Bitcoin Is More Than Just A Speculative Asset |Terence Zimwara
In the last piece, we discussed ways one can buy bitcoin for the first time. In this article, we go deeper. We explore why many people are around the world buying bitcoin besides for trading purposes.
There is no doubt, cryptocurrencies led by bitcoin are highly volatile digital assets and those who engage in the practice of bitcoin trading must always be aware of the risks.
For instance, it was widely reported that cryptocurrency traders that engaged in what is termed margin trading lost as much as $1 billion recently. This was after a bitcoin Bull Run abruptly ended and contracts were liquidated.
Risks of speculative trading
Margin trading is the practice that includes buying an asset where the buyer pays only a percentage of the asset’s value and borrows the rest from the bank or broker.
The broker acts as a lender and the securities in the investor’s account act as collateral.
It is fair to say that margin traders understand the risks involved with this form of trading. So when they lose as they did in the week ending 2 August, no alarm bells were ringing.
This is what less experienced traders and newcomers to bitcoin need to understand, there are risks with speculative bitcoin trading. Besides, that is not the real story about bitcoin or bitcoin investing.
There is more to bitcoin and cryptocurrency than just the short term wild price swings or the potential to make big profits or losses in a short space of time. Newcomers need to equip themselves with the basics about bitcoin before venturing into risky trading.
In fact, some background about bitcoin is necessary for trading and wealth preservation purposes.
The first reason why knowledgeable people are buying bitcoin is that it is one of a few assets to grow at a rate high than that of money supply.
This means a digital asset like bitcoin is immune to global economic shocks or the dilutive effects of new money created.
Reliable store of value
Apart from March, when the entire cryptocurrency market tanked just like global financial markets, bitcoin and a range of altcoins have generally outperformed regular financial markets so far this year.
Bitcoin has grown by more than 200% and expectations are that it will continue.
When the global pandemic Covid-19 began wreaking havoc, global financial markets collapsed while the likes of New York Stock Exchange resorted to using circuit breakers as they tried to curb losses.
However, in the ensuing search for safe assets, bitcoin staged a remarkable comeback. Indeed, some investor chose to go after gold but others went for bitcoin sparking a renaissance in its price. It is now well documented that the bitcoin price movement mimics or even betters that of gold.
For example, the graphics in the latest report by Bloomberg depicts a bitcoin price that is following the rallying…