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Is Trading Bitcoin Comparable to Trading Forex?

Foreign currency has been around a long time in human history, considering that there are always discrepancies between two currencies. Now that the market is super consolidated with digital trading, people can make big bucks by strategically trading currency pairs.

By Jonathan GPublished 5 years ago 3 min read
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Foreign currency has been around a long time in human history, considering that there are always discrepancies between two currencies. Now that the market is super consolidated with digital trading, people can make big bucks by strategically trading currency pairs.

Bitcoin didn’t come into the picture until recently. While it did solve some technical issues, it brought along the philosophy that currencies controlled by central banks are oppressive, unreliable and outdated. At the same time, financial experts consider it to be a fad or digital commodity at best.

If you consider Bitcoin to be an actual currency, which was its actual intention when it was developed, then it’s like trading forex at face value. There is certainly a lot of overlap between the concepts of both markets, including the fact that competing cryptocurrencies are brought into the market and traded.

Decentralization

Technically speaking, both Bitcoin and cash can be traded without brokers and third parties, although most traders do so for the sake of stability and safety. This is why forex brokers and Bitcoin exchanges both have the most amount of volume, even though they are not a necessity like trading securities.

If you ever go to border towns around the world and see street traders buying and selling currency, that is forex in its most common denominator. While Bitcoin can be traded for cash in the street using cellphones, it is not at all required due to the decentralized and online nature of it.

Bitcoin has the advantage of not needing to have a government-regulated bank account or physical goods to store and trade your wealth. This can be quite useful for people fleeing oppressive regimes to take their wealth without the risk of confiscation or theft (see the Venezuela crisis).

Market Capitalization

The cryptocurrency market is absolutely dwarfed by the foreign exchange market. Usually, there is well over $5 trillion in market turnover with the USD dominating most of the market. The entire cryptocurrency market is only in the hundreds of billions total, so it’s a completely different beast.

Bitcoin does resemble the USD in the sense that both markets use them as reserve currencies. The main difference is that there are tons of new cryptocurrencies being flooded into the market since only basic coding skills are required to create one. Meanwhile, there are seldom new government-issued currencies introduced, so there is market stability in that regard.

Volatility

The Bitcoin market is always unsure, with wild daily swings that nobody in the securities nor forex market would know how to handle. It is not uncommon for Bitcoin to go up or down hundreds of dollars in one day, which is why day traders tend to revert to the USD (or Tether) as the “safe” currency.

Of course, the foreign exchange market is also susceptible to some level of volatility, especially in regards to currencies of the developing world. The Indonesian Rupee had faced crashes that disrupted both local and international markets. As a more extreme example, Venezuela holds the record for the fastest inflation rates.

Traditional Finance Stacked Up Against Bitcoin

Most of the 1% in the United States consists of people that monopolize over the stock market and other traditional finances. It is no surprise that many multi-billionaires are against Bitcoin.

Warren Buffet, someone who really understands the market, thinks Bitcoin is a delusion and a waste of time. At the same time, he has also denounced the viability of internet companies in the past.

Another fear is that banks are cutting off companies and individuals that are involved in Bitcoin. For example, JP Morgan and Bank of America have cut off cryptocurrency related transactions using their credit cards.

While it is an inconvenience, Bitcoin is designed to be independent of banks or governments. Even if one is cornered, there are still options to trade using pre-paid debit cards, cash or other virtual currencies.

Wrapping Up…

There is quite a lot of overlap with how Bitcoin and forex are traded, especially considering the intention of Bitcoin is to be like digital cash. Of course, if the goal is profit, it doesn’t hurt to diversify in both markets and see how things pan out in the long run.

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About the Creator

Jonathan G

Blogger, Internet Marketer, Digital Nomad.

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