Before binary options were introduced to the trading world in 2008, forex trading was growing significantly in popularity among traders. Forex has always been an exciting method of trading since the interrelationship between currencies is constantly changing. Since so many elements can influence the value of a currency, when you compare two currencies – known as a currency pair – in relation to one another it creates an interesting dynamic that can change in a moment’s notice. Once binary trading was introduced, this passion for trading on the value of forex currency pairs continued. Instead of buying and selling currency pair contracts, binary traders were making money by making predictions on if a currency pair would rise or fall in value by a pre-determined expiry time. Following that – and as the digital age continued to evolve – Bitcoins were introduced and this created another level to the world of forex binary options.
Introduced in 2009 as a peer-to-peer payment network, Bitcoin is a digital currency based on an open source protocol, which makes use of a public transaction log. If an individual pays with a Bitcoin, no actual monetary exchange takes place between the buyer and seller. Instead, the buyer requests an update to a public transaction log, known as the blockchain. This master list of all transactions shows the owner of a particular Bitcoin and is maintained by a decentralized network that verifies and timestamps payments using a proof-of-work system. The operators of this network, known as "miners", are rewarded with transaction fees and newly minted Bitcoins.
From a forex perspective, a Bitcoin is typically compared to the US dollar. The reason for this is due to the fact that the US dollar is a globally accepted currency and one that is used quite heavily in trading. When looking at the USD/Bitcoin currency pair it’s important to understand that the US economy has experienced a challenging environment since Bitcoin’s introduction in 2009. Despite this, when Bitcoin was first introduced, the USD/Bitcoin rate was fairly high at 19.29757. Since that time, even with the US economy showing signs of improvement, the USD/Bitcoin rate has progressively declined, reaching a record low of 0.00081 in November 2013.
This means that the value of a Bitcoin has experienced stable growth, rising from one Bitcoin costing US$150 in the summer of 2013, to more than US$1200 per Bitcoin within just a few months. The largest increase happened during October and November. Many analysts suggest that this jump was largely due to expanding interest of Bitcoins in China. However, as we headed into December 2013, some skepticism over the value of the Bitcoin began to present itself. At this time, a number of governments – including China – started to invoke restrictions on the use of Bitcoins. The People’s Bank of China “banned” real-life merchants and banks from handling Bitcoin, resulting in some Chinese firms – such as Baidu – ceasing to accept Bitcoin as a form of payment. What this demonstrates is that this currency pair has experienced volatility in a short space of time.
From a binary options trading perspective, it’s important to understand what influences the value of Bitcoin so you can make accurate predictions. Despite the pair’s track record, the USD/Bitcoin pair is influenced by the stability of the US economy. If the US economy continues to rise, the US dollar will rise against its currency counterparts including Bitcoin.
With Bitcoin previously experiencing a range of criticism around its safety, Bitcoin has been a subject of scrutiny due to ties with illicit activity. In 2013, the US FBI found that a number of black market purchases were being performed with Bitcoin payments. Additionally, China has instituted new rules stating that Bitcoins cannot be exchanged for local currency and the European Banking Authority has warned that Bitcoin lacks consumer protections.
As a binary options trading, the safety of using a Bitcoin isn’t a factor. What you need to be concerned of is how the USD/Bitcoin currency pair reacts to announcements like these in the market. For instance, if you notice that there are further restrictions on the use of Bitcoins, you may believe that this will lead to a rise in the value of the USD/Bitcoin pair. As a result, you would place a CALL option on its value.
As an alternative payment method, Bitcoin has created quite a stir across the world. As a binary options trader, you can take advantage of this movement so you can increase your profitability from your trades.
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