Markets, you trade bitcoin via a CFD account. This allows you to speculate on bitcoin price movements without owning the actual cryptocurrency. You aren’t taking ownership of bitcoin. Instead, you’re opening a position which will increase or decrease in value depending on bitcoin’s price movement against the dollar.
CFDs are leveraged products. This means you only need to deposit a percentage of the full value of a trade in order to open a position. You won’t have to tie up all your capital in one go by buying bitcoin outright, but can instead use an initial deposit to get exposure to larger amounts. While leveraged trading allows you to magnify your returns, losses will also be magnified as they are based on the full value of the position. You could lose more than your deposit.
Open a long or short position**
CFDs allow you to trade on both rising and falling prices.
Efficient use of capital
Leveraged trading means you only deposit a small percentage of the full value of a trade in order to open a position. Remember that both profits and losses will be magnified, and you could lose more than your deposit.
No exchange account or bitcoin wallet
Unlike trading the underlying bitcoin, there is no need to open an exchange account or bitcoin wallet to hold the bitcoin you have bought. This means no waiting for approval from the exchange, no concerns about keeping your wallet secure, and no fees if you want to withdraw funds later.
Trade with an established provider
CMC Markets is a regulated provider. We have over 28 years of experience in the industry and also offer support for all our clients whenever the markets are open.
Cryptocurrencies are still relatively new for most people and can be extremely volatile. We want our clients to have access to in-depth educational materials to support their trading.
Bitcoin’s volatility is driven by many factors, including:
Cryptocurrencies, which are generally unregulated in themselves, are high-risk, speculative investments, which will impact any cryptocurrency CFD trades that you enter with us. The value of cryptocurrencies, and therefore the value of CFD Trades linked to them, is extremely volatile. They are vulnerable to sharp and sudden changes in price due to unexpected events or changes in market sentiment. CFD Trades are leveraged products. Therefore the combination of increased volatility and leverage has the potential to significantly increase your losses if the market moves against you, relative to CFD Trades based on other products. Accordingly, you should only invest in cryptocurrency CFD Trades if you consider that you have the knowledge and experience of, and fully understand the risks associated with, both CFDs and cryptocurrencies.
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**Please note we may, at our sole discretion, restrict your ability to go short.