As a forex trader, you should be aware that there’s a new virtual currency circulating around the internet known as a “bitcoin.”
It’s a decentralized currency that can be used for online purchases and can be actually be exchanged for real money.
While bitcoin has gained a lot of public attention only recently, it was developed way back in 2008 by someone using the pseudonym Satoshi Nakamoto.
He explained the concept of “mining” bitcoins by using your computer to solve puzzles and search for a 64-digit number combination for the bitcoin network. If your computer is able to generate that combination, you will receive 25 bitcoins.
Recently, the value of one bitcoin reached a high of $250 U.S. dollars. It has already appreciated from its value when it was first introduced when one U.S. dollar could buy 1,309.03 bitcoins. Take note though that bitcoins aren’t tendered; they are simply a digital-only currency.
Why is this relevant to forex traders?
Apparently, there are a few brokers out there that are starting to include bitcoin-denominated accounts in their list of services. For instance, Bit4X, a Slovenian broker, allows its clients’ fund and withdraw their accounts with this digital currency.
Bitcoin trading probably won’t hit the mainstream any time soon, but having a bitcoin-denominated account can be a good thing. For one, bitcoins have been steadily rising in value in the past few years, with the value skyrocketing in the past few months.
There always remains the threat that the euro zone may collapse, which makes its domestic currency, the euro, unstable. By simultaneously investing in bitcoins, you are able to hedge your risk.
As bitcoins become more popular, we may eventually see BTC/USD and other BTC pairs are offered by brokers.
Of course, there are some hitches here and there when it comes to bitcoins.
First, because it is decentralized, the bitcoin isn’t backed by any central bank. This could be problematic when it comes to the application of regulatory rules upon bitcoin forex trading account or eventually, the trading of BTC pairs.
Second, this also creates problems in terms of client claims against brokers with regards to malpractice and/or trading errors. It may be hard to track from where the bitcoins come from, or if the broker is actually using “real” bitcoins.
Lastly, there also remains the stigma that bitcoins are synonymous with money laundering, as some people use bitcoins to hide the money they don’t want to be traced back to them. In order to avoid problems with this, some regulators may even implement a total ban on bitcoin-denominated accounts.
In any case, this is an exciting development that I’ll be keeping an eye on over the next couple of years. Who knows, it might even be a major game-changer for the forex trading industry!