As with any other asset, such as a stock or gold, you can both buy or trade cryptocurrencies. And just like those examples, there are big differences between buying a bitcoin and trading it.
Here we look at the various benefits of trading cryptos versus owning them.
When you buy a cryptocurrency you take full ownership of the asset. This entails becoming exposed
to a number of risks.
First, you have to put up the full value of the asset to purchase it and you will
only profit if it rises in price – cryptocurrencies offer no dividends or interest and therefore they
are speculative purchases – you are buying because you hope (speculate) that someone else will one day pay more for it.
When you trade on a cryptocurrency’s value, you do not need to actually own the underlying asset.
Leveraged trading means you only need to put up a small fraction (or margin) of the total value of the cryptocurrency you are trading.
Trading on margin does away with the requirement to have an exchange account or wallet. Instead, you can trade using your existing spread betting or CFD account.
This means you can enjoy the same protections – like segregated funds – as you would receive when spread betting or CFD trading forex, commodities, indices and so on.
In addition to a cryptocurrency account or wallet, you can expect to pay a deposit or withdrawal fees. When trading, you can add or withdraw funds without facing a charge.
Crypto CFD trading and spread betting operate in a fully regulated environment, whereas buying
and selling ‘physical’ coins is carried out in a comparatively unregulated market.
Long or Short
A key benefit of trading cryptocurrencies is the ability to go long or short, enabling you to speculate
on the price in either direction.
While ownership means you require the asset to rise in value for
profits and any falls result in losses, the ability to go long or short means you can enter the market at
any time whether you are bullish or bearish.
Exchange Risk & Security
Owning a cryptocurrency requires an exchange account or wallet. This means you are exposed
directly to the exchange in question.
As has become evident, exchanges are liable to hacks and theft, with the suspension of trading or withdrawals being fairly commonplace.
On the other hand, when trading a cryptocurrency, you will have indirect exposure to multiple exchanges via your account. If one goes down, we can still continue to offer fair pricing based on the overall market.
There are also often problems in setting up an exchange account as they can approvals can be slow and you may find there are limits on the amount you can deposit as a new user.
When you realise profits on a physical cryptocurrency account – i.e. you sell all or part of your holding
for a profit – you will need to pay Capital Gains Tax (CGT).
With a spread betting account, UK residents do not need to pay any CGT on profits, although this does mean you cannot use any losses to offset taxes elsewhere.