The Foreign Exchange (FX) Market is the world’s converging point for the exchange of currencies. Traders make a profit by analyzing the strengths and behavioral patterns of a currency against other trading currencies using some well-known Trading Strategies. The more volatile a trading pair of currencies is the higher likelihood of taking profit. The trading of cryptocurrency pairs follows the same pattern. Cryptocurrency traders also more or less make profits off the volatility of the market. The same volatility that makes some crypto-outsiders apprehensive about new digital currencies is what excites and keeps traders in the space going – A situation of “One man’s meat is another’s poison”.
However even though the trading processes for Forex and cryptocurrencies are to a larger extent similar, cryptos have more unpredictable volatility. I will attempt to elucidate the differences between both markets in the subsequent paragraphs – I will be drawing from views in the space as well as my personal experiences having ventured both markets myself with my foray into the Crypto-Trading space over the past months and also lost some sums in Forex-Trading in times past.
The Supply of fiduciary currency (e.g USD, EURO, YEN) is highly regulated by central authorities (Usually Central Banks). Cryptocurrencies, on the other hand, have their supply hinged on an exponential algorithm which works with a mechanism that reduces the inflation of cryptocurrencies as their supply increases – More of a reverse economics when juxtaposed against the fiduciary currency. This is additionally backed by the fact that the supply of cryptocurrencies is mostly finite as against mainstream money that can be printed incessantly at the whims of central banks and governments.
Numerous players in the cryptocurrency space are of the thought that Bitcoins and other Altcoins are immune to Inflation – This is largely true with respect to monetary inflation but it does not hold with respect to price-level inflation. Take Bitcoin, for instance, the maximum amount of bitcoin that can be mined and distributed until the end of time is exactly 21 million bitcoins – And just like Bitcoin, a lot of other cryptocurrencies have a finite mining and distribution volume, this thereby makes cryptos immune to monetary debasement. This is however not same with mainstream and by extension currency pairs traded on Forex platforms. The government can print fiduciary whenever they want.
As a result, factors that influence Forex price movements and inflation are but not limited to a nation’s debt levels, political stability, Gross Domestic Product (GDP). The factors that affect cryptocurrency pair movements are however not that straightforward. Being pretty much in its early stages, cryptocurrency trading is mostly fuelled by speculations. Most astute traders live by the adage “Buy the rumor sell the news”
One advantage of mainstream currency has over decentralized currencies (cryptocurrencies) is Uniform Demand due to government controls and general usability. Cryptocurrency demand, on the other hand, is influenced by factors such as adoption, public confidence as well as market emergence.
As public demand for bitcoins and cryptocurrencies in general increase, emerging marketplaces that accept transactions in cryptos will consequently begin to emerge. Recently though, the infiltration of numerous Initial Coin Offerings (ICOs) by blockchain enterprises and the sometimes mouth-watering profits they promise and sometimes deliver has brought some popularity to the cryptocurrency space. A lot of crypto-investors go through ICO lists and select which they deem the best suit their profit target within a given period of time.
In summary, the Fundamental and Technical Analysis needed to trade both markets are more or less the same, but the cryptocurrency is still pretty much under-study.