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Digital currencies claim a record-breaking year in 2021

By Adrian Holliday

08:52, 31 December 2021

Dark background, gold coin in centre of picture
Digital currencies continue to surge even as BoE expresses concerns – Photo: Shutterstock

The super-volatile world of cryptocurrencies produced a handful of killer gains for some investors in 2021, such as a 13,260% rise for Terra (LUNA) and an even headier 14,167% lift for Polygon (MATIC). 

The 2,940% surge by Dogecoin, this year’s most controversial crypto news grabber, appears lethargic in comparison. Fantom (FTM), for example, is up 12,318%.  

BoE warns of big corrections

Such giddying, rampant numbers make a 64% rise by Bitcoin look arthritic or, at best stately, though there are much better performances from ETH, up 409% and BNB, up 1,282%. These last three digital currencies are the biggest cryptos by market cap, not including stablecoin Tether.

While cryptocurrencies remain in their infancy, some investors have been increasingly using cryptos as a hedging tool, swerving gold in some cases (gold is down almost 4% in 2021). Digital currencies are also starting to push their presence into areas such as gaming, sports and art.

Two weeks ago on 14 December, the Bank of England warned that a ‘big correction’ could see amateur investors lose out heavily. “If you’re thinking of investing in one [crypto] you need to be prepared for your investment to go up or down. It’s even possible its value could fall to zero… making it worthless.”

BCH/USD

375.15 Price
+7.460% 1D Chg, %
Long position overnight fee -0.0753%
Short position overnight fee 0.0069%
Overnight fee time 21:00 (UTC)
Spread 2.50

DOGE/USD

0.11 Price
+0.350% 1D Chg, %
Long position overnight fee -0.0753%
Short position overnight fee 0.0069%
Overnight fee time 21:00 (UTC)
Spread 0.0012872

XRP/USD

0.48 Price
+6.130% 1D Chg, %
Long position overnight fee -0.0753%
Short position overnight fee 0.0069%
Overnight fee time 21:00 (UTC)
Spread 0.01168

BTC/USD

57,910.65 Price
+0.520% 1D Chg, %
Long position overnight fee -0.0616%
Short position overnight fee 0.0137%
Overnight fee time 21:00 (UTC)
Spread 106.00

The numbers of institutional investors holding crypto have grown and the Bank of England worries that data on what they hold precisely “is a challenge”. Part of this institutional challenge is that regulators are still assembling the new rules to play by.

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Risky investment

“What is the price of Bitcoin based on?” worries the Bank of England. “It’s just a bunch of code that exists only in cyberspace. It’s not backed by the state. There’s no recourse to a central authority.” 

“There’s no underlying asset, no stream of income. There’s just the thing itself. But does that mean it has no inherent worth?” as the bank’s blog. 

“The code on which Bitcoin is based does give it scarcity value. Only 21 million Bitcoin will ever be created… That scarcity is why some people refer to Bitcoin as ‘digital gold’. But the very scarcity on which Bitcoin is based might also be its undoing. Its scarcity may even, ultimately, render Bitcoin worthless,” adds the blog. 

Read more: Energy and metals prices rally, but gold languishes in 2021

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The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
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