Cryptocurrencies are the latest asset to make way into the ever growing trading world. In a matter of days cryptocurrency became a very hot commodity since 2017 when a large number of investors made unthinkable fortunes overnight.
Bitcoin, the first cryptocurrency introduced in 2009, skyrocketed in price and reached $19,000 per coin. Since then, cryptocurrency trading has become quite mainstream. Many people are under the impression that it is just like forex trading or stock trading because you have to follow the same steps of signing up with brokers and trading online. While it is a global market, cryptocurrency is different from other forms of trading in several aspects. There is no argument that both markets are entirely different from each other and have their own unique prospects which make them quite appealing to the persons involved in such market trades.
In order to understand what cryptocurrency is, we need to first understand its concept. Cryptocurrency is totally different from the normal currency which is part of day to day lives. Like any other currency, cryptocurrency has no physical form like the currency notes nor is it issued by a central bank of any country, which in the case of any other currency, is issued by the central bank of that country. It is known as digital asset which is also used for the purposes of business, trading and carrying out exchanges by and amongst the individuals. Bitcoin is considered the very first decentralized cryptocurrency. After the introduction of Bitcoin in 2009, there are now various other cryptocurrencies apart from Bitcoin.
Trading in cryptocurrency and forex trading are somewhat similar because they both deal in exchanging currency for a currency. This review on the difference between forex trading and Bitcoin trading can prove to be helpful for you if in future you are interested in learning the differences between cryptocurrency and foreign currency trading and want to be a successful trader while becoming a part of this system. Some of the special features of the crypto market are outlined below:
- Crypto market requires a fair amount of luck and skill
When it comes to crypto trading, you have to understand that this market is a great deal more volatile than any other market in the world. Yes, the forex market is also considered volatile, but it is not the same as cryptocurrencies. As they are a new asset and are mostly unregulated, their volatility is unmatched. Moreover, cryptocurrencies like Bitcoin have a limited supply, which doesn’t apply to forex currencies. The latter are potentially unlimited and their supply is determined by the monetary policy of their respective country.
Forex trading is known to be the most common trade. In forex trading system which operates in a system where the currencies of entire world trade and individuals indulge in changing of one currency into other currency which means that you are selling one currency and buying another currency. It is the largest marketing in terms of trading and has an average of daily trading exceeding US$ 5 trillion. It is said that if all the world’s entire stock markets are combined even then they cannot come close in matching forex trading. Cryptocurrency, as discussed above, is entirely different in this regard as it is not governed by any authority or organization and this very aspect is the real disadvantage of this alternate source of currency which puts its credibility into question and doubts.
However, this is not the case. Even the trading in cryptocurrency is as safe as forex trading. In comparison with the forex market, the size of cryptocurrency market is nothing. However, just like currencies are exchanged in forex system, cryptocurrencies are also purchasable and salable which can then be stored in a ‘wallet’. It is when an owner of cryptocurrency who wishes to send it to another person’s digital wallet.
Thus, you need a lot of luck and considerable skill to be able to trade cryptocurrencies profitably.
- Crypto market is not that costly
Cryptocurrencies like Bitcoin are traded on a peer-to-peer basis, which means that they involve little cost in their raw form. This is mostly due to the fact that there are no intermediaries involved, which means third-party costs are completely eliminated in this regard. When people facilitate transactions, it will automatically add an extra layer of fees. While this might be applicable if you are using crypto exchanges, it is important to remember that the cost can vary, depending on the exchange, volume, the crypto being traded and several other factors.
- Crypto markets are tough to extract profit from
The high that was seen in the crypto market in 2017 was a one-off incident. Prices have declined since then and while there is movement, it is difficult to earn that kind of profits again so quickly. When you are trading cryptocurrency for the short-term, you can only extract small profits as the movements may not be that big. Moreover, not every trader will be able to earn and you may have to make a lot of losses before you are able to rake in any money. Holding onto cryptocurrencies for the long-run might pay off, but this only works for strong cryptocurrencies like Bitcoin, as this is exactly what happened in 2017.
- Advantages of trading in cryptocurrency
With the growing trend in cryptocurrency, on the passing of each day more and more people are getting interested in doing business in cryptocurrencies, in particular Bitcoin. A study suggests that an investment of US$ 1,000 in the year 2013 would increase manifold. It is estimated to worth more than US$ 400,000 in less than 5 years period. No matter in what cryptocurrency you are doing business in, the fact remains the same that people are earning which is the ultimate aim of every trader or businessman. If any person wants to trade in cryptocurrency it is important for him to understand some of the very basic advantages which are attached with such trading system. Some of them are highlighted below: –
Freedom in payment
Trading in cryptocurrency offers great freedom in terms of payments. For example if you wish to send the money to a family member or friend abroad, you will bypass the hectic process of going through financial institutions, exchanges or many other similar money transfer instruments. However through Bitcoin you can simply send the money to anyone anywhere in the world without any hassle since your money is in direct control of yourself only. One more very important aspect about trading in this type of trade is that it does not come with any limitations such as cross borders transactions, which in terms of normal trading system is very burdensome and can sometimes makes the transactions look sophisticated.
The security and transparency is also a very crucial aspect in any type of trade. The transactions in cryptocurrency also has an edge over normal trading system. For example there are thousands of complaints reported each day all over the world of online fraud. This is very serious issue which is unfortunately faced by financial institutions all over the world. However, the transactions done involving cryptocurrency are much secured. The beauty of cryptocurrency trading is that it gives the user/trader full control over end-to-end transactions which are directly saved in the wallet of user. This eliminates the risk factor involved in transferring monies from one account to another.
However, with every advantage there are also disadvantages. The most evident disadvantage of cryptocurrency is that it is underdeveloped. On the other hand trading in forex market is a huge market which involves dealing with world’s global financial markets because it has various currencies available for trading. A person wishing to trade in cryptocurrency usually thinks twice before making up his mind of investing in cryptocurrency. Although, Bitcoin, significantly has tremendous benefits and potential but it will take considerable time for the masses to fully understand the benefits this type of trade has to offer. There is a great deal of work to be done to make people aware of cryptocurrency which will require a lot of funds, holding of seminars and organizing of workshops.
Understanding the features of the crypto market can help you make smart investment decisions and avoid making any hasty decisions. It is always better to know what lies on both ends before you put your investment in cryptocurrency. Instead of relying on the opinions of others, it is recommended that a self-conducted complete and thorough study and analysis about the advantages and disadvantages of trading in cryptocurrency can help enormously.
Doing business in either forex trading or in cryptocurrencies involves a high level of commitment, composure and effective planning because both trades offers great opportunities in terms of profit earning for an educated and open minded investor. There is no doubt that cryptocurrency is the future and it is rightly said that the future belongs to those who believe in the beauty of their dreams.