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Your guide to trading Bitcoin (BTC)

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What is Bitcoin?

Launched in 2009, Bitcoin (BTC) was the world’s first decentralised cryptocurrency. It was created by an individual or group using the pseudonym Satoshi Nakamoto, and it has since paved the way for many other alternative cryptocurrencies, known as “altcoins”.

A cryptocurrency is a digital currency that does not have physical notes or coins but is stored in an electronic wallet online or offline and is used as a medium of exchange. These wallets are highly secure, as they use a unique private key to verify the owner of the currency.

Cryptocurrencies run on a blockchain, or public ledger, that uses cryptography to secure transactions, control the supply of additional units and corroborate transfers. Blockchains are digital databases that store cryptocurrency transactions in blocks requiring complex mathematical calculations to record and verify.

Bitcoin trading

History of Bitcoin

Although the cryptocurrency was first launched in 2009, it was not until March 17, 2010 that Bitcoin trade became possible, when the first exchange started operating on the now-defunct BitcoinMarket.com. In May 2010, Laszlo Hanyecz made the first real-world transaction by buying two pizzas in Jacksonville, Florida for 10,000 BTC.

Changes in the protocol of blockchains that create a permanent split are known as “forks”. So-called “hard forks” result in splitting a cryptocurrency to create a new currency running on a separate blockchain. In the case of Bitcoin, some of the most popular hard forks happened in August 2017, creating Bitcoin Cash (BCH), and in October 2017, creating Bitcoin Gold (BTG). In November 2018, a hard fork of Bitcoin Cash gave birth to Bitcoin SV. All in all, Bitcoin has seen nearly 100 forks throughout its history, however, only a handful of those could establish themselves in the robust altcoin market.

Most famous Bitcoin forks

Bitcoin trading has become controversial thanks to its wild price swings and an exuberance around its rallies that has seen investors risk all of their savings and take out large loans to bet on its value rising. With each spike and retreat in value, it generates dramatic news headlines and attracts even more investors.

Bitcoin was created with a maximum supply capped at 21 million coins. As of March 2021, there were 18.6 million BTC in circulation, representing 88.78 per cent of the maximum supply. That finite supply contributes to driving up the price as an increasing number of Bitcoin investors look to secure a limited number of coins. At its all-time high, on February 21, 2021, Bitcoin hit a market capitalisation of more than $1trn.

Bitcoin passed Tencent, Tesla and Facebook in market cap in February 2021

The success of Bitcoin has prompted software developers to launch alternative cryptocurrencies that look to improve on Bitcoin’s weaknesses, reduce transaction fees and create competition. In early 2021 there were more than 4,000 cryptocurrencies in circulation, although Bitcoin remains the most popular, with the largest market value.

Why is Bitcoin important to traders and investors?

As Bitcoin is independent of national central banks, its value is not affected by any one country’s monetary policies and it has become increasingly attractive to investors as an asset to diversify their portfolios. Trading Bitcoin has evolved from a niche market, now attracting the attention of some of the world’s largest investment firms.

As the accessibility of Bitcoin exchanges has evolved and the BTC price has rallied, more people have started investing in Bitcoin, looking to capitalise on its sharp gains to make larger returns than they expect to gain on the stock market.

As well as Bitcoin trading online, the cryptocurrency is also being adopted by a growing number of companies that allow customers to use it to pay for goods and service. Electric vehicle firm Tesla (TSLA) famously announced in February 2021 that it would start accepting BTC as a payment method, contributing to the price soaring to a record high.

BTC price history

BTC price chart

Bitcoin hit $1,000 in 2017, seven years after it was first exchanged. But that also was the year its volatility attracted the attention of the mainstream investment community. By May 2017, BTC had surpassed the $2,000 mark. By September 2017, the Financial Conduct Authority (FCA), the UK financial regulatory body, had issued a warning to consumers, and JP Morgan CEO Jamie Dimon claimed that Bitcoin was a “fraud”.

In December 2017, the coin surpassed the $20,000 level, before falling back sharply. After the unprecedented boom, the price crashed in 2018, halving to $10,000 by February and ultimately bottoming out at $3,000 in December.

