Forex trading has always been a lucrative activity that attracts millions of participants whether for international business or speculative trading to draw in profits.
Since cryptocurrencies emerged and became popular, cryptocurrency trading has increased significantly in recent years.
While the forex market experiences more than $6 trillion in trading volume daily, crypto trading is not far behind in becoming a large financial market, which could even surpass forex trading.
This is especially the case if there is increased interest as digital assets are adopted by countries around the world in legal tenders to make them official currencies. The cryptocurrency market is rapidly increasing as more cryptocurrency projects introduce new digital assets.
However, when compared to other financial markets, cryptocurrency trading still has some drawbacks namely a lack of regulation, the threats of cyber-attacks, belief from central banks that cryptocurrencies are not sustainable options for investment, and the sheer number of scandals and scams that surround the crypto market.
Despite these factors, there are several reasons that many believe that cryptocurrency could surpass forex trading by 2023, and in this article, we will explore each of these reasons.
Market liquidity refers to the ease with which a financial instrument such as a currency pair, can be bought or sold and converted into cash, without changing the market price of that asset.
In the forex market, liquidity is determined by the demand of a currency pair while crypto assets may be liquid, but far less so than fiat currencies. However, this could change rapidly as blockchain technology becomes more widespread in everyday life such as the financial sectors, healthcare, supply chain, and others.
Digital currencies are inherently known to be more volatile than forex pairs. They also move in narrower bands instead of experiencing large shifts in a single trading session or trading day.
However, forex major pairs move within these narrow bands in the same way because they are traded more frequently than other currencies. Cryptocurrencies can show significant moves of 100 pips, even more, in a trading session.
This bodes well for active traders who employ day trading strategies such as scalping.
Forex has always been known as the easiest market to participate in, with hundreds of forex brokers that offer a wide range of currency pairs that can be traded through a trading platform. However, currency markets are facing competition as there are many crypto trading exchanges and platforms that offer a wide range of crypto assets.
This offers crypto traders the perfect avenue where they can buy and sell crypto assets at lower costs than they would have traded forex for.
There is no central authority that rules over either cryptocurrencies or forex, and therefore regulation may be an issue in both markets. However, there are many well-regulated forex brokers and crypto exchanges that offer trading instruments across both markets.
Forex is an over-the-counter (OTC) market where central banks carry out a significant portion of daily forex trade, which means that this market must be regulated by various market regulators.
To combat the lack of regulation in the crypto market, crypto traders are urged to only use well-regulated brokers and exchanges when they trade crypto assets.
Read more: What Forex Strategy Should I Choose?