A lot has been said about bitcoin lacking intrinsic value, hence not having any real value in the currency markets.
However, taking the intrinsic value of an asset into consideration when trading is only one approach to the markets.
Another approach focuses more on the price chart, demand and supply, and the crowd’s psychology in order to make informed decisions – usually by traders who prefer technical analysis over fundamental analysis while trading.
Price patterns and popular indicators may be used to deduce a lot of information from a price chart.
Don’t forget that it is not only the financial headlines that move the markets, but the traders’ psychology as well.
With the right indicators and tools, you will realize that traders’ psychology is also present on the price charts.
Therefore, CFDs on bitcoins and other cryptocurrencies (i.e. speculation on cryptocurrency price movements without owning the actual cryptocurrency) are usually traded against the US Dollar, and may be treated and traded just like any other financial instrument if you apply disciplined technical analysis to your trading.
What is ‘Altcoins’?
Bitcoin constitutes the basis of many other decentralised currencies that have appeared since 2009.
These are referred to as alternative coins, or altcoins for short.
While they have many similarities to the Bitcoin network, altcoins use different variations of blockchains and proof-or-work algorithms for their foundation – many claiming to be an improvement on Bitcoin.
For example, Litecoin is one of the first altcoins to use Scrypt as the proof-of work algorithm – this results in much faster confirmations than Bitcoin has, making it a very attractive alternative for retailers and investors.
Scrypt was designed to be bruteforce-tolerant, which implies much higher security.
Within the Litecoin system, a new block is added in the chain every 2 and a half minutes (compared to Bitcoin’s 10 minutes).
To date, 84 million litecoins are scheduled to be put into circulation.
Other popular altcoins include Ethereum, Ripple, IOTA and ADA.
Is Cryptocurrency regulated?
A key feature of bitcoin is its independence from financial institutions and central banks, and – as a direct result – the monetary policy of any country and government.
This was, of course, a very attractive feature to many people when Nakamoto’s invention came to life, especially after the financial crisis that affected so many people.
During bitcoin’s short life so far, many have seen how high the volatility has been for the cryptocurrency.
A result – at least partially – of different government policy makers not allowing their constituents to invest in the new form of currency.
Volatility is a result of uncertainty, fear and panic – and it grows rapidly around an asset that is not regulated by any central authority.
Some countries are looking into the feasibility of regulating the cryptocurrency.
Perhaps some regulation really is needed for this decentralised currency, in order to ensure more stable growth and wider acceptance.
How much are the Transaction Fees?
It is no secret that miners invest in fast computing devices to be able to compute as many hashes as possible.
A lot has also been said and written about the high electricity bills that individuals or pools of miners have to pay in order to run their computers.
The incentive, of course, is the block reward! As mentioned previously, this is a number of bitcoins starting from 50 and halving every four years until the last year of 2140, when all 21 million bitcoins will have been mined.
But, if the block reward is low and doesn’t cover all of the expenses, what then?
How will the bitcoin network operate and run without the incentive to reimburse the miners’ expenses fully?
The answer is transaction fees.
There is also incentive with transaction fees, which may see a substantial rise through time.
It is logically deduced that even though the bitcoin cash system attempted to remove the fees imposed by the financial institutions to the merchants (who consequently passed them on to the consumers), transaction fees in the bitcoin world will eventually increase to cover the mining expenses.
Keeping in mind that the bitcoin reward is halved every four years, only the rise of bitcoin’s price will keep transaction fees low. Time will tell!