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What is bitcoin and why is it valuable?

Traders have long understood the value of money. Forex is the largest and most liquid market in the world – and traders worldwide face a constant battle to predict and capitalise on movements in the money markets. Anyone reading up on the markets and trading will appreciate that volatility is the strength of forex – but in recent years a new market has emerged that has been even more volatile. Bitcoin has been difficult to ignore in recent years – and traders have been as attracted as tech-savvy early advocates.

So, what is bitcoin and why is it valuable?

Bitcoin is a cryptocurrency which doesn’t belong to any bank, it can be sent from multiple users with no need for intermediaries. It’s seen by some as a rival to fiat currencies – while others feel its future lies as something other than an outright currency in a traditional sense. As it stands, one bitcoin equals about £5,400, but the value drops and spikes multiple times throughout the year – it had reached a peak of over £14,000 in late 2017.

However, when you purchase a bitcoin, you’re likely to buy a fraction of it, while you continue to buy and sell multiple times throughout the year as the market changes.

This volatility comes from a host of factors. Firstly, it’s new. People don’t know what to make of Bitcoin. It could revolutionise the way the world makes payments and sends and receives money. If so, that would be hugely transformative. It could, however, be met with resistance from consumers, central banks and policymakers and fail to meet the hype or potential. Any signs of a decisive shift in either direction can move the price drastically in different directions.

Regulation is important too. If countries introduce laws and rules that straightjacket the use of Bitcoin and other cryptocurrencies this will hamper its value too. There is yet to be a consensus on how to regulate Bitcoin.

According to Bitcoin Magazine, the value of this asset reflects the fact that there are flaws with fiat currencies – not least the control exerted by governments and the scope for politicisation of money. It argued: “Bitcoin’s supply is fixed by code that all participants of the network agree upon. The distribution rate of new bitcoins into the world is fixed and transparent, as is the approximate date when the last bitcoin will be created. Bitcoin also has no public face that can strongly influence the direction of the currency. It’s the correction of these flaws of our current system that bring value to bitcoin.”

Bitcoin is the first digital currency, and this alone feeds into its value – rarity and scarcity creates more demand. The arrival of rivals only serves to set Bitcoin up on a pedestal as the market leader. Indeed, for some, Bitcoin has become used as a synonym for cryptocurrencies in general.

As a new asset with an uncertain future, huge potential, masses of hype and technological innovation, it’s easy to see why Bitcoin appeals to traders. Whether you’re a forex veteran or new to trading, there’s potential to be mined from Bitcoin.