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The rise in the value of cryptocurrencies over the past decade has attracted a growing of international traders, investors, and speculators. This entire decentralized financial ecosystem which is based on blockchain technology looks exciting, and it is indeed, but can cause disappointment when not properly understood.

All over the world, governments, agencies, and corporations are trying to understand the technology and create legal frameworks, such as for cryptocurrency and taxes. At the same time, traders and investors are looking to cryptocurrency as an investment, and this has both its pros and cons.

Security

Based on decentralized technology, cryptocurrencies are not controlled by any one institution or company. Dedicated software is incentivized to update and maintain ledgers to ensure that data is correct and valid. This data includes details on each individual crypto coin, and it ensures that no duplicates or double payments are possible. As a result, investing in cryptocurrencies is safe.

Security starts to become a concern when trading currencies since you need to use exchanges or wallets. Here the security depends on the product itself, with the major exchanges such as Binance and Coinbase Pro being normally safer than much smaller alternatives.

Safe Investment

Cryptocurrencies, in general, are seen as a safe investment as they have a general upward trend. There are hundreds of currencies and not all are considered to be safe. However, you should always look to invest in the best, most reputable cryptocurrencies.

The industry is gaining legitimacy from regulators and international organisations, which are working to seek ways to implement the technology and solution they provide to develop existing systems. As a result, this has attracted more institutional investors and even university endowment funds. Larger corporations, such as Facebook and Twitter, are also looking to enter this sector, which will further push cryptocurrencies into mainstream use.

Legal

The legal perspective of cryptocurrency investments is debatable and various considerably from one country to the next. Countries like Malta and Singapore have already taken steps to enshrine cryptocurrency and blockchain use in law and many other countries are following suit. There are seems to be a reluctance in some countries, such as the United States, to take a firm position on the subject, leaving individual states to decide themselves.

This situation causes uncertainty and concern, especially for institutional investors. The general trend seems to be to regulate rather than eliminate, which is a good sign that matters will only improve henceforth.

Not Tangible

Traditional investors sometimes complain that investing in cryptocurrency is putting money in something that doesn’t exist. This is true, up to a certain point. Today even fiat currency, together with huge volumes of data and services exist only in virtual form. There is nothing tangible, but that doesn’t make the data any less valuable.

Cryptocurrency is very similar to fiat currency, you can store it safely in crypto wallets, use it to purchase goods and services, and transfer it to third parties.

Bitcoin Derivatives

Even though Bitcoin and other cryptocurrencies are sometimes viewed as being non-tangible, they represent popular speculative assets which are increasing in frequency and volume. As a result, interest in the sector has continued to grow, resulting in the creation of several cryptocurrency derivatives.

Traders looking to profit from an asset’s change in market price do not usually have any interest to own it. Handling assets can be expensive and a hassle, especially if the traders only expects to hold onto them for a short period of time. In the case of Bitcoin, a trader would need to set up a wallet in which to store the coins and would need a way to ensure that they are safe from cyber-attacks.

This is why Bitcoin derivatives, such as Futures and Contracts for Difference (CFDs), have become very popular. These financial instruments derive their value from the underlying asset but are separately traded on open markets. As a result, traders can trade these contracts without ever owning a single Bitcoin. This allows for faster and even cheaper trading since platforms normally charge lower fees to buy Bitcoin CFDs than to buy Bitcoin.

One of the most popular Bitcoin CFD trading platforms is eToro. The trading platform giant has excelled in facilitating CFD trading for decades and has amassed a global user base in the millions. Offering a comprehensive list of popular and less popular cryptocurrencies, traders can easily diversify their cryptocurrency investment. eToro also boasts an array of useful features, including detailed educational resources and CopyTrader. In addition, eToro offers a transparent fee structure with no commission fees and tight spreads.

When trading Bitcoin derivatives on eToro and other trading platforms you will normally have the opportunity to trade on margin. In this way, your investment capital can be magnified, allowing you to open larger positions than you would otherwise afford to do. When trading on margin you are, essentially, borrowing money from the trading platform, and additional fees might apply, especially if you maintain a position open beyond closing time.

Trading Bitcoin CFDs is considered to be a high-risk investment due to the use of leverage (margin trading). Whilst allowing you to increase potential profits, leverage can also result in significantly larger losses. Before trading on margin, you should ensure that you fully understand the risks involved and can afford the loss of part or all of your investment.

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