For generations, the traders of the world have strictly been able to deal in standardised currencies, more commonly known as fiat currencies. Fiat currencies are of the paper and coin persuasion, centralized by a specific nation, providing the basis for the forex market that we all know today. However, with changing times has come a new form of currency, as cryptocurrencies are giving the forex traders of the world plenty to think about.
The Rise of Cryptocurrencies
The rise of the cryptocurrency market has been nothing short of astounding, as in less than ten years the values of several major coins have rocketed by up to 6,000,000%. Seldom has any commodity been able to reach such heights in such a short space of time, let alone form what is effectively a whole new market. Looking at what has helped push cryptocurrency popularity levels to where they are today, there is one cryptocurrency that deserves the spotlight more than any other: Bitcoin.
The mysterious Satoshi Nakamoto creation, Bitcoin was the first major-name cryptocurrency to break into the mainstream. Through various booms, it has now become a mass-traded currency on the world’s leading forex and dedicated cryptocurrency exchanges. It’s nearly impossible for anyone that trades forex to ignore Bitcoin and other leading cryptocurrencies; growing and changing seemingly every day, they’re almost certain to impact the future of currency trading.
Bracing for Volatility
Are you interested in trading cryptocurrencies? If so, you need to brace yourself for volatility, as there is simply no avoiding it. While the lack of centralization is generally deemed as a positive, it can often result in the cryptocurrency market resembling something like the Wild West. Peaks and drops of 30% or more aren’t uncommon in this type of market. During 2017, especially towards the end of the year, the leading cryptocurrencies suffered something of a mini-crash, only to boom back into shape just weeks later. Risk levels are heightened when you invest in cryptocurrency, so you must be prepared to stick with it if trading cryptocurrency does take your interest.
Tradition vs. Revolution
Forex trading and cryptocurrency trading are effectively in competition with each other, in spite of the obvious crossover. This brings up the argument of tradition versus revolution, as the cryptocurrency market presents something different and fairly unpredictable. Through the various dedicated exchanges, you’ll see that due to its evolving nature, new coins are constantly being promoted. That’s not all, as ICOs (Initial Coin Offerings) are also popping up pretty regularly, so the market is set to expand exponentially in the years to come. Fiat currencies are effectively locked in, so it’s a case of weighing tradition against evolution when comparing the two markets.
Bursting the Bubble
Drilling down into the core of the matter, the term “bubble” is consistently thrown at the cryptocurrency market. This term might be overused, but there is some degree of truth to it. Many prominent individuals have likened the rise of Bitcoin and other cryptocurrencies to that of the dot-com bubble of the late 1990s/early 2000s. David Stockman, Peter Schiff, Ray Dalio, John Hathaway, and Warren Buffett among others have all made official statements about Bitcoin’s bubble-like tendencies. Whether Bitcoin is a bubble or not is up for debate, but what isn’t up for debate is that the voices from official channels are only growing louder.
Looking to the Future
The future of the cryptocurrency market presents a blend of optimism and fear, as few can truly predict where the likes of Bitcoin, Ethereum, Litecoin, Ripple, and so forth will end up. In the short term, cryptocurrencies will be looking to make the jump into the mainstream, a move that is already well underway.
Bitcoin also faces a major issue that has the power to hamper it over both the short term and the long. “Scalability” is a term that you are going to see and hear a lot of, as the scalability issue is steadily driving up the transaction costs related to Bitcoin use. The Lighting Network—which is a whole other topic in its own right—is the supposed solution to the scalability problem, but whether it proves to be a viable fix or not remains to be seen.
Fiat currencies and cryptocurrencies may appear similar when you look at them via a trading platform, but when you dig beneath the surface, you’ll find that they are truly worlds apart. Being decentralized, what stands behind leading cryptocurrencies isn’t exactly easy to monitor, with market data being wild at the best of times. Even those who are heavily invested in the cryptocurrency market would be hard-pressed to advise anyone on where the likes of Bitcoin, Ripple, and Ethereum will be in 12 months’ time. However, for its sheer unpredictably, cryptocurrency does represent the future of banking, transactions, and personal spending, as it puts forward a long overdue alternative to fiat currency options.
In its current state, many will consider the cryptocurrency market simply too wild to get involved in. But, given enough time, all traders will need to jump aboard the various cryptocurrency exchanges. Its potential to mesh together with a forex portfolio is well worth exploring.