As Bitcoin, trades at all time highs we take a quick look at how to bet on the price of Bitcoin.
Bitcoin has a bit of a grubby reputation as it’s most associated with seedy transactions, but as it becomes more mainstream it is being adopted by the trading and betting community as a currency just like Sterling or US Dollars. And just like anything with a price that moves you can bet on it.
First thing first though – Bitcoin is very risky, so risky in fact you probably shouldn’t be reading this
Obviously, it is much more volatile than other currencies and Bitcoin could retreat from all time highs to zero and become worthless at any time.
So if you want to take a punt on the price of Bitcoin how to you go about it?
Here we’ll look at three ways to bet on Bitcoin and the rewards and risk involved.
- Spread betting & CFD trading
- Binary options
- Bitcoin Exchanges
Spread Betting and CFD Trading on Bitcoin
This is probably the most risky way of betting on Bitcoin because you are doing it on margin. Trading on margin means leveraging a small amount of money to get a lot of exposure.
Spread betting and CFDs allow you put down a small deposit and cover the daily P&L as you go. So for example, you can buy £1,000 worth of Bitcoin with only £100 on account.
This is very risky because if Bitcoin drops 10% you lose your full account balance. It it goes down 20% you end up owning your broker £100. But if it goes to zero you owe £900.
Inversely, if Bitcoin doubles in price you have made £1,000 with only £100 on account.
You can also go short Bitcoin and bet on the price of Bitcoin going down. However, with this your losses are essentially uncapped as prices can go up forever. To mitigate this your broker may give you a margin call and close your position. Or you can use a guaranteed stop to ensure your position is closed at a specific price (although this costs a little more).
Some brokers offer negative balance protection now, which means that you can’t lose more than your account balance, but double check with them and get it in writing if think this may be applicable.
Recently I bought some Ethereum , but didn’t notice that there was an expiry date attached to the CFD contract so make sure you check your account everyday and the details thoroughly before putting a position on. I like to think I’m a fairly sophisticated professional investor, but we all miss details sometimes. Lucky I checked today as I would have been very upset if it went through the roof and I had no exposure because I didn’t keep an eye on my account.
But if you think that Bitcoin is a massive scam like Jamie Dimon it’s a good way to put your money where your mouth is. However, Jamie Dimon is the Chief Executive of JP Morgan one of the largest investment banks in the world and he thinks it’s far too dangerous to short, so probably not a good idea to look at this unless you are a very experienced investor.
It is worse than tulip bulbs “Don’t ask me to short it. It could be at $20,000 before this happens, but it will eventually blow up,” “Honestly, I am just shocked that anyone can’t see it for what it is.”
If you don’t know what the Tulip bulb thing is. Here is Gordon Gekko in Wall Street 2 explaining it…
So there are very high potential profits with spread betting and CFD trading on Bitcoin but also very high risks.
Binary Option trading on Bitcoin
Binary options have about as good a reputation as Bitcoin at the moment, but they are still a valid betting and speculating technique. They have a bad reputation because binary options are not really regulated so criminals set up off shore companies and scam investors by claiming huge profits, adding bogus bonuses to restrict withdrawals and hoodwinking investors with false advertising.
But, binary options are actually slightly less risky than spread betting and CFDs because losses are capped at the original stake.
Binary options are just a bet on whether a currency (in this case Bitcoin) will go up or down within a certain time frame. So an example would be if you bet £100 that Bitcoin would go up within the next 2 minutes. If it is up after 2 minutes then you win a little less than your stake (depending on the broker) say £90 (So £190 back including you stake).
But, if it does not go up you lose your entire stake.
So your risks and rewards are capped.
As with spread betting and CFD trading you can also bet on the price of Bitcoin going down. However, your risk is capped at your stake.
However, it is important to only use a UK based and FCA/Gambling Commission broker. Never, use a binary options broker that is based offshore. Even if they say they are FCA regulated Cypriot companies can passport their local regulation into the UK. But this does not provide the same client protection as fully regulated brokers. If a binary broker phones up suggesting trades hang up and close your account and never, ever, ever accept a bonus from a binary options broker.
We maintain a list of UK FCA/Gambling Commission regulated binary options brokers here
Buying Bitcoin through a Bitcoin Exchange
If you are risk averse and just want to buy some Bitcoin to hold in the long run as part of your high risk investment portfolio then you need a Bitcoin Exchange to bet on the price of Bitcoin going up.
Here, you just sign up and buy some Bitcoin with a debit card. Then when you are ready to sell, you put in a sell order.
Bitcoin.org keeps a list of exchanges, but do your research thoroughly as these have a habit of going out of business left, right and centre.
The risks are you can lose all your money, or some of it or make some.
So, if you just want to bet on the price and don’t want the hassle of actually owning Bitcoin go with a spread betting or CFD broker. Spread betting and CFDs are basically the same thing, but there is no capital gains tax with spread betting. CFDs are more popular in Europe. Or a binary options broker, just make sure it is a reputable one.
Below is the currency Bitcoin price chart provided by CFD broker PLUS 500: