They are two of the most popular marketplaces in the world – cryptocurrencies and forex. Bitcoin has come a long way since its beginnings as a mysterious whitepaper promising a decentralized financial landscape against traditional forex financial systems.
But how do these two very similar but also rather unique assets interplay with each other? Forex and Bitcoin have more in common than some may realise, and some investors have come to rely on both for a diverse trading portfolio in 2021. At CoinCollecting.ws, we’re going to break down Bitcoin and Forex for all to understand.
What is Bitcoin?
Bitcoin is the world’s first and largest cryptocurrency. It is a digital asset that acts as a virtual currency. It holds a value but is free from government interference as it is not a real currency. Bitcoin offers lower transaction fees than traditional payment methods and enhanced security as all transactions are final and permanent. Transaction data is stored by leveraging an advanced piece of technology known as the blockchain. With high-level cryptography, Bitcoin transactions are 100% irrefutable but also anonymous.
Bitcoin can be bought and sold, but also “mined”. The mining process is integral to the cryptocurrency system. Miners use powerful computers to solve advanced cryptography puzzles, thereby verifying transactions on the blockchain network. For completing this necessary task, miners are rewarded with Bitcoin themselves.
Bitcoin rose to prominence in 2009 and by 2021 a single Bitcoin was valued at over $60,000. The digital assets valuation is volatile and has been prone to great dips and surges – in 2021, Bitcoin dropped from $60,000 to $30,000 within a week before moving back to $50,000 in only a few short months.
Best uses of Bitcoin
Today, Bitcoin can be traded on exchanges, peer-to-peer networks, and some brokerage firms. Despite not being a legal currency – El Salvador currently being the only exception – Bitcoin is accepted as a payment method for a great variety of goods and services. This ranges from a coffee at Starbucks to buying a train ticket or even funding your online casino account. Bitcoin has immersive benefits as an international business payment method for cross-border transactions in nations where traditional banking is unfeasible.
What is Forex?
Foreign exchange – forex or FX – is the process of swapping one currency for that of another. The most common examples of forex are making a debit/credit purchase in a foreign country using your local currency or when swapping local bills for a foreign currency when travelling. Forex can also be traded for profit by leveraging the price movements of one currency compared to that of another over time.
The forex marketplace is the largest in the world – currently valued at over £7 trillion in daily trading volumes. Currencies are traded 24 hours a day, 5 days a week on a global marketplace. In a nutshell, a basic forex trade would see an investor buy a currency at the current price action and then sell the purchased currency at a later date, when its value rises.
Bitcoin Trading vs Forex Trading
While somewhat similar in the sense that both forms of currency are based on global supply and demand, there are many differences. In theory, the price of Bitcoin is strictly based upon supply and demand – although many factors can influence demand in a practical sense such as market acceptance and general economic factors. Supply is directly affected by the limited number of Bitcoins available. 90% of Bitcoin tokens are in circulation, meaning only 10% are left to be mined – this significantly increases demand due to short supply.
Forex currency pairs are influenced by many factors such as geopolitical issues, macroeconomics, major world events, and more. Governments have a big influence on the value of their nation’s currency as well.
Liquidity and volatility are major differences between Bitcoin trading and forex trading. The cryptocurrency market produces trading volumes in the millions compared to the several trillions of dollars traded daily in the forex market. Currency pair valuations move far slower than Bitcoin which can swing widely and at great numbers.
Trading Forex with Bitcoin
Jump online and you’ll no doubt find my brokers that allow retail investors to fund a FX account and withdraw money to Bitcoin. In these cases, traders are exchanging Bitcoin for forex – however, your Bitcoin deposit is pegged to the US dollar, so you would be trading traditional currency pairs such as USD/GBP or USD/EUR. There are some difficulties in trading forex using Bitcoin in the US, where contracts for difference (CFDs) are illegal.
Ultimately, Bitcoin can really only really be exchanged for a currency – i.e. selling Bitcoin back into your national currency and not traded as a forex currency pair. Technically, Bitcoin is still not an actual currency, rather it is a physical – in this instance, digital – asset that holds a store-of-value.
Benefits of trading forex with Bitcoin
For those that can trade forex with Bitcoin – largely as CFDs – there are some advantages. Firstly, as a decentralized asset, Bitcoin is free from macroeconomic and geopolitical issues that can significantly impact a FIAT currency. Trading CFDs using Bitcoin also allows for very high leverage when trading forex. Many Bitcoin trading firms require very little starting capital – we’ve seen deposit minimums as low as $25 – and some even offer bonus promotions.
Trading costs are generally lower using Bitcoin and the security benefits are obviously substantial. You won’t be handing over any banking details when trading with Bitcoin. Finally, Bitcoin transactions are entirely global – this means that you can technically trade from anywhere in the world should there be no regulatory issues.
Buying Bitcoin using FIAT currencies
While Bitcoin forex currency pairs is a market that doesn’t entirely exist yet, many cryptocurrency exchanges allow investors to buy and sell Bitcoin using an increasing number of FIAT currencies. This means that retail investors from all corners of the globe can buy Bitcoin using their national currency. Binance, for example, supports 19 FIAT currencies currently – this includes USD, GBP, EUR, AUD, INR and many more.
The alternative is to purchase Bitcoin using other cryptocurrencies and this is completed by using cryptocurrency exchanges like Binance, Coinbase, or Kraken. In that sense, Bitcoin is traded in cryptocurrency pairs, much the same as FIAT currencies are traded in pairs on the forex market.
As two of the most highly traded markets in the world, forex and Bitcoin are a diverse combination for a diverse portfolio. While not technically a currency, Bitcoin has a lot in common with FIAT currencies and has developed significantly as an alternative investment to forex – to the point that forex brokers allow for investing into Bitcoin.
There are many advantages to trading with Bitcoin and one does not actually require a forex broker to do so. Retail investors should consider both forex and Bitcoin for a truly diverse portfolio and as a means to hedge positions.
Bitcoin and Forex FAQS
💰 How many types of currency pairs are there?
With so many countries in the world with a unique national currency that can be traded against that of another, there are more than a small handful of potential currency pairs. Not all currency pairs are easily tradable online, and it is up to the individual trader to choose a broker that offers the currency pairings that is of the most interest to their trading strategy and goals.
🛒 Where can I buy Bitcoin?
Bitcoin, like many other cryptocurrencies, can be bought using more than one method. How you choose to buy Bitcoin is up to the individual trader and there are a few different ways to do so. Traders can buy Bitcoin on their mobile devices through many different apps and research is required to determine which platform suits the trader best.
📊 What is the best type of asset to trade?
In 2021, there are so many asset classes to choose from with many different markets to access. Different types of assets suit different types of traders and not every market is ideal for everyone. While some traders thrive on the forex marketplace, they may get swamped in the stock market. The best type of asset to trade is entirely subjective and dependent on individual goals, means, and experience.
💷 Can I buy Bitcoin using any FIAT currency?
Depending on the exchange you choose to buy Bitcoin with, there will be a limit to which FIAT currency can be used to buy Bitcoin. The currencies accepted vary quite largely between the different exchanges and no exchange provides Bitcoin trading for all currency pairs. The best way to know if your FIAT currency is allowed is to check with a crypto exchange. In some cases, your FIAT currency may be converted to another, to then be used to buy Bitcoin online.