Cryptocurrencies are more than transactional currency; they make a good financial instrument for investments and trading. Crypto exchanges are playing a major role in enabling this and several forex traders are crossing over to the crypto industry. 

But why is this happening? This article takes a closer look at the possible reasons for the transition from forex to crypto.

Reasons for migration from forex to crypto

There is a growing trend of forex traders engaging in crypto trading and this is a clear sign that the crypto industry is more appealing than the forex markets – or offers more benefits. 

Bear in mind that the forex market has existed for a long time while the crypto industry is only a decade old. Listed below are some of the reasons why traders prefer to move to this emerging market.

Immaturity of the cryptocurrency market

Bitcoin – the oldest and first version of the cryptocurrency family – is only a little over a decade old. It would be too much to expect maturity and coherence in such a short period. 

The cryptocurrency market has been driven by retail investors for some time. Regulators and institutional investors are watching from the side lines. The early days of Bitcoin and the entire market were a digital gold mine for traders and investors. 

A lack of maturity, regulation, and common pricing systems presented arbitrage opportunities. Traders were buying, selling, and trading cryptocurrencies on hundreds of exchanges with each exchange determining its own prices. 

This opened countless opportunities to buy low on one platform and sell higher on another. For example, the Asian markets – which are very active – fetch higher prices for virtual currencies compared to others. 

Experienced traders buy cryptos at lower prices from other markets and sell the same asset for a profit in Asian markets. Their profits are not determined by price movements, but the sheer differences in prices in different markets.

The same happens in times of economic and political unrest. Bitcoin was selling for a premium at some point during the Hong Kong protests. It was an arbitrage opportunity. The maturity of the forex market does not provide many opportunities for arbitraging. 

Decentralisation and government intervention

Both forex and cryptocurrency markets are decentralised. Cryptocurrencies are free from government intervention, at least compared to the forex market. Many governments can intervene with forex markets through fiscal policies. 

In some cases, quantitative easing and interest rates are possible scenarios that can be explored. At times, such initiatives may lead to inflationary trends in the grander scheme of things. 

Some may say that governments may have indirect control over the forex market as governments back the assets, in this case fiat currencies, that are traded on the market. Nonetheless, cryptocurrencies do not experience such issues.

As they are not issued, controlled or managed by central authorities, the pricing strategies of these cryptocurrencies do not exactly fall within the purview of the governmental forces. 

In some cases, a slight rethink of operational issues may be necessary if regulatory changes abound. Furthermore, slight anomalies in the marketplace may result, albeit temporarily.

As Bitcoin has a limited supply of 21 million units, ‘Bitcoin block reward halving’, a process of slashing block rewards, which in turn controls the amount of new Bitcoin that can be mined. In contrast, one cannot say the same for fiat currencies.

The reason Bitcoin has intrinsic value is its finite source. Conventionally, quantitative easing – government printing of more fiat money into circulation – can in most cases reduce the strength of said fiat currency. 

Interestingly, Bitcoin’s price is not directly influenced by political upheavals. Its price tends to fluctuate in times of political instability because of its use as a ‘safe haven’ type of asset.

The dynamics of volatility

Bitcoin is notorious for its volatility. Its price can go up and down in a short period. Bitcoin can significantly respond to market news. It can lose 20 percent of its value within hours and make up for the losses in a similar time.

If we circle back to December 2017, Bitcoin prices fluctuated wildly. Bitcoin exchanged hands for a little over $10,000 on 1st December 2017. Less than three weeks later, the same Bitcoin was going for more than $19,600. That was a near doubling of the price, a truly staggering development.

Then in a sharp reversal, in less than a week after reaching the peak, the price fell to $12,000. The lack of maturity makes Bitcoin even more volatile. Therefore, most would say that a volatile currency is a trader’s true gold mine.

When it comes down to it, market movement is what traders want. It is referred to as ‘momentum among traders’, and the direction of the movement is secondary. 

The forex market’s volatility doesn’t come close to the cryptocurrency market. 

This reduces the number of profitable opportunities for traders. That is why many forex traders tend to use high leverage to earn acceptable returns. 

