Bitcoin does not really need much presenting. You would have heard about it a lot as the cryptocurrencies are the hot topic in today’s world and it does not lose its relevance despite the changes in its price. Bitcoin is a leading, most valuable and most famous digital assets you might have heard of. While many people know about the Bitcoin itself when it comes to the Bitcoin trading there are still a lot of questions. However, the interest in is high, and many people would like to know how to start bitcoin trading in South Africa. To get to know it first you need to understand what exactly is Bitcoin trading and how does it work.
What is Bitcoin trading
Bitcoin trading works in the same way as trading anything else you can think of. The best example to give is currency trading. While trading currencies you have some amount of money on your account in a particular currency and with it you are buying other currency – or to put it simply exchange it. Once the exchange rate of the currency increases you are selling it. While in the Forex two currencies are paired up like USD: ZAR, with Bitcoin trading you are having BTC on one side of the pair. Another side is some fiat.
While there are a lot of currency pairs you can trade with, in Bitcoin trading the choice is very narrow.
You cannot buy Bitcoin with ZAR, you need to have USD. So basically you are having some amount of the money in USD and you exchange the money to Bitcoin. Depending on how much money you have you can buy one bitcoin or the part of it. When the price of the Bitcoin increases, you sell it again and make a profit.
So Bitcoin trading is just like a Forex trading, however, there is a major difference. While in most of the cases when trading currency pairs brokers are making their profits with spreads, in Bitcoin trading exchanges take the commissions. Sometimes the commission might be as high as profit you are making. Therefore you need to think if the size of your investment is worth of doing it.
The largest Bitcoin exchanges have paired BTC up with the major currencies that have very low volatility such as USD and EUR. In rare cases, Bitcoin can be paired up with some other major currency, however, it will be impossible for you to find the pair including exotic currencies such as ZAR. Besides fiats, Bitcoin can be paired with other cryptocurrencies, for example, Ethereum. ETH: BTC means that you buy Ethereum with Bitcoin or sell Ethereum for Bitcoin. The idea behind Bitcoin trading is easy to grasp but how to start Bitcoin trading in South Africa or elsewhere?
How can I trade Bitcoin in South Africa
Since Bitcoin is a digital asset and is traded virtually, it does not matter where you live as long as you have a laptop and access to the internet. While the idea of the process of trading is easily understandable, Bitcoin trading for beginners can be a little bit hard as the profits gained are relatively low if your investment size is not big, and to trade in a right way to make profits you need to constantly observe the market. If it is not something that bothers you and you want to trade there are two ways to do it.
Trading Bitcoin with the large exchanges
Bitcoin is traded with exchanges. You need to open an account with the exchange of your choice. The best choice is to go for the largest exchanges as they usually provide with the wallet where you can store your digital assets. The large exchanges offer the biggest variety of digital assets including Bitcoin itself, Ethereum, Ripple, Litecoin and many more. The process of trading with such exchanges is fast and most secure. However, the commissions can be a big, therefore if you decide to open an account with the large exchange make sure to choose the one with a bearable commission.
The separate platforms
As you could already understand, you need two things for trading Bitcoin – the wallet where you store it and platform where you trade it. The large exchanges offer both of them but they mostly have high commissions. So how to trade Bitcoin so that you can be profitable and do not lose much money on commissions? You can have two separate platforms. There are a lot of providers that offer a wallet where you can store your Bitcoin. You can choose the wallet that is most secure and safe and save digital assets there. At the same time, you can choose the exchange that offers minimum commissions and creates an account with them. When you want to start trading you will transfer Bitcoin from the wallet to our account and trade.
Trading with Bitcoin CFDs
There might be a case when you want to trade with Bitcoin but you do not want to own the Bitcoin itself. It can be due to two reasons. First of all, you need to invest much in it, secondly, things are not that clear around the Bitcoin price as the time when it was increasing in a price daily has passed and many traders are worried that the price of it will not skyrocket again. So how to trade Bitcoin without actually owning it? You can trade with CFDs on Bitcoins. As the cryptocurrencies become very popular to trade with Forex brokers that are offering CFDs on different things such as stocks and bonds, started offering CFDs on cryptocurrencies as well, including Bitcoin.
What is the difference between Bitcoin and Bitcoin CFDs?
The first difference is to trade Bitcoin you need to actually own it, when trading with CFDs you do not have to own it. CFD stands for Contracts For Differences, meaning that you are not selling or buying Bitcoin but you are speculating with its price. There are several reasons why would you want to trade with CFD on Bitcoin rather than Bitcoin itself.
