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.