Skillsfirst Level 5 Diploma in Financial Trading (RQF) - Module 1 - Trading Introduction
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Skillsfirst Level 5 Diploma in Financial Trading (RQF) - Module 3 - Economic Principles
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WHAT CAN YOU DO WITH CRYPTOCURRENCIES?

Owning them may be great but how do you spend a virtual currency that is decentralised? Originally in the early days of owning cryptocurrencies it was not easy to spend them whilst they sat in e-wallets but due to the popularity of these coins, merchants and companies are beginning to integrate payment technology to be able to engage with cryptocurrency owners.

What do people spend crypto’s on? The chart below is from a survey PwC undertook.

With so many cryptocurrencies available today not all of them can be used commercially, with most people taking ownership for pure investment returns (bitcoin rose in value by 1300% in 2017). Bitcoin is therefore the most widely accepted for commercial reasons, being that it was the first and has the biggest market capitalisation of any other cryptocurrency, thus making it more appealing and commercially viable to accept as payment by business owners and corporations.

Many people purely invest in cryptocurrencies for monetary gains, through the increase of price by each coin they invest in and own. Bitcoin is the most valued crypto at present and after the market saw a window of opportunity in crypto’s, it sparked some of the most furious modern investment opportunities ever seen. Ethereum the second most valued crypto recorded the fastest rise in value than any other crypto to date. It is fair to say that crypto’s has created wealth, but they are very risky investments, mainly due to the fact they are unregulated so investors have no protection against losses, fraud or theft.

Cryptocurrencies are generally traded through exchanges like Kraken, BitStamp etc. and on these exchanges you can buy the actual coins with money and or use coins they already own to purchase other cryptocurrencies, exchange one for another i.e. use Bitcoin to buy Ethereum for example. Exchanging one coin for another coin is known as an ‘atomic swap’. Bitcoin can also be purchased using a Bitcoin ATM which works like a traditional ATM, where you can pay in money to exchange it for Bitcoin. This is not possible currently with the smaller cryptocurrencies which have to be purchased through an exchange.

Since no cryptocurrency is physical money and you can’t put it in your bank account, handbag, wallet or under your bed, how do you store it? As we mentioned earlier, it is not like a traditional flat currency. You can’t store them or hold them physically, it’s just a private key that you use to sign for transactions which at all costs you must keep safe and secure. Places to store your private key are generally called wallets and they cater for different needs, the main categories are:

  • Hardware Wallet – known for its privacy and the most secure ways of storing crypto’s
  • Cold wallets – Wallets that are stored on hard drives and online wallets which can be affiliated with exchanges etc.

Due to the popularity of cryptocurrencies, many retail brokers are offering cryptocurrency CFD’s and spot markets to trade, using leverage through a trading account. These are seen as a cheaper alternative to physically owning the crypto coins since you can trade them using lower collateral and benefit from leverage on your funds, which was traditionally offered on FX, metals and other such products offered by retail brokers. Whilst most brokers don’t offer the full range of crypto that are traded on exchanges such as BitStamp or Kraken, you can generally trade the major ones such as Bitcoin, Ethereum, Litecoin and Ripple 24 hours a day 7 days a week. Clearly, whilst you won’t own the coins themselves the volatility in these markets can provide opportunities for the astute investor, who will simply be speculating on the price of the underlying coins in an attempt to make profits. This option, of course, does not require the need to store coins in a wallet as it is a purely a speculative monetary pursuit on the future price of the coins which forms the balance in your trading account.

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