The intentions of cryptocurrencies are to be more reliable, faster and cheaper to maintain
than the standard, government backed money we have become accustomed to. And as they are
directly exchanged between users, they do not require a financial institution to hold the money.
They also allow users to see the transactions occur from being sent, to being received and
delivered in complete transparency.None of this would be possible without blockchain
technology.
Blockchain Technology:Cryptocurrencies are often confused with blockchain.
Yet blockchain technology is essentially a shared computer system infrastructure which forms a
decentralised network, which cryptocurrencies utilise. Whilst it is cryptocurrencies which
forced blockchain into the limelight, blockchain has many other uses which companies are
exploring, but is outside the scope of this introduction.
The future of Crypto:What excites
many about the future for crypto is how it could become the main method of payment. In its
earlier days it was widely critiqued as a method of payment, as it was assumed to be used by
criminals on the dark web to evade the usual anti money laundering protocols. But, in recent
years, it has become a more widely accepted method of payment for legitimate businesses and
people. Cafe’s, online stores and even some shops now accept cryptocurrencies as a form of
payment, although some crypto’s are more popular than others.
Bitcoin:It is generally agreed
that Bitcoin was the original decentralised cryptocurrency, launched in 2009 by a pseudonymous
developer called Satoshi Nakamoto. As recognition of crypto payments has increased, so has the
number of digital currencies (which are in the hundreds and possibly in the thousands). Yet it
is Bitcoin which remains the most popular, appeared in the most headlines and been discussed
among people from all walks of life (who don’t trade) due to its breath-taking rallies and
market crashes.So, what does this have to do with trading?
Large Speculators Enter the
Ring:If a market moves, it catches the eye of speculators. And cryptocurrencies have a tendency
to be volatile, which makes it even more appealing to some traders. Yet for even seasoned
investors, digital currencies are difficult to find ‘intrinsic value’, with some arguing that
they are a priceless commodity and others adamant they will go to zero.Even with fund managers,
hedge funds and institutions speculating on crypto, the problem remained that platforms which
offered digital currencies catered for payments and not speculators. Features such as stop loss,
take profit, leverage and the ability to trade short were not available, which are common
features professional traders required.Therefore, it was only a matter of time before CME were
to launch bitcoin as a tradable futures contract. This allowed professional traders to speculate
on the wild fluctuations of bitcoin, trade long, short or hedge their crypto
holdings.
Bitcoin Futures Aren’t for Everyone:Whilst the introduction of crypto futures were
an important step for speculators, large margin requirements, high prices and volatile
fluctuations priced out most traders who didn’t have millions in their trading account. Yet this
has paved the way for cryptocurrency CFDs (contract for difference) to be created which fixed
these problems and opened crypto speculation up to retail traders.