Bitcoin began 2017 at a market price of $997 and closed the year at $13,860. The focus of investment brokers and cryptocurrency traders has been on Bitcoin ever since. Here are 10 things you need to know about Bitcoin before you buy it:
- 1. Like Most Securities, Bitcoin Attracts Trading Fees
- 2. Bitcoin is Volatile
- 3. Bitcoin Has a Futures Market Like Commodities
- 4. Security is a Starting Point
- 5. Bitcoin is not Governed by a Bank
- 6. Bitcoin Acceptance is Limited
- 7. Bitcoin Does Not Support Transaction Anonymity
- 8. Bitcoin is Outlawed in Some Countries
- 9. Know Bitcoin Tax Implication
- 10. Like Gold, Bitcoin can Lose Value
1. Like Most Securities, Bitcoin Attracts Trading Fees
When you decide to trade in Bitcoin, you should be ready to incur trading fees. Transaction fees arising on trading of Bitcoin goes into settlement fees for miners. Since Bitcoin is mined, to add a successful block to the chain requires some payment.
While most exchanges have a charge for withdrawal, deposit and trading, a few like Binance has no deposit fees. Before you proceed with a transaction, you need to factor in the fees charged by the exchange you are using.
Most exchanges have a fees range of 0.1 to 0.5%, but, others might charge up to 3.5% depending on your payment option. Fiat currency transactions in respect of purchase of Bitcoin attract more charges. When you decide to swap one cryptocurrency or the other for Bitcoin, your transaction fees will be lower.
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2. Bitcoin is Volatile
Bitcoin is open to the effect of market forces. When demand increases, the price increases, and as supply slows, the price might also increase. In recent times, the price of Bitcoin has fluctuated as a result of a decrease in demand.
The supply side of Bitcoin is inherently regulated as the total tokens supply is fixed. The pace of increase in the number of blocks added is limited by a range of factors including computational difficulty.
As more people see an opportunity in rising prices, there will be a surge in demand, and likewise in market price. You need to bear in mind that supply and demand has an effect on cryptocurrency market fortunes.
3. Bitcoin Has a Futures Market Like Commodities
Commodities futures attract a lot of investment across the globe. Traders are willing to stake their money on oil, gold, copper, and the likes. To a large extent, Bitcoin trading has expanded to accommodate a futures market.
Traders can now place huge stakes on Bitcoin as a result of their perception of a rise or fall in the market price. This line of trade is considered very risky, but, it also comes with huge returns.
On exchanges like Binance, GDAX and Poloniex, experienced traders can play the market using a mix of techniques. Deribit and Bitmex are also examples of platforms where big players stake huge fortunes on Bitcoin futures.
4. Security is a Starting Point
Daily across the globe, people lose their money to scammers and hackers when they fail to heed to security concerns. Some newbies do not know the difference between a private key and a public address. Your Bitcoin private key allows you access your wallet while the public address is your wallet ID.
When you disclose your wallet ID to third parties, they will be able to send Bitcoin to you. However, if you ignorantly or inadvertently expose your private key, your wallet can be compromised and cleaned out.
Do not disclose your wallet’s private keys to anyone at any time, and remember to keep it safe.
Check the 10 best cryptocurrency wallets here >>
5. Bitcoin is not Governed by a Bank
Newbies often make the mistake of equating a Bitcoin exchange to a bank. This is wrong as there is no central authority that governs Bitcoin transactions. While an exchange provides a marketplace for the buying and trading of cryptocurrency, it lacks the powers to reverse a transaction with third parties.
Since there is no central control over Bitcoin transactions, every trader needs to pay attention to transaction details. When sending Bitcoin, the wallet address should be copied using ‘CTRL V’ on your keyboard. Do not type in wallet addresses to avoid an error of omission or transposition.
6. Bitcoin Acceptance is Limited
Bitcoin is relatively new to the global transaction processing scene. While its popularity has skyrocketed in recent months, the acceptance is still limited. This information is necessary so that you do not use your money on Bitcoin.
Depending on your financial position, you should leave some of your wealth in fiat currencies to take care of your spending. Although Bitcoin ATMs are becoming a coming feature across America and Europe, you might not have one around your neighborhood.
Confirm if merchants accept Bitcoin payments before you proceed to make any transaction. If you are in a new location, look out for signs that show that Bitcoin payment is accepted before you undertake a transaction.
Businesses like PayPal, Dell, WordPress and Microsoft accept Bitcoin presently. Other payment processors like Square are also gearing up for Bitcoin adoption. A number of exchanges also make it possible to swap Bitcoin for other digital payment options like Skrill, PayPal and Payeer.
7. Bitcoin Does Not Support Transaction Anonymity
Bitcoin Wallet addresses are easy to trace on the Blockchain, and they do not confer anonymity on the user. Unlike Monero and Dash, you cannot hide your transactions from the public glare.
Tracing your name to a Bitcoin wallet address is not rocket science, and an examination of transaction trails can lead to your doorstep.
8. Bitcoin is Outlawed in Some Countries
If you live in China, you may face transaction restrictions on some exchanges like Binance. There are some sort of restrictions in Korea, Japan and India. It is important you confirm the legality of Bitcoin where you live.
In terms of transactions, if you travel abroad, you might have to forego Bitcoin transactions till you leave a restricted jurisdiction. Knowing where Bitcoin is accepted ahead of time can save you lots of heartache.
9. Know Bitcoin Tax Implication
When you buy Bitcoin, you already own an asset. In some countries, owning an asset puts you under the radar of the tax man. This also means that you will be liable to capital gains tax when you sell your Bitcoin for fiat currencies. The same will arise when you swap it for another token.
Under American tax laws, Bitcoin is an asset liable to capital gains tax.
10. Like Gold, Bitcoin can Lose Value
Bitcoin is not a magic wand that soars in price without losing value. When likened to gold, you will realize that the market price can rise and fall.
You should bear the rise and fall in market price of Bitcoin in mind when you start trading. You can lose your investment or the bulk of its value when there is a price crash.
These 10 factors listed above are important for anyone who is trading in Bitcoin and other cryptocurrencies. Use the available information to your advantage as you trade.