Cryptocurrencies vs Currency Trading
As digital currencies continue to gain popularity, the world of trading is experiencing a major shift. With the market valuation of cryptocurrencies surpassing $3 trillion, traders are noticing the potential gains that can be made through this new technology.
In contrast to the
relatively stable exchange rates of fiat currencies in the forex market, the
speculative nature of cryptocurrencies makes them an attractive option for
those willing to take risks.
Previously cryptocurrencies were only available on
designated crypto exchanges; however, now you can also access them on a forex broker. In this article, we'll
explore the similarities and differences between forex and crypto trading and
how they can be used to diversify your trading portfolio in 2023 and beyond.
The Basic Foundation
Cryptocurrency trading involves buying and selling digital assets like tokens, NFTs, and cryptocurrencies, while forex trading involves exchanging fiat currency with the hope of profiting from a rise in value. Both types of trading depend on supply and demand, but the driving forces behind them differ.
Cryptocurrencies operate on blockchain technology, which attracts
investment, increasing demand.
On the other hand, forex has been around for decades and is
influenced by macroeconomic factors that affect global economies. Technical
analysis techniques used to analyze price charts in both trading types are
similar. However, crypto markets are more volatile than forex, making them
riskier but potentially more lucrative.
Market Cap
Cryptocurrencies have a market capitalization of over $3
trillion, with the market value growing rapidly in recent years. The
transparent ledger system created by Satoshi Nakamoto for Bitcoin allows for
easy tracking of the size of the cryptocurrency market. On the other hand, it
is more difficult to determine the value of forex due to the complexity of global
economies.
The Bank for International Settlements estimates that the
forex market trades $6.6 trillion per day, while the trading volume for crypto
ranges from $100 billion to $500 billion per day. Despite Bitcoin's 13-year
existence, it has only become widely accessible recently. At the same time,
forex trading has been well-established for longer.
Regulation
Forex trading is a highly regulated market due to its long history and global implications. Governments closely monitor currency trading and enforce strict regulations. In contrast, the regulation of the cryptocurrency market remains uncertain.
Crypto markets claim to be building
technology products that are not subject to regulation. Yet, they advertise the
benefits of investing in their marketplaces. This lack of regulation allows
investors to enter the crypto space easily and creates long-term uncertainty.
The Securities and Exchange Commission, IRS, U.S. Treasury,
and other relevant bodies are expected to regulate the cryptocurrency market in
the future. The high incidence of fraud among new crypto projects makes it
inevitable that regulations will eventually be enforced. Therefore, investors
should be aware that it's not a question of whether or not regulations will be
imposed, but what those regulations will entail.
Market Stats
Both forex and crypto operate 24/7 to cater to traders and investors worldwide, with offices located globally to serve local clients. Forex trades from Monday in Wellington, New Zealand, to Friday in New York City, while some brokers offer weekend trading.
In contrast, crypto never stops
trading and operates seven days a week, allowing buying and selling at any
time.
Forex pricing is determined by the interbank market, with
brokers adjusting spreads to create their pricing feeds. Meanwhile, crypto's
pricing depends on the liquidity offered by participants at each location.
Thus, when trading large amounts of crypto, the exchange may not have enough
crypto to execute transactions at the desired time.
Anonymous Nature
Cryptocurrencies became popular initially due to their
ability to facilitate anonymous transactions. However, government intervention
has limited the anonymity of top coins such as Bitcoin and Ethereum, while
smaller coins like Monero, Zcash, and Verge still retain this feature.
Forex transactions are highly regulated, with a network of forex brokers and financial professionals known as the interbank market overseeing the market. Since 2014, the interbank market has enforced a “know your customer” (KYC) standard, requiring traders to provide personal information to access the exchange.
Some companies, inspired by the anonymous
nature of cryptocurrencies, are flouting KYC rules and emerging to cater to
forex traders.
Final Thoughts
Investors looking to diversify their trading portfolio should be aware of the differences and similarities between forex and cryptocurrency trading. While both operate 24/7 to cater to traders and investors worldwide, crypto markets are more volatile, making them riskier but potentially more lucrative.
Additionally, the anonymous nature of cryptocurrencies
has been limited by government intervention, while forex transactions are
highly regulated, with the interbank market enforcing a “know your customer”
standard. As the trading industry continues to evolve, investors should stay
informed and keep up with the regulatory developments in both markets.
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