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Bitcoin is just another currency, right? So apart from being completely digital, you might expect the differences between Bitcoin exchange and Forex trades to be minimal, but this assumption is far-removed from reality. While both Forex and Bitcoin prices are based on fundamentals of supply and demand, that’s about where the similarities end.
Remember that the concept of Bitcoin and cryptocurrencies in general is still relatively new, and the world is still adjusting to this new currency paradigm. Here are some of the most significant differences that Forex traders should keep in mind when deciding whether to expand their trading to Bitcoins.
Believe it or not, there is no legal consensus on how Bitcoins should be regulated or whether they should even be considered a currency at all.
Different countries where Bitcoin has been popular (China, Japan, the US and UK, etc.) have differing opinions on the matter and as a result the financial regulations to which Bitcoin is subject vary wildly from region to region. In general, most regulatory agencies treat Bitcoin as an asset, more akin to gold, than an actual currency.
Because it doesn’t have official “currency” status, Bitcoin (BTC or XBT) is not traded on the Forex market the way other currencies are and is instead relegated to its own cryptocurrency exchanges.
More and more Forex brokers are starting to accept Bitcoins or trade in Bitcoins, but in most cases they are simply going through the same exchanges you would use yourself. The general recommendation from officials is to stick to these exchanges for the time being, since they tend to have a better understanding of the unique security needs of cryptocurrencies and likely have fewer trading costs than if you went through a Forex broker.
…but generally more vulnerable to volatility. Since Bitcoin is a decentralized currency, it’s not subject to the whims of any government or central bank that may engage in currency manipulation to achieve its own economic goals. Indeed, this is one of the benefits of Bitcoin that have attracted so many investors.
However, because Bitcoin has no underlying assets to stabilize its value, it is subject to a high degree of speculation which can cause huge price swings in a very short period of time.
2013 was the best example of how volatile Bitcoin can be, with prices ranging from the $100 range to over $1000. However, since mid-2015 or so, the volatility seems to have calmed down slightly, with the largest day-to-day changes in closing prices more in the range of $20-$80.
Now that you understand some of the important differences between Bitcoin trading and the Forex market, you are better equipped to make a smart decision should you choose to try your hand at cryptocurrency trading on a Bitcoin exchange.