First, Bitcoin is a volatile currency. The total number of bitcoins is only 2100 million, although each bitcoin can be decomposed to one millionth after the decimal point-which means that any major news about the network currency will cause a sharp shock to its price.
Large fluctuations in prices may make people considering Bitcoin as a payment method or alternative currency timid to use Bitcoin. Concerns about Bitcoin may make the value of Bitcoin fall sharply even in one transaction.
Attractive market
However, significant volatility is a trait familiar to traders. Bitcoin once rose to a historical high in 2013, when the price of traditional foreign exchange currency pairs fluctuated sluggishly due to historically low interest rates. Commodity transactions during the same period were also unremarkable. Gold suffered heavy losses in value in 2013, and crude oil prices remained consistent throughout the beginning and end of the year. .
It was during this period that the sharply rising price of Bitcoin attracted the attention and expectations of investors, and this network currency officially entered the spotlight.
Is it a commodity or a currency?
Bitcoin's rise during the sluggish period of foreign exchange and commodity trading is no coincidence. For consumers, the emergence of Bitcoin makes it an alternative to traditional currencies. The key difference between Bitcoin and other currencies makes it stand out, and in the currency field, it can still be used as a means of payment.
However, for traders, Bitcoin has unique characteristics. As a payment method, it is crucial to the long-term view of Bitcoin's success-traders all recognize the increase in Bitcoin's liquidity and legitimacy. Nevertheless, from the perspective of the market, Bitcoin's position lies between a commodity and a currency.
Differences with foreign exchange currency pairs
Unlike foreign exchange currency pairs, the success of Bitcoin is not directly related to the performance of any economy. Moreover, Bitcoin has the characteristics of decentralization-the absence of central bank control will have any substantial price impact on the price of Bitcoin. In addition, Bitcoin is obtained through mining, which is similar to the rate at which commodities such as gold enter circulation from mining (hence the name "Bitcoin mining").
Bitcoin does not have any inherent properties except as a means of payment. Similar to gold, the price of Bitcoin depends on the market's wide acceptance of it, that is, the ability of Bitcoin to be converted into traditional currency.
Is it possible for Bitcoin to be replaced?
However, as a technology that is becoming more and more full-fledged, Bitcoin's nature of electronic money is being accepted by more and more buyers. Bitcoin does not occur naturally, but the scarcity characteristics that need to be written into the code, making the possibility of another form of electronic money to replace Bitcoin continues to exist.
Financial traders can trade the value of Bitcoin through IG, which can be used as a foreign exchange currency pair (USD, GBP, EUR), or as a commodity.