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How is the value of Bitcoin priced
Bitcoin is commonly priced against the US Dollar (USD) but can be valued against other products and currencies such as a variety of cryptocurrencies and fiat currencies like Bitcoin against the AUD, the Australian Dollar.
This may be important to you if you are domiciled in Australia and are concerned about fluctuations in the price of the Australian Dollar against the US Dollar (AUDUSD).
How to calculate the value of Bitcoin against the AUD
Some platforms will offer the price of Bitcoin against various other products. What if this is not the case? Can you work out the price of Bitcoin against the AUD? The answer is yes. Let us look at an example:
The price of BTCUSD at the time of writing is 19,842. That means that one Bitcoin would cost you $19, 842 to buy.
Figure 1 Trading View BTCUSD 16/09/2022
The price of exchanging the Australian Dollar to the US Dollar, AUDUSD, is 0.6687.
Figure 2 Trading View AUDUSD 16/09/2022
To calculate the price of Bitcoin against the AUD we take BTCUSD and divide by the AUDUSD exchange rate:
19,842 (BTC in USD) / 0.6687 (AUDUSD) = 29,672 (BTC in AUD). One Bitcoin costing 29672 AUD.
Figure 1 Trading View BTCAUD 16/09/2022
Hedging against the AUDUSD price move
Your broker does not offer Bitcoin against the AUD and you are concerned about the fluctuations on the AUDUSD exchange rate. Can you lock in the price level?
Example:
You are domiciled in Australia, have an account in Australia Dollars (AUD) and have traded BTCUSD. Let’s do some calculations.
We bought 10,000AUD worth of BTCUSD at 19842. To calculate our exposure, we convert AUD into USD (10,000AUD / 0.6687 = 6687USD). With $6,687 we can buy 0.337 Bitcoin.
BTCUSD moves to 25000 and we look to close out the long trade. The value of 0.337 Bitcoin is then valued at $8425 (25000 / 0.337 bitcoin).
However, the move higher in BTCUSD is greatly attributed to the weakness in the US dollar. The AUDUSD exchange rate has moved to 0.7100, nearly 6.3% higher from the original price level of 0.6687.
Exchanging back into Australian Dollars and we get 11,866AUD (8425 / 0.7100 = 11866). Still a healthy profit of 1,866AUD.
However, if we had made the exchange at the original exchange at 0.6687, we would get 12,599AUD (8425 / 0.6687 = 12599), an extra 733AUD.
To protect against the potential move in AUDUSD we could have placed a hedge, by placing a buy trade in AUDUSD in 2AUD.
This would have returned 826AUD and covered the exchange rate fluctuation (7100 – 6687 = 413 x 2 = 826).
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