Today, we’re going to talk about something I get asked quite a bit. That question is, “Do I have to own bitcoin to profit from the digital currency?” To answer this question, let’s look at the 3 ways you could get your hands on Bitcoin:
1. Bitcoin Mining
Mining Bitcoin is a complete pain in the buns. At a minimum, you need specialized software, a sophisticated hardware rig to run it and a considerable amount of electricity to power the whole thing. Back in 2007 you could mine Bitcoin with your laptop. Nowadays that is simply not possible anymore because Bitcoin is designed in a way that mining Bitcoin becomes incrementally more difficult with time.
2. Buying Bitcoin outright from an exchange
When you buy cryptocurrencies, you purchase the asset itself and then store it in a special crypto-wallet. You could do this by finding someone local willing to trade cash for Bitcoins, if you’re into meeting up with strangers in parking lots. And if you operate a business, you can accept Bitcoin as payment for goods or services.
For now, the most popular way to purchase Bitcoins remains an exchange like Coinbase or CEX. There are however, a few hurdles and issues with all cryptocurrency exchanges:
- Getting an account generally takes a few days, as you’ll join a queue of people waiting for manual approval. The process can also be rather invasive. The major exchanges require a good deal of identification and sensitive financial information to establish and fund an account. (Exchanges that are registered with regulators are required to verify your identify before doing business with you in an effort to protect against fraud and money laundering.) And there is risk whenever you provide personal and financial information to any entity, especially online.
- As a new account-holder, you’ll likely be limited to a deposit of a few hundred Dollars a week
- Funding and withdrawals generally incur fees, while some large exchanges also only accept bank transfers – which can take days to go through
- Without the infrastructure built up over years of business, these young companies can be slow to resolve even straightforward customer service issues. Even Coinbase, the most established platform, is struggling to keep pace with demand. There are frequent outages that can make it difficult or impossible to buy — and, perhaps more frustratingly, sell.
There is no shortage of customers, investors and speculators with nightmare stories to tell. So, as with everything cryptocurrency-related: do some research!
3. Bitcoin Derivative Trading
There have been enough hackings and other horror stories such as bitcoin simply disappearing out of thin air. So, I can definitely understand why an investor would want to take advantage of trends in bitcoin without actually owning the crypto-currency.
Speculating on its value without ever owning the token is how spread betting and CFDs work.
When you place a spread bet, you speculate on whether a market will rise or fall in price. A CFD, meanwhile, enables you to trade a contract based on prices in the underlying market. When you spread bet or trade CFDs, you speculate on whether your chosen market will rise or fall in value. Prices are quoted in traditional currencies, and you never take ownership of the cryptocurrency itself.
CFDs and spread betting are leveraged products, enabling you to open a position with a fraction of the full value of the trade. In other words you could gain a large exposure to a financial market while only tying up a relatively small amount of your capital. Just remember that while this can magnify your profits, it can have the same effect on your losses.
Also, because there’s no need to deal with an exchange, you could be set up and ready to trade Bitcoin much more quickly.