The Bitcoin market has since become increasingly volatile. In 2019, it gained in value over the summer to return to the $11,000 level, then fell back to $7,000 by the end of the year.

BTC dropped to $5,000 in March 2020, as it was not immune from the broad-based sell-off across the financial markets at the start of the global Covid-19 pandemic. However, it rebounded and rallied strongly throughout the rest of the year to surpass the previous all-time high and reach $29,000 by the end of December. The rally continued in early 2021, as the cryptocurrency rocketed to $58,330 in February before slipping back.

If you are interested in capitalising on the market volatility, read on to find out how to start Bitcoin trading with CFDs.

How to get Bitcoin

With so much attention from the media and financial traders, investors are increasingly asking, where can I trade Bitcoin? There are actually several ways you can receive the cryptocurrency.

If you want to trade Bitcoin online, you can buy it on a cryptocurrency exchange, such as Binance, Bittrex or CoinEx, and store it in a digital wallet. It is important to save your private key in a safe place, as without it you will no longer be able to access your crypto, but if it is easily accessible, the coins could be stolen.

As well as buying Bitcoin, you can also receive coins in exchange for mining them. The peer-to-peer transactions stored in blockchains are checked by cryptocurrency users that allow the use of their computing power in exchange for receiving new coins, known as mining.

Cryptocurrency mining is typically done by more advanced users, while retail investors focus on trading the coins through exchanges and brokers.

Alternatively, you can trade Bitcoin with contracts for difference (CFDs) to speculate on the price of the cryptocurrency in your investment portfolio without having to hold it in a wallet or separate account. Read on if you want to learn to trade Bitcoin with Capital.com in the most convenient way.

How to trade BTC with CFDs

Are you wondering how to invest in Bitcoins with CFDs? A CFD is a type of contract, typically between a broker and an investor, in which one party agrees to pay the other the difference in the value of an asset between the opening and closing of the trade. CFDs are typically held within shorter timeframes, rather than as long-term investments.

 

The advantage of using CFDs to trade BTC is that you can profit from your position whether the price of the asset rises or falls. How? You can take a long position if you expect the price to rise, or you can open a short position if you expect the price to fall.

Trade Bitcoin to US Dollar - BTC/USD CFD

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Capital.com offers BTC trading via CFDs to speculate on the value of Bitcoin against the US dollar and other currencies such as the British pound and euro, as well as against other cryptocurrencies, such as Ethereum (ETH), Litecoin (LTC) and Cardano (ADA).

There are differences between buying a cryptocurrency and trading a CFD in the crypto market. When buying a cryptocurrency, it is stored in a digital wallet. When trading CFDs, the product is stored in your account with an online broker, which is regulated by a financial authority. Moreover, you are more liquid when you purchase CFDs as you are not tied to the asset: you have merely purchased the underlying contract.

Looking for a reliable CFD trading provider to invest in Bitcoin? If so, just spend three minutes of your time to sign up and start your journey of BTC trading with Capital.com. Try our award-winning trading platform or download our mobile app, which will become your smart CFD trading assistant.

Why trade Bitcoin CFDs with Capital.com?

Advanced AI technology at its core: a Facebook-like news feed provides users with personalised and unique content depending on their preferences. If a trader makes decisions based on biases, the innovative SmartFeed offers a range of materials to put him back on the right track. The neural network analyses in-app behaviour and recommends videos, articles, news to polish your investment strategy. This will help you to refine your approach when trading a volatile asset like Bitcoin.

Trading on margin: providing trading on margin (up to 1:2 for cryptocurrencies) with the help of CFDs, Capital.com gives you access to the cryptocurrency market even with a limited amount of funds in your account.

Trading the difference: when trading Bitcoin CFDs, you do not buy the underlying asset itself, meaning you are not tied to it. You only speculate on the rise or fall of the BTC price. CFD trading is nothing different from traditional trading in terms of strategies. A CFD investor can go short or long, set stop and limit losses and apply trading scenarios that align with their objectives.