- You are able to choose the regulated Forex broker that offers CFDs. Nowadays almost all brokers are offering CFDs on cryptocurrencies, the list of the cryptocurrency pairs can be seen on FX brokers’ website and you can make your choice based on them.
- It is safer to trade CFDs on cryptocurrencies simply because the Forex industry is regulated. The exchanges itself are not, simply because there is no certainty about Bitcoin regulations and there are no legal frameworks.
- It can be more profitable. Bitcoin trading for beginners cannot be very profitable, especially with small investments. Let’s say Bitcoin price is USD 3000, you buy one Bitcoin with USD 3000 and keep it till the price of Bitcoin raises. If the price will be increased by USD 500 after some time and you decide to sell it you will get USD 3500 before the commission, and the commission can be high. With CFDs, you can use the leverage that the broker offers and increase your profit significantly. However, with the high leverage losses are high as well.
Disadvantages of trading with CFDs on Bitcoin
Trading with CFDs on Bitcoins have some disadvantages compared to the trading with actual Bitcoin. The major disadvantage is that while trading with CFDs you have time limitations. While you have Bitcoin and you are waiting for the increase in the price you can wait as long as you want. In this way, you can sell it whenever it is most profitable for you. When trading with CFDs you do not have a control on time and the position can be closed in a way that will be unfortunate for you. For example, you buy CFDs on Bitcoin when the price of BTC is USD 5000, you are expecting that the price will be USD 6000. Meanwhile, the position is closed when the price is only USD 5200, hence your profit is lower compared to what you expected. Since the price of BTC is growing you might be forced to buy another CFD and so on.
As you can see you can either buy Bitcoin and trade with it or trade with CFDs on Bitcoin without owning it. In this Bitcoin trading guide, I cannot advise which one is better CFDs trading or trading with Bitcoin Both of them has its advantages and disadvantages and based on your capabilities and needs you can choose which one is better for you. However, you need to keep in mind that both of them includes the risk. It does not matter which one you will choose to start with, in both cases you need to understand how the price of the Bitcoin changes.
What effects the Bitcoin price
The dispute around the Bitcoin and cryptocurrencies in general usually comes from its actual value. What is the value of Bitcoin and how is it measured? In this sense, digital currencies are very different from the fiats. With fiats, you know the value and you are aware of the events that might affect it. For example, you can see the value of ZAR against USD. When something major happens you can predict if the value of ZAR against USD will be increased or decreased. Hence, with currencies, there is more clarity.
The price movements of the Bitcoin is not that clear and it is something that makes trading Bitcoin for beginners more difficult.
You might remember when the Bitcoin was introduced to the wide audience there was a big hype about it. While the price was relatively low many people started buying it as the price was increasing and people were expecting to make a good profit with it. It resulted in skyrocketing the price and eventually it reached over USD 20,000. When the price was increased significantly not many people were able to buy it anymore, at the same time the mining was already common and hence people started selling it more.
I can say that at that time the price of Bitcoin was solely based on expectations and attention it could get. At this point, the price is stabilized and it is fluctuating based on the supply/demand. Although the Bitcoin price is very low compared to its maximum, it is still reasonable to trade with.
Bitcoin regulations in South Africa
As I have mentioned above the best thing about Bitcoin trading is that it is decentralized, and it is not based anywhere. Therefore trading can be done in any country. However, different countries have a different approach when it comes to cryptocurrencies and their regulations. Crypto become so popular and common in a short time and the governments pretty much did not know what to expect from it and what to do with it. When many people started trading Bitcoin, it came clear that the government needed to take a position. Some of the well-developed countries are supporting the development of digital currencies some of them like India has banned it completely as they made it illegal. So is trading Bitcoin in South Africa legal and possible?
South Africa is one of the countries that did not have any clarity about Bitcoin trading for quite a long time. Since its appearance, the government officials were refusing to accept cryptocurrency as a currency. As they do not have the characteristics of currency and referred to crypto as digital tokens. Recently the government took another path and recategorized cryptocurrency as a hobbyist instrument. Meaning that if you buy Bitcoin it will not be considered as buying a financial asset but as buying an antic coin for your numismatic hobby, or spending the money as a bet on rooster battle. Bitcoin and other cryptocurrencies trading is not regulated yet, however, the government of South Africa is preparing a regulatory framework for it. It is legal to trade Bitcoin in South African and it is not expected that this will change, but it will definitely be regulated.
