Cryptocurrency trading and forex trading are both lucrative ventures that are seeing millions of market participants daily. Even though the forex market is still the largest market that sees a trading volume of $6 trillion a day, crypto trading has become more popular and widespread in recent years.
Digital currencies owe their popularity to Bitcoin, the first cryptocurrency created, which has seen significant attention in the past few years with widespread adoption as a digital currency and store of value.
The cryptocurrency market has seen new crypto coins and tokens being created on blockchains, and digital assets have gained significantly in value at a fast pace.
Compared to other financial markets, cryptocurrencies are still considered risky because of a lack of regulation, the threat of cyber-attacks, and the warning from central banks that crypto and the crypto market are not sustainable vessels for investment.
Despite this and several other factors, the cryptocurrency market is experiencing consistent growth up to the point that many wonder whether it will surpass forex trading.
The Differences Between Forex And Crypto
Liquidity refers to how easily an asset can be converted into cash without altering the current market price of that asset. For example, in the foreign exchange market, liquidity is determined by the currency pair being traded.
Several major currency pairs, such as EUR/USD, have incredibly high daily trading volumes. With high liquidity comes lower transaction costs, which draws in more retail traders in registering a retail account with an online broker to reap the benefits and potential profits.
Cryptocurrencies are liquid but far less so than fiat currencies, as acceptance and the use of blockchain technology are not as widespread. In addition, many people find it easier to make purchases with banknotes in their pocket than currencies in a digital wallet.
Cryptocurrencies are inherently more volatile than forex pairs, which move in narrow bands rather than experiencing significant shifts in a trading day. However, many major forex pairs move a lot within these narrow bands.
In comparison, cryptocurrencies move significantly, sometimes up to hundreds of thousands of US dollars in a single trading session or trading day.
You can look at any Ethereum price chart to discover how wildly crypto prices can fluctuate within a single trading day. This volatility is partly due to the cryptocurrency market’s lack of a defined controlling agency. Also, remember that despite the immense media hype that cryptocurrencies have gained over the years, the industry is still emerging compared to already established asset classes such as gold or equity.
As such, gold’s price will barely budge if one group of investors decides to sell $500 million worth of it. On the other hand, such a move will disrupt the entire crypto market, leading to price drops. While this bodes well for traders who use day trading strategies such as scalping, several risk warnings urge traders to be careful when trading crypto markets.
The forex market is inherently more accessible than the cryptocurrency market as forex can be traded through a broker. There is also a higher number of market participants to take the other side of the trade.
While crypto is less liquid and requires a digital wallet and an exchange account, more forex brokers offer cryptocurrencies as a financial instrument or CFD instrument.
Neither bitcoin nor forex has a single central authority that is tasked to regulate market transactions. Forex is an OTC market, and central banks carry out a large portion of daily forex trades, which are heavily regulated. In contrast, the cryptocurrency market is not regulated by any authority.
However, depending on how crypto is traded, crypto traders can enter the cryptocurrency market through a regulated forex broker that facilitates the trade and provides the trader with some level of protection.
Will Crypto Surpass Forex Trading?
When considering the differences between these financial markets and the advantages and disadvantages, it is not likely that cryptocurrency trading will ever replace forex trading.
There is a lot of reliance on fiat and traditional currencies, even in a digital age where there are rapid technological changes, paving the way forward for transitions towards digital money solutions.
However, it is unlikely that the cryptocurrency market will ever surpass the forex trading market.