In recent years, Bitcoin has continuously changed into a speculative investment that many investors and day traders find worthwhile. Most of the people that aim to get alpha from the other assets and a possible hedge against global economic uncertainties and fiat currencies’ weaknesses invest in this cryptocurrency.
Some investors now describe it as a digital floating exchange that is pegged to the dollar just like in the foreign exchange market. But unlike gold and other precious metals, bitcoin has no physical asset that people may use to base its price.
Bitcoin As A Currency
Whether the crypto is a legal tender or not, it has been discussed publicly for many months. The Mt. Gox attack accelerated the debate. But, crypto has experienced massive adoption globally as most retailers and countries adopt it.
Compared to the fiat currencies like the Chinese Yuan, Euro, and the US dollar, bitcoin does not have any universal recognition like a currency. That is the reason why not all global market participants, including regulators and government officials, accept it.
Throughout the world, many regulators do not consider the biggest crypto a currency. Too many of these authorities and regulators say that bitcoin is an asset that has value. Some of the legislations consider bitcoin a depreciable investment. Nonetheless, the virtual currency is different compared to the forex currency that trades in the current global markets.
Bitcoin trading increase on some platforms like Oil Profit has resulted in the formation of a multi-billion industry. The industry enables people to buy and sell BTC across cryptocurrency exchanges. Some of the brokers enable bitcoin trading as one of their services. Nonetheless, investors need to understand all the realities involved in forex trading and bitcoin trading.
Bitcoin Trading Versus Forex
Forex trading and bitcoin trading have some significant differences. In both these fields, global demand and supply metrics form the fundamentals for paper currencies and digital currencies. Hence, the price drops when their demand drops.
Nonetheless, the supply uncertainty that the central banks create does not affect the bitcoin market. The crypto has an entirely predictable mining rate. Unplanned monetary policy shifts, like the decision by the Swiss National Bank to unpeg its currency from the Euro in 2015, may result in considerable price swings.
The value of bitcoin is determined by the crypto ecosystem’s fundamentals, while individual countries, economic conditions, decisions, and currency affect the forex market. Bitcoin trading works like anything else that happens in an exchange. People trade euros for dollars through forex.
On the cryptocurrency exchanges, people trade dollars for bitcoin units. Therefore, the operations are the same although they depend on the idea that people use the real currency to trade the crypto.
Bitcoin is different from forex since it is unavailable in a physical denomination. In that context, some of the people feel like they are not dealing with the real thing. While some people see BTC as a currency, others do not think it feels like trading in traditional currencies. For that reason, they believe that there is some significant disconnect.
How individuals and entities trade currencies also prove to be another issue worth reviewing. Besides the possibility of one-to-one trading, the currency traders enhance their leverage with derivatives and paper contracts that increase returns. Some of the brokers are known to underwrite contract which enables and support an economic force within the bitcoin industry.
Nonetheless, the contracts are yet to grow. It means that bitcoin trading compares to equity ownership on any operating stock exchange.
Bitcoin Trading On Forex Markets
Some of the brokers will let individuals withdraw, deposit, and trade using Bitcoin-based accounts. However, the same brokers together with their functionality may be slapped with legal implications since the US prohibits CFDs operations. Moreover, the UK Financial Conduct Authority (FCA) has warned its citizens against investing through such platforms.
Although some of the brokers say that they support bitcoin trading, they mainly trade the traditional currencies. Hence, it is not yet clear whether these platforms let users buy or sell BTC through their current exchanges.
In general, the popularity of bitcoin is growing, with some investors considering it to be an alternative investment. This massive growth has attracted even major players in the global financial system. Nonetheless, whether bitcoin will be accepted as a mainstream currency in the foreign exchange space remains to be seen.