Cryptocurrencies and foreign exchange pairs are certainly different commodities. Fiat currency, after all, has been around in some form for centuries – if not longer. Crypto, on the other hand, only came into existence in the last few years. But the two bear a number of similarities – not least when it comes to their volatility, popularity and multi-purpose natures. This article will look in more depth at the overlapping characteristics of cryptocurrencies and foreign exchange pairs.
One of the most obvious similarities between foreign exchange pairs and cryptocurrencies is that they are often traded in pairs. To be clear, it’s also the case that both assets can be bought individually: whether it’s Bitcoin or the US dollar, it’s possible to swap cash in a second fiat currency for either of these assets. But speculators will often trade crypto or forex in a pair, meaning that they want the price to change relative to a specific other currency or digital asset. In some cases, they’ll even mix and match the two.
Someone may purchase a financial instrument which compares the value of Bitcoin to the Japanese yen, say – perhaps as a derivative, or a contract for difference. When doing this, they’re essentially speculating that the value of Bitcoin will go up relative to the price of the US dollar. And it’s also possible to do this in reverse, or within the asset class by comparing two currencies or two digital assets.
The volatility of the markets is also a common factor between the two. Bitcoin is the most famous cryptocurrency, and its price fluctuations are legendary: earlier in 2021, for example, it lost a fifth of its value in just a few days. But the forex markets also experience serious fluctuations, often triggered by economic or political events which happen on an almost daily basis – like economic data releases. These cannot always be predicted in advance or avoided, leading to the ups and downs.
The fact that both of these markets experience volatility also places an additional burden on traders: a need to minimize problems elsewhere. Choosing the right broker who offers volatility-friendly features like alerts and resilient technical frameworks is wise. You can read reviews of Just Forex here, while you will be able to check out reviews of other brokers on the same site.
Another similarity between these two asset classes lies in their popularity. The global foreign exchange market is one of the largest financial markets out there. It’s estimated that the market sees a volume of $6.6T per day, which indicates just how much interest there is in trading these assets. And while the cryptocurrency markets might not have quite that level of interest, the fact that the price of some of the most famous cryptocurrencies has skyrocketed in recent years reveals just how many people are willing to pay significant amounts for a slice of crypto action.
Both of these asset classes are also multi-purpose, and that’s because they’re used both for speculation and also for the purposes of purchasing something. They might also choose to convert value from another asset class into a foreign currency or cryptocurrency because those assets also have use values. Foreign currencies can be used "on the ground," so to speak, to pay for goods and services in another country, while they can also be used to reduce the risk on another transaction through "hedging." Cryptocurrencies also have multiple uses: while some people buy up the likes of Bitcoin in the hope that the value will rise and they can sell it for a profit, they might also buy it to pay for services in a discreet way given its decentralized, privacy-focused nature.
Make no mistake: trading cryptocurrencies is definitely not the same as trading foreign exchange pairs, and there are important differences for any trader to be aware of. But what is the case is that there are some strong overlaps between the feature lists. Both assets can be paired up easily, for example, and it’s also the case that the two sectors experience significant volatility. And they are both proving to be popular with investors and others, too. In short, these two asset classes bear a number of strong similarities – and that means they’re often ideal choices for those who trade one or the other and are looking to diversify into similar spheres.