Forex or Foreign exchange and Bitcoin or Crypto markets are nonetheless markets for trading currencies fiat and digital respectively. In both the markets, strategies related to analysing of trends, indicators of price rise, some of the features and principles are similar while some are completely different. Forex is a traditional market which has the potential to earn you profits depending upon calculations and luck too while Bitcoin is comparatively in a nascent stage which is based on Blockchain technology following the model of decentralisation involving no intermediary for transaction. People often have or the other confusions related to both the markets. Is Bitcoin and Forex same? What is the difference between Bitcoin mining and forex trade? In this article of “Bitcoin and Forex” let us try to understand the difference among both the markets.
Cutting The Confusion Between Bitcoin And Forex
Let us compare both of the markets (Bitcoin and Forex) based on a few of the basic parameters and find out the difference between Bitcoin and forex:
Forex is somehow a centralised market where the supply of currency is regulated by some of the central banks across the world. On the contrary, the Bitcoin marketplace or Bitcoin itself is based on Blockchain technology following the model of decentralisation and as the stock of Bitcoin increases (mining process increases) controls the production of cryptocurrency. Supply of the Bitcoin depends upon the rate at which the coins are mined or the transactions are justified or block is added to Blockchain. In forex, central banks can control the supply but in the Bitcoins, supply cannot be controlled by any central authority.
There is uniformity in demand in forex as the centralized authority impact the fiat currencies while the demand for Bitcoin is depended on various factors like adaptability, utilisation in various services or acceptance by various stores, Bitcoin price, hash rate or the coins mined per second and many more. Also when the headlines popped up the news about the cyber-attacks then also the demand decreases due to shaking credibility of the cryptocurrency while the news of the involvement of NASDAQ in Blockchain has boosted up the adaptability of currency. Thus, the demand for Bitcoin basically depends on “adaptability”.
Volatility signifies the susceptibility of the price of an asset to change. Lots of highs and lows in short span time means high volatility while limited highs and lows represent low volatility of an asset. The volatility of forex is approximately 1% for the extremely changing conditions of the market while Bitcoin faces around 5-15% with an average volatility of 10%, thereby highly risky for trading. Therefore, Bitcoin is relatively more volatile than forex pairs which move in narrow bands rather showing the larger shifts. But, a fact must be noted that forex pairs experience the high daily trading volume resulting in high fluctuations even in a narrow band. Also, Bitcoin moves highly up to hundred to thousands of dollars in a single session of trading.
Liquidity advocates the easiness of an asset to convert into cash without altering the current market price. In the forex market, liquidity varies on which pair is being traded. For instance, the US dollar experiences around $2.2 trillion worth of trades daily while the Euro has 800 million Euros. On the contrary, Bitcoin is relatively less liquid due to the less acceptance across the world (unlike the fiat), people cannot buy things easily with Bitcoins. The market and community of the cryptocurrency are still in a nascent stage, accepted by few of the retailers and online stores, so it is a bit difficult to convert them into cash directly but can be cash out through fiat to crypto exchanges and decentralised peer-to-peer platforms.
Inflation means an increase in prices and fall in the purchasing value of money. Forex is based on the exchange of fiat currencies which undoubtedly varies with the political, economical and social conditions of the particular country. Most of the times, when the fiat of the country is affected automatically the forex also get affected being depended on central institutions. On the other hand, Bitcoin is somehow immune from monetary inflation but not price level inflation as the Bitcoins are limited and is based on a decentralised model of Blockchain, thus not dependent on the conditions of the country. But the Bitcoin market does experience the price level inflation due to the supply-demand of Bitcoin in the marketplace.
Both Bitcoin and forex market do not have any single entity who has been assigned with the task to regulate the transactions of the market. But, forex is regulated by a number of authorities in every country like Federal Reserve keeps the check on any evidence of manipulations by banks and other financial institutions. In the case of Bitcoin, transactions are verified and updated by the participants on the Blockchain network by solving the complex mathematical problem and using their computational problem. No central authority is involved in regulation supply-demand or number of Bitcoin available in the market.
When forex was in the initial stage, it was not considered as the safe marketplace for the investment or even for trading. With due course of time, forex platforms, OTC brokers, services and products gained reputable respect. Presently, forex is considered a safe place for investing your money but still, you have to carefully review any product or service before investing in it. Bitcoin was launched in the recent past (2009) and became popular since the skyrocketing prices of $20,000 in 2017, so the traders must be highly cautious about the exchanges, wallets, apps and other related products and services. As the cryptocurrency is based on digital media, the risk of cyber attack also tend to increase but thankfully the decentralised model tries to balance out and reduce the cyberattacks. Thus, relatively Bitcoin markets are less safer than forex.
In financial markets consisting of both Bitcoins and Forex, if you ask the experts that which one is a better instrument for trading? He might end up in answering that if forex is better with one parameter then Bitcoin might be better with the other one. So, rather than struggle to find one instrument over another or asking Bitcoin trader and Forex traders, I would recommend finding the best fit for your present requirements and future goals.