To become mainstream, Bitcoin should be used in all the ways one would use fiat money – to pay for goods and services, to trade, borrow and invest to generate a return. Bitcoin seems to have made it possible for investors of all walks of life, and from around the globe including the developing world, to have access to profitable trading opportunities that would not be possible otherwise.
A key reason for bitcoin’s attractiveness as an investment is the volatility it has seen in since its early years. Bitcoin has increased massively in value from $720 per bitcoin as recently as November 2016 to over $1700 in the first months of 2017. Those extreme swings in value can be off-putting to those who are considering bitcoin as a payment method or alternative currency – but to a trader, that represents opportunity!
Bitcoin also has no inherent usefulness except as a means of payment. Like gold, mass acceptance is what drives the confidence that its value will remain when converted back to fiat currencies. Bitcoin is a volatile currency and only 21 million bitcoins will ever exist – though each bitcoin can be broken down to a hundred million places. This translates into some wild movements in price when any major announcement about the crypto-currency hits the news. Traders are far more familiar with that volatility – and after a long period of record-low interest rates, uninspiring commodities, gold losing or just not gaining value, and dismal oil rates – bitcoin’s rapid rise in value is certainly catching our imaginations.
Bitcoin’s rise in prominence during a quiet time for forex and commodities is not a coincidence. For consumers, bitcoin exists as an alternative to fiat currencies. Its key differences to other currencies are what mark it out, but it is still a payment solution. But traders, however, look at bitcoin in a whole different light. While its use as a form of payment is crucial to long-term success – and each new merchant who accepts bitcoin increases its liquidity and legitimacy – on the markets, bitcoin sits somewhere in between commodities and currencies. Unlike forex pairs, bitcoin’s success is not tied to the relative performance of any economy. It is also not in the thrall of any central bank – central banks can only really affect the price of bitcoin with threats of regulation. Instead, bitcoin is released via mining, a process that was devised to resemble the rate at which commodities like gold hit the market (hence the name, ‘mining’).