Day trading cryptocurrency is quickly rising, with more people around the world getting into it. A lot of traders engage in day trading to earn small profits within a limited time frame of 24 hours, or just one single day.
By studying the cryptocurrency market and applying the proper strategies and techniques, many day traders have found success and have earned anywhere from $100 to upwards of $1,000 a month.
However, since the cryptocurrency market is not regulated by any government or financial institution, the big question is this: Is day trading cryptocurrency legal?
Even though it is unregulated, governments around the world have different policies regarding cryptocurrencies. Since there is no centralized governing body in the crypto market, it is deemed to be legal in most parts of the world. Read on to find out more about the legality of day trading cryptocurrencies.
Volatility Of Cryptocurrency
First, let us understand why day trading has boomed in the cryptocurrency market. Bitcoin was the first cryptocurrency to make its mark in 2009, appearing right after the housing bubble crisis happened in the US. Since then, thousands of alternative coins, or altcoins, have now made their way into the market.
In a way, Bitcoin opened the doors for many other cryptocurrency miners and developers to be able to enter the cryptocurrency market. More established cryptocurrencies now include Bitcoin, Ethereum, Ripple, Bitcoin Cash, and EOS.
The boom of day trading can be attributed to the high market volatility, and the volume of the cryptocurrency market. High market volatility means that prices are constantly on the move, making the market more unstable and harder to predict.
Let us use Bitcoin as an example. In a 30-day span from December 15, 2019 to January 15, 2020, Bitcoin moved by at least 4%. But just two years earlier, from the last quarter of 2017 to January 2018, Bitcoin moved by a whopping 8%!
But why is the market so volatile? A lot of the volatility has something to do with how the value of cryptocurrencies is perceived by investors and the public.
Since the debut of Bitcoin as a digital asset, security concerns have affected its value, therefore affecting the cryptocurrency market’s volatility. A lot of altcoins, especially those that are just entering the market, rely on the market prices of Bitcoin to determine their own value. Therefore, a decrease in Bitcoin’s value will also affect these new altcoins.
There have been several security breaches in the cryptocurrency market. When developing cryptocurrencies, the source code is made available to the public. Thus, any concerns regarding the code itself and any possibly security issues can be raised by the cryptocurrency community.
Due to this publicized nature, security breaches that happen become widely known to the public. With each security issue, the value of the cryptocurrency falls, because investors become uncertain of the safety of their money in this market.
Both the uncertainty of the future, as well as current security concerns, influence the perceived value of cryptocurrencies. This in turn affects the volatility of the market.
Economic and political events also affect the cryptocurrency market. Many governments have openly stated their desire to gain some sort of power to regulate Bitcoin, as well as other altcoins.
Regulation of the market strikes fear in many investors, because one of the attractive features of cryptocurrency is the fact that it is a decentralized commodity, with no single governing body having control over it.
Other economic news such as the 2014 declaration of bankruptcy of Mt. Gox, a prominent cryptocurrency exchange in Tokyo, Japan, also led to significant fluctuations in the market prices of different cryptocurrencies.
Bitcoin, and all other altcoins, have an unpredictable future. Since cryptocurrencies were just introduced to the world in 2009, it is still difficult to determine the store of value of each coin.
The store of value is based on projections on how the crypto asset can become valuable or useful in the future. Although the established coins in the market are slowly being adopted to be used in digital transactions for the purchase of goods, the predictability of the overall store of value of the cryptocurrency market is still in question.
Laws on Cryptocurrency
Traders engaged in day trading seek to take advantage of the market volatility to be able to earn profits. Due to the drastic changes in market prices based on perceived value and the uncertainty of the future of each coin, day traders stand to gain a huge percentage of profit if they play their cards right.
With all these being said, is day trading cryptocurrency legal? Yes, but not in all areas of the world. The use of cryptocurrency is legal in the US, as it is listed as a digital asset and is subject to property taxes.
In Canada, cryptocurrency is legal; however, banks are not allowed to transact with companies that use cryptocurrencies, unless the said companies are registered with the Financial Transactions and Reports Analysis Centre of Canada (Fintrac).
A banking ban is also implemented in the following countries: Cambodia, Taiwan, China, Iran, Saudi Arabia, Russia, Jordan, Colombia, and Bangladesh.
Other regions in the world are not so welcoming towards cryptocurrency. In the North Africa region, countries such as Algeria and Morocco have banned virtual currencies completely. In Egypt, Bitcoin was classified as haram (prohibited), under the Sharia, or Islamic Law.
Other countries where cryptocurrencies are banned include Bolivia, Ecuador, Pakistan, and Nepal. Meanwhile, Indonesia and Vietnam allow cryptocurrencies but have deemed that it is illegal to use these digital currencies as a payment tool. Discover more about day trading cryptocurrency here!
Is day trading cryptocurrency legal? Governments all around the world have different policies regarding the cryptocurrency market. If you plan on investing in this market, you should consider two things that can affect your investment: first, the volatility of the market; and second, the legality of cryptocurrency in your country.