Can Cryptocurrencies Ever be Successfully Integrated into the Forex Market?

Can Cryptocurrencies Ever be Successfully Integrated into the Forex Market?
Can Cryptocurrencies Ever be Successfully Integrated into the Forex Market?

Cryptocurrencies seemed set for world domination in 2017. In mid-December, Bitcoin passed the $19,850 mark, a massive increase on its value of $0.08 in July 2010. If you owned $100 of Bitcoin in 2010, your investment would have been worth a staggering $75 million last May. However, although some investors have become multi-millionaires in the last few years, thanks to their savvy investment in cryptocurrencies, the news hasn’t all been golden.

Many experts are concerned about the volatility of cryptocurrencies – and the increasing numbers of ordinary people risking their savings in the hope of making a short-term profit. A few years ago, most people didn’t have a clue about cryptocurrencies. The likes of Bitcoin, Ethereum and Ripple were discussed on internet forums and traded on the Dark Web but ask the man on the street if he knew what cryptocurrency was, and he probably would have scratched his head in bemusement.

Today, anyone can invest in cryptocurrencies. You can log into an internet exchange and buy some Bitcoin with your credit card. You can even use Bitcoin to pay for things online. But, the availability of such a volatile currency is causing concern. Fears of increased regulation have seen Bitcoin prices rise and fall steeply in recent days, dropping as low as $7,091.

The Chinese government has cracked down on cryptocurrency trading and other governments are expected to follow suit. South Korea has banned anonymous trading, but it is still allowing cryptocurrency exchanges to remain open to investors. Lloyd’s Bank customers can no longer use their credit cards to buy cryptocurrency, but they can use debit cards.

Where does Cryptocurrency Trading Fit into the Forex Market?

The forex market allows traders to exchange currencies for profit. In many ways, this is not dissimilar to using your USD to buy Bitcoin on Coinbase. However, this is where the two diverge. Cryptocurrencies are far more volatile than other currencies, as we have seen in recent weeks, and cryptocurrency prices are affected by different factors.

Whereas central banks control how much currency is in circulation, because of the nature of how cryptocurrencies are made, there is a finite number of Bitcoin (and some other cryptocurrencies) available. Using Bitcoin as an example, the algorithm that makes Bitcoin dictates that a maximum of 21 million Bitcoin can be mined. Once all 21 million Bitcoin have been distributed, there can be no more.

Demand for normal currency remains uniform, but demand for cryptocurrencies is affected by public adoption, public confidence, regulation, and other volatile factors. Even the most extreme currency pairs only have a volatility index of 1%, yet Bitcoin has a volatility average of 10%.

Is a Lack of Accessibility Hampering Cryptocurrency Growth?

There is some integration between trading platforms, but while forex traders can use any number of platforms to trade forex, very few offer alt currencies alongside USD, EUR, and other regular currencies. Kraken is one such trading platform, but if you open a demo account on a big-name trading platform, it probably won’t feature cryptocurrencies. Some would argue that a lack of accessibility is hampering the growth of cryptocurrencies, but regardless of whether that’s true, governments seem determined to put the brakes on widescale public adoption of alt currencies.

Will Integration with Forex Improve Investor Accessibility?

As cryptocurrencies become more mainstream, some forex brokers are offering Bitcoin and other well-known cryptocurrencies such as Ethereum, Litecoin, and Ripple.

It seems unlikely that cryptocurrencies will ever be fully integrated into the forex market, as there are too many barriers in the way. But, for forex traders who thrive on risk, cryptocurrency trading is a market that has yet to reach its full potential.