The value of Bitcoin has skyrocketed over the past few months and it has exceeded anything it ever was in the last five years. The overwhelming performance of the crypto both as a currency and investment has appealed institutional and traditional investors. It is one of the most liquid investment assets with lower inflation risk. Moreover, Bitcoin continues to offer new trading opportunities to traders with minimalistic trading.
Danger Of Investing In Bitcoin Directly
Despite its gains, Bitcoin is also viewed as an inherently dangerous investment. The main reason behind it is that the crypto suffers from the fatal flaw of utility v/s scarcity. Bullish Bitcoin backers consider the 21 million token cap on BTC as the driving force behind this rally. Having a limited number of mineable tokens means that BTC would avoid the deflationary aspect that plagues fiat currencies such as the US dollar. The notion is that the value of each Bitcoin soars as the US and global money supply grows.
The problem with BTC is that its value depends on scarcity and utility but its design makes only one of them possible. If you view it as scarce, then there will never be enough tokens in circulation in order to make it a trustworthy medium of exchange. Meanwhile, if you want to replace BTC for cash, then it will not be scarce because it would require raising its token limit.
Furthermore, some can make a valid argument that Bitcoin provides a false perception of scarcity. Rather than being restricted by something physical, Bitcoin’s token limit is stopped from being raised by community consensus. So, investors nowadays have started to think if there is a smarter way to earn money from Bitcoin without actually buying it.
A Different Approach – Bitcoin Cryptocurrency CFD
CFD (Contracts for Difference) is a derivative investment instrument, based on contracts between the trader and the broker for their sale on a certain date. Sold over the counter, CFD trading on cryptocurrencies allows traders to predict on if the price of the underlying asset, Bitcoin in this case, would rise or fall. The best part is that traders can do it without even owning BTC.
Bitcoin CFD Trading – Explained
Bitcoin CFD trading allows you to set a deal about the future price of Bitcoin. Afterwards, you may gain profit or lose your money from price changes. In fact, they are a form of betting on the price of Bitcoin.
With a CFD, both buyer and seller agree to pay differences when the value of prices rises of falls, instead of paying through the delivery of physical goods. It would be easier to understand with an example.
Let’s assume that you are confident that the price of Bitcoin will rise in the near future. So, because of your prediction that BTC will increase in value more, you want to invest in Bitcoin. Now, purchasing Bitcoin involves many complications and risks, as mentioned earlier, and it is even more difficult if you do not have a verified account on any of the BTC exchanges. So, you can opt for Bitcoin CFD instead.
In this arrangement, the seller of the CFD and you would agree to settle for a rise or drop in prices when the CFD will terminate. If you predict right about the price rising or falling, then you will be paid the difference of the current price of the contract from the time when the seller purchased it. However, if you guess it wrong and prices do not go in your favor, then you will be the one to pay the difference.
Advantages Of Bitcoin CFD Trading
CFD trading on cryptocurrencies like Bitcoin has several benefits to offer, including –
• Margin Trading
Margin trading is a unique opportunity for cryptocurrency CFD providers. CFD brokers introduced this trading strategy for the first time back in 2017. In this strategy, you are provided with leverage while trading; which means that the brokerage will offer additional funds to you for every trade you open. It helps you to invest in more Bitcoin that you can afford. However, keep in mind that apart from magnifying profits, leverage magnifies risks as well. So, be careful while using it.
• Liquidity
The liquidity of CFDs is a lot better compared to cryptocurrencies. When you invest in BTC directly, you must convert it into currencies or withdraw it through an exchange that asks quite a lot in return. A CFD, on the contrary, is basically fiat currency itself and it does not require conversion into currencies. You can simply request a withdrawal and it will be approved by the broker.
• Security And Licenses
The incidents of CFD platform getting hacked and funds getting stolen are very rare. However, the story is not the same when it comes to crypto exchanges as they are subject to numerous hack attacks almost every day. Hence, it is risky to keep your assets there. This is why investors prefer using cold wallets for storing their tokens outside of the exchange. When you trade CFDs, however, your account is your wallet because it is never in risk of a hack attack. Moreover, CFD brokerages are always licensed by financial regulators which ensure more safety for the investors.
• Short Selling And Going Long
When you purchase a cryptocurrency, you are buying the asset upfront with an expectation that it would increase in value. However, when you trade on the price of a crypto, you can benefit from markets that are falling, as well as rising in price. This is known as going short. For instance, let’s assume that you have decided to open a short Bitcoin CFD position because you believe that the market will fall. If you are right, your trade will gain profit, and if you are wrong, you will be making a loss. However, as long as you guess right, you can profit both from going short or long.
CFD For BTC
So, CFD trading on cryptocurrencies can be a pretty great option for you if you want to earn money from Bitcoin without buying it. Just make sure you do CFD for BTC the right way. Contract for differences is a Bitcoin game changer!