All-round trading analysis: the browser-based platform allows traders to shape their own market analysis and forecasts with sleek technical indicators. Capital.com provides live market updates and various chart formats, available on desktop, iOS and Android.

Focus on safety: Captal.com puts a special emphasis on safety. Licensed by the CySEC and NBRB, it complies with all regulations and ensures that its clients’ data security comes first. The company allows you to withdraw money 24/7 and keeps traders’ funds across segregated bank accounts.

BTC trading hours at Capital.com

Unlike stock markets, the decentralised cryptocurrency markets are open for buying and selling around the clock, so you can trade BTC CFDs on Capital.com 24/7. Given the volatile Bitcoin history of sharp price movements, this allows you to actively manage your position in real-time in response to changes in the market.

Common FAQ

In market terminology, a “bubble” is defined as the price of an asset far exceeding its intrinsic value. For instance, the dot-com bubble that occurred between 1995 and 2000 is a prime example, where firms in the information technology industry saw their stocks rise — merely because of the market sentiment around that particular industry, irrespective of their profits or chances of succeeding. The bubble then crashed in March 2000 and companies went bankrupt, making their stocks worthless.

It is hard to define a bubble in the cryptocurrency markets as it is hard to determine the value of cryptocurrency to begin with. Although a lot of investors are holding cryptocurrencies as if they were equities, they are not. Yet they do not act like currencies either, which makes comparisons to currency valuations difficult.

The value in most cryptocurrencies is derived from their potential; how they could be used to advance society in the future. Without institutional acceptance however, the potential value will remain merely potential, but whether this implies that cryptocurrencies are overvalued is another question. While prices for Bitcoin and other cryptocurrencies crashed in 2018, they surpassed the previous highs during the rally in 2020-2021, making larger gains for investors that held onto them over that period.

However, as with any new technology, caution is advised. It could be the case that Bitcoin is not overvalued, and that the bubble, if there is one, is represented by the various new cryptocurrencies that are being driven by market sentiment. Arguably, this is comparable to the dot-com era – when stocks like Amazon (AMZN) were not overvalued, but others like Pets.com, which went from IPO to liquidation in 268 days – clearly were. So, it seems that only time will tell whether the market is overheating, but in either case, there is an option to trade crypto using CFDs to take both long and short positions.

Before buying Bitcoin on a cryptocurrency exchange, you need to set up a wallet to store it, which consists of two elements: a private key and a public address. A wallet requires a private key, specific to the individual, that enables access to the Bitcoin address stored in the wallet. The address is the public key, to which people can send Bitcoin. The wallet is what enables Bitcoin, or any cryptocurrency, to be a secure medium of exchange.

Cryptocurrency exchanges or online wallets are far from immune to the dangers of cybertheft. The infamous case of the Mt Gox Bitcoin exchange highlights this. Historically, Mt Gox was the largest global exchange for Bitcoin, until it declared bankruptcy in 2014 after its security had been compromised. Mt Gox had 850,000 Bitcoins, valued at $450m in February 2014, before their exchange was emptied by hackers. It is believed that the private keys of Mt Gox’s digital wallet were stolen from as early as 2011. These risks are avoided when trading Bitcoin CFDs because you do not need a wallet.

The 2018 crypto crash was the biggest sell-off of most cryptocurrencies in the history of the market. From January 6 to February 6, Bitcoin fell about 65 per cent. Consequently, nearly all other cryptocurrencies crashed. The cryptocurrency market capitalisation lost at least $342bn in the first quarter of 2018. Bitcoin peaked at the $20,000 mark in December 2017, with most other cryptocurrencies peaking shortly after. There were several shocks that ultimately contributed to the cryptocrash: the Bitcoin price depreciated by about 12 per cent after the Attorney General for South Korea announced a move to ban crypto exchanges from issuing new trading accounts. Later that month, Coincheck, a Japanese Bitcoin wallet and exchange service, was hacked and approximately 500 million NEM tokens (worth $530m) were stolen, making this the largest crypto hack to have occurred.


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