Here is everything you need to know before start trading Bitcoin (BTC/USD) with AvaTrade.
Trade bitcoin with AvaTrade. Table of Contents
Why BTC is paired with USD?
BTC/USD is the exchange rate of Bitcoin against the US dollar.
Cryptocurrencies are known for their immense volatility, while the US dollar is by far the most traded fiat currency globally.
As a result, BTC/USD is the most popular crypto-to-fiat pair and serves as the gold standard for the cryptocurrency market, providing an indication of the direction of prices for practically the entire cryptocurrency market.
In the BTC/USD pair, Bitcoin is the base currency, while the US dollar is the quote currency.
When, for example, the price of the BTC/USD pair is 3,100, it means that it would take USD3,100 to acquire 1 Bitcoin.
At AvaTrade, you can trade the most popular Bitcoin pair in a secure environment with low margin requirements, competitive spreads, and zero commissions, all on a robust and intuitive trading platform.
What is Bitcoin (BTC)?
Launched in 2008, Bitcoin was the first and remains the most popular cryptocurrency.
Unlike traditional fiat currencies, which are backed by trusted third parties like banks and governments, cryptocurrencies are decentralized and backed by peer-to-peer technology.
At the heart of cryptocurrencies is a blockchain technology that serves as a secure and accurate public record of all transactions.
By design, there will be only 21 million bitcoins and, by the beginning of 2021, over 80% of this amount had already been mined.
This scarcity has always fueled demand for Bitcoin and is one of the main reasons why its value started at a paltry $0.003 in its early days and peaked at nearly $30,000 in the past.
The US dollar is the most reserved currency in the world.
The USD is also the denominator for major commodities such as gold, silver, and crude oil in global markets.
As the official currency of the United States, also the largest economy in the world, the US dollar is the most stable and liquid currency in the world that has rightfully earned the title of “king of currencies”.
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What events influence the price of BTC/USD?
The genesis of Bitcoin occurred during the global financial crisis of 2008, and cryptocurrency was initially touted as the future of money, essentially as an alternative to fiat money.
Based on this, the main influential body that can impact the BTC/USD pair is the US Federal Reserve, which has a mandate on the most powerful fiat currency, the USD.
The Fed publishes rate decisions 8 times a year and these are important events for the BTC/USD price.
A rate hike would pressure the BTC/USD price to the downside, while any rate cut would provide favorable winds for the cryptocurrency pair.
To put that into perspective, in November 2018, the BTC/USD (Bitcoin Index) pair was trading at $3,778.
Mainstream adoption of Bitcoin caused the December 2017 peak of just under $20,000.
But as major regulators have tried to impose strict rules governing space, crypto coins have faced tough times.
Good stocks will raise the value of the BTC/USD, while poor stocks will lower it.
The main regulatory bodies that BTC/USD traders must pay attention to are:
- the US Securities and Exchange Commission (SEC)
- the United States CFTC (Commodity Futures Trading Commission)
- CSRC (China Securities Regulatory Commission) of China
- ESMA (European Authority for Financial Instruments and Markets) of the EU
- UK Financial Conduct Authority (FCA)
- FSS (Financial Supervisory Service) of South Korea.
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Bitcoin the digital gold
As stated, Bitcoin previously provides an indication of the direction of prices for almost all cryptocurrencies.
Therefore, the BTC/USD has a positive correlation with all major cryptocurrency pairs, such as ETH/USD, BTG/USD, LTC/USD, ETC/USD, and XRP/USD.
There is also an interesting correlation with gold.
Gold has been, for years, considered a safe haven asset and a hedge against inflation and the fiat qualities that Bitcoin now represents.
Bitcoin is now effectively digital gold.
Furthermore, the price of gold is measured in USD, something shared by the BTC/USD pair.
By sharing fundamental economic qualities, gold and Bitcoin have developed a positive correlation that traders should always consider.
Why Bitcoin is considered Digital Gold?
Trade BTC/USD with AvaTrade
AvaTrade offers a wide variety of benefits when trading the BTC/USD pair:
With AvaTrade, there is no need to create a crypto-wallet to trade cryptocurrencies.
With the BTC/USD pair, you can trade cryptocurrencies against fiat currency, unlike exchanges where you are limited to only trading cryptocurrencies with other cryptocurrencies.
Since you are speculating on cryptocurrency CFDs and not actually buying the digital currency, you can profit from the rise and fall of the markets.
Frequently Asked Questions about BTC/USD
Which currency pair does the abbreviation BTC/USD refer to?
Currency traders are familiar with major currency pairs and often a good number of smaller pairs.
More experienced traders will also likely be familiar with a number of exotic pairs.
But the BTC/USD pair is a mystery to currency traders, and that’s because one component isn’t a traditional fiat currency.
BTC/USD refers to the coupling of the main cryptocurrency Bitcoin with the US dollar.
It is a brand new currency pair and one that has generated a lot of excitement over the past decade.
If you are not familiar with BTC/USD, you should take some time now to get to know it.
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Why many investors trade BTC/USD but not Bitcoin itself?
Being the largest cryptocurrency by far, Bitcoin should be of great interest to currency traders.
While the size of the market capitalization of digital currency pales in comparison to that of any major or minor fiat currency, Bitcoin acceptance has increased.
As acceptance of Bitcoin grows, it becomes more common as a currency, store of value, and as a trading asset.
This will only grow in the future, so by learning to trade BTC/USD you are now future-proofing your trading career.
Furthermore, cryptocurrencies such as Bitcoin are one of the few markets available for weekend trading.
What is the best strategy for trading with BTC/USD?
Whatever excellent strategy you are using for forex trading, it will also work when trading BTC/USD.
A very effective strategy uses the On-Balance-Volume (OBV) indicator to trade Bitcoin.
This indicator uses a combination of price action and trading volume to analyze the market.
Originally developed for the stock markets, it has also been used successfully in forex trading.
It also makes use of comparison with Ethereum, the second-largest cryptocurrency.
In practice, it searches for divergences between the price trends of Bitcoin and Ethereum, such as a breakout in one but not in the other.
A breakout in Ethereum mainly indicates that the same will happen for Bitcoin and the OBV is used as confirmation.
If the OBV moves higher, this is confirmation.
A limit order can then be placed just above the BTC/USD resistance level.
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Comment by Hans
April 24, 2024
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