The original purpose of Bitcoin was to serve as a digitally-encrypted currency that could be used as payment for goods and services without being under the scrutiny of any government or central bank.
But Bitcoin has gone well beyond its original purpose to where it can now be traded as a speculative financial instrument in as simple and straightforward a manner as trading any traditional currency.
The creator of Bitcoin designed the cryptocurrency to be capped at a total mined quantity of 21 million Bitcoins, in perpetuity. Currently, that hard limit has not yet been reached, but around 80% of the total Bitcoin capacity has already been mined as of late 2017.
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This characteristic and perception of scarcity have helped lead to Bitcoin’s massive rise in value since inception, particularly within the past year, as traders and investors have rushed to take part in buying and selling the cryptocurrency.
While actual Bitcoins can certainly be bought and held, there are some major advantages to trading Bitcoin as a financial instrument rather than simply buying and owning the cryptocurrency. Some of these advantages include:
- Immediate exposure to Bitcoin price movements with the ability to trade long or short, without having to hold the underlying Bitcoins
- Easily execute both short-term and long-term trading strategies, or hedge any existing Bitcoin holdings
- Use margin and leverage to control Bitcoin positions, allowing efficient use of account equity
- Employ stop losses, profit limit orders, and other trade management techniques on Bitcoin positions that are just not possible when simply holding Bitcoins