The Main Differences Between Bitcoin And The Forex Market

by Michael
(New York)

Forex vs Bitcoin

Forex vs Bitcoin

Bitcoin trading is often compared with trading on the Forex market since both are currency trades. Unlike the well-established Forex market, which has the largest daily market volume of over $6.6 trillion, the bitcoin market is relatively new, but it does offer significant advantages like decentralization, 24/7 trading activities, and high volatility over the Forex market.
Bitcoin is the first of decentralized digital currencies independent of any financial regulations, while the Forex market is a FIAT currency market regulated by financial regulatory bodies, and its major players are commercial and apex banks.

Liquidity Ratio: Bitcoin Vs Forex Market

Liquidity is the degree of daily trading volume in the financial markets, whether the cryptocurrency or the Forex market. FIAT currencies have low volatility and stable prices due to the Forex market's high liquidity, unlike Bitcoin price, which is unstable (highly volatile) due to relatively low liquidity.
The largest and most liquid market worldwide remains the Forex, with trading volume hitting above $6.6 trillion daily. This is far larger than Bitcoin's total trading volume, which stands at $927 billion (a tiny fraction compared to the forex market); nonetheless, the cryptocurrency market remains the fastest-growing market.
A larger liquidity ratio implies that FIAT currencies maintain relatively stable prices and are not easily swayed by large daily trading volumes. Unlike Bitcoin, with smaller liquidity, large trading volumes can cause a significant price shift, causing a sharp rise or fall in bitcoin price (volatility) within a few hours.

Long And Short Term Trading: Bitcoin Vs Forex

Bitcoin is likened to a digital gold whose supply is limited; hence, it is seen as a long-term investment tool whose value depends heavily on its scarcity. Bitcoin traded for a few cents in its early days, but presently Bitcoin sits at above $49,000. Moreover, it is now predicted by the best free crypto prediction site to hit a new milestone of $100 000 by the end of this year. There are also some less-positive predictions, however, most of them still forecast an uptrend for the cryptocurrency.
On the other hand, the Forex market experiences very low volatility due to stable exchange rates of FIAT currencies, especially among major currencies like EUR/USD, EUR/JPY, JPY/USD, GBP/EUR, etc. Therefore, FIAT currencies are not used as long term investment tools due to their relative price stability and low volatility.
It is important to note that Bitcoin is an investment tool and a currency; hence, it can be traded daily against other cryptocurrencies, or FIAT currencies, although this might be a risky move to make for non-professional traders.

Exchange: Bitcoin Vs Forex Market

Bitcoin can be traded round the clock 24/7, while the Forex market opens 24/5. Therefore, the Forex market is closed for trading activities on weekends and important holidays due to the market's centralized nature and heavy dependence on regulatory bodies and financial institutions, without which trade cannot happen.
The decentralized nature of bitcoin allows it to be traded during the weekends and holidays; therefore, you do not need banks or other financial institutions to trade Bitcoin.

Price Influencers: Bitcoin Vs Forex

What happens if 6.1 billion people realize that there are only 21 million bitcoins in existence? Prices jump up as participants bid higher; the reverse happens when participants bid lower. Hence, the price of bitcoin is heavily dependent on the scarcity created by limited supply.
Forex prices are influenced by several factors, including economic, political, social, etc. Publish macroeconomic data like non-farm payroll reports, central banks monetary policies, GDP growth reports, etc., affects forex price volatility, driving prices up or down depending on the interpretation of such data.

Risks: Bitcoin vs. Forex Market

Bitcoin traders face the risk of high volatility, hacking and bitcoin theft from bitcoin wallets, not knowing the future of bitcoin, or blockchain, the technology behind bitcoin, and other risk factors.
Unlike the bitcoin market, the Forex market experiences risks that come with increased or decreased interest rates because a higher interest rate dictates a stronger FIAT currency on the international scene, thus driving up the demand for such FIAT currency.
Also, the risk of brokerage firms collapsing is real but negligible, hence the need to trade Forex with trusted brokerage firms.

Regulations And Transactions: Bitcoin Vs Forex Market

Bitcoin does not have regulatory bodies that regulate it, neither is there a financial body regulating cryptocurrency exchanges. There are no central banks or institutions to verify bitcoin transactions; instead, transactions are verified computers on the blockchain network since bitcoin is a decentralized digital currency. Therefore, there are no measures in place to recover your bitcoin if your wallet or exchange gets hacked.
Forex does not have a sole regulatory institution, but major participants like banks and financial institutions that carry out Forex trading are regulated by strong financial regulatory bodies. For instance, the US Federal Reserve regulates the activities of banks and financial institutions in the US, Cyprus Security and Exchange Commission (CySec) regulates forex brokerage firms based in Cyprus, and the UK Financial Conduct Authority (FCA) regulates financial institutions.

Accessibility: Bitcoin Vs Forex Market

Compared with the Forex market, the Bitcoin market is less accessible to participants since it requires that participants have an exchange account and wallet. Additionally, there's a limit to the amount you can deposit in your exchange account; unlike Forex, which is traded directly via brokerage firms, there's no limit to the amount you can deposit in your account for trading.
Also, due to bitcoin's low liquidity, there might not be many participants to take the other side of the trade, unlike the Forex market, which has a higher number of participants at both sides of the trade.

A Final Thought About The Main Differences Between Bitcoin And The Forex Market

Both Bitcoin and Forex markets have their risks and rewards, but the Forex market, with its high liquidity and low volatility, is more stable and highly regulated.
However, Bitcoin promises traders higher returns on short and long-term investments than Forex trading due to high volatility caused by limited Bitcoin supply.

Comments for The Main Differences Between Bitcoin And The Forex Market

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Sep 20, 2021
Great information
by: Fritz

Thanks for your informative article. With Bitcoin trading rising in popularity it's good to see how it compares to the traditional forex market.

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