Why was Bitcoin created
We hear so much about Bitcoin on a daily basis that when you think of it, it is hard to remember the time when it did not exist. Bitcoin is the first digital currency and it started the movement of digital currencies that followed it. Creating Bitcoin has really changed the world and the financial sector. So you might be interested why on earth was it created and what was the main idea behind it.
The whole point of creating Bitcoin was to have a possibility to make a peer-to-peer transaction while eliminating the middle part such as for example banks that are saving your transaction history. With Bitcoin and blockchain system it became possible to transfer money anonymously without this information saved as it is encrypted to the blockchain system and is impossible to get. Moreover, the information is not encrypted somewhere one place, it is decentralized that makes it almost impossible to hack.
How it the Bitcoin made?
The next question is how Bitcoin is created. Unlike fiat, there is not one provider of the Bitcoin, there are many of them. You can generate Bitcoin by yourself too. However, the majority of the Bitcoin that is on the market today is generated by several large mining companies. So Bitcoin is not made, it is generated in the following way: The hardware is connected to Blockchain and adds creates the blocks where the information and transactions are encrypted, To do so the hardware is using the power of computers to solve difficult mathematical problems. Once enough computer power is provided to solve the math problem the coin is created.
When the Bitcoin was on its raise many individuals could use several computer powers to produce the Bitcoin, now there are already a lot of large mining firms and it is not that much profit to try mining by yourself.
What can you do with Bitcoin
Now as you know how to trade Bitcoin you might as well be interested where you can spend it and what can you do with Bitcoin. It highly depends on the country you are living in. For example, in Japan, you can pretty much pay for everything with Bitcoin including paying your taxes. Japan is the most open country when it comes to using Bitcoin. In some cases, you can make big purchases with Bitcoin – for example, buy a house. In many countries you are not able to use it anyhow, however, you can use it for international transactions.
You can use Bitcoin in some of E-commerce stores that have the option of Bitcoin payment – meaning that you can purchase some of the goods with Bitcoin.
You can use Bitcoin to deposit money on your account with Forex brokers, some of them accept Bitcoin payments and you can fund your trades with it.
Besides Forex brokers some of the casinos also accept payments with Bitcoin. So far it is the most common digital cryptocurrency you can buy things with, without exchanging it to US dollar.
Disadvantages of Bitcoin trading
I have already mentioned the advantages of Bitcoin trading, but like everything in life everything comes with the disadvantages and you need to know them as well to make the right decision about trading Bitcoin. The first disadvantage is that you cannot predict the changes in the price. Even if the tendency is positive and the price is growing at one moment it can simply start decreasing. Therefore while trading Bitcoin you need to be aware of the market movements pretty much every minute. Due to the volatility, you cannot predict how successful will you be. This is the reason why many traders are not making long-term investments in Bitcoin at this point. Instead, they are trying to get as much profit as possible in a short time.
Ideally Blockchain system should make it secure to trade Bitcoin, however, there still are some problems with the security. Even the largest exchanges in the world were found out to have serious issues with the security systems. The reason behind it was the fact that Bitcoin trading becomes popular in a very short time. Hence exchanges needed to create the platform in a short time to get profitable and not many of them devoted enough time and resources to create a decent security system that would protect the transactions and crypto funds. Therefore you should consider it when you thinking of trading and searching for how to start Bitcoin trading.
Scams Scams Scams
As the Bitcoin trading was very profitable and is still relatively profitable now the industry attracted many scammers. Usually, the scam scheme works in the same way in Bitcoin trading as it is in any other trading, for example, Forex. The beginner Bitcoin traders who were hoping to get rich with Bitcoin trading where promised to get 100% profit and even more. Knowing that Bitcoin could have been these profitable many traders got tricked and therefore lost all of their money and coins. Hence it is important to be careful while choosing an exchange to trade with.
Should you start trading Bitcoin?
Now you know how to start Bitcoin trading in South Africa. Trading cryptocurrencies are legal, you need to exchange ZAR to USD and buy Bitcoin with it. You have a choice to trade with an Exchange or keep your Bitcoins on your wallet with the provider and have a platform with the exchange to trade. Once you own Bitcoin you can wait for the prices to rise, sell it and make a profit this way. Trading Bitcoin has some advantages and disadvantages as well. There is a serious concern of security and you need to choose where you will save and trade digital coins carefully. At the same time, you need to make sure you are able to observe the market very often not to miss the opportunity as the volatility of Bitcoin is often high and unexpected. Based on it you can decide if Bitcoin trading is something that can be profitable for you.