On the flip side, the forex market is far more liquid than the cryptocurrency market. The liquidity of the crypto market has improved over the last few years, and it will likely continue to do so in the coming years.

24/7/365 crypto trading

One of the attractions of the forex market initially was that it is open 24 hours a day, during weekdays. This gave traders more opportunities during evenings. However, the cryptocurrency market tops this with 24 hours a day, 7 days a week, 365 days a year.

The market never sleeps, and traders are at work even on a Saturday at 1 AM. The volatility keeps the action going and traders must watch their positions. You can trade cryptocurrencies on global platforms and not be limited to local ones. Several crypto trading platforms are improving their offerings to attract more people.

Traders value simplicity when it comes to trading platforms. In a recent survey conducted by bdcenter.digital, traders look for simplicity when trading and most cryptocurrency exchange have failed to deliver on that promise. 

Only 37% of exchanges have an intuitive, easy-to-use interface, while the rest are overloaded with features and diagrams. As a seasoned trader, I notice that having a user-friendly and seamless trading platform is vital for optimal trading. Moreover, it would serve as an attractive entry point for novice traders to enter the market. 

Settlement and fees

Making a living out of trading is not easy. You need to be able to make instant deposits and withdrawals so that you can time the markets. Timing is everything. 

Bitcoin allows for faster settlements. All it usually takes is for the user to send their Bitcoin to a wallet address, in a similar fashion to sending an email. The transaction is settled within minutes.

It is important for exchanges to put client funds in cold storage for security reasons. Cold wallets can only be accessed offline, making it a secure way to keep client funds. 

On the other hand, placing all funds into cold storage can mean slower withdrawals.Hence, exchanges have to find a balance between faster withdrawal speed and security but we believe this is worth it for the protection of our clients’ funds.

Forex deposits and withdrawals usually take days. In trading, this is a long time and can have negative effects on your trading plan. Some people use credit cards where they are paying high transaction fees. Such fees will dilute any profits you make. The idea is to minimize expenses as much as possible.

Risk

Bitcoin is a new market. And it is even younger when compared to forex. Blockchain – the technology behind cryptocurrencies – is still in its infancy.

More research is required to determine its true potential. Traders store cryptocurrencies on wallets, which hackers can access if they find the private keys.

In this regard, Bitcoin has a set of risks only associated with the underlying technology. But it is a manageable risk. Traders need to be taught how to store and protect their digital wealth. This goes for everyone who needs to store their wealth.

Overbit uses cold storage to keep all our users’ funds safe. We do not give any third-party access to our cold wallets to maintain security. 

Final words

Cryptocurrency trading is a growing industry thanks to its inherent volatility and low barriers to entry. Forex is more mature and liquid than the crypto market. However, it requires an experienced trader to make sizable profits.

For Bitcoin, it is a different story altogether. Those who bought Bitcoin in early 2017 or even before that, have outperformed forex traders. The peer-to-peer nature of Bitcoin transactions eliminates third-parties and reduces costs. Although exchanges are involved in the process, they help to improve liquidity, whilst also charging lower fees.

Perhaps one of the most important aspects of the crypto market is its independence from government control and manipulation. Cryptocurrency prices are not directly related to government policies. 

However, ‘whales’ – investors with large amounts of crypto – can manipulate the price by offloading their crypto stash in controlled batches. At the end of the day, no market is completely perfect but crypto is giving traders more opportunities to earn, and that is definitely a great way to go.

About Asia Blockchain Review

Asia Blockchain Review is the largest initiative for media and community building in Asia for blockchain technology. It aims to connect all blockchain enthusiasts on a regional scale and facilitate the technological foundation of blockchain through a range of group discussions, technical workshops, conferences, and consulting programs.

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About the author

Chieh Liu

Contributing Author

Chieh Liu, Founder & CEO Overbit developed a strong interest in blockchain and cryptocurrency while he was studying computer science at California State Polytechnic University in 2011. In 2018, Chieh founded Overbit, the world’s first cross-market trading platform.