Given the obvious similarities between fiat and cryptocurrencies, you would think that forex and Bitcoin have a great deal in common from the perspective of investment.
However, there are a number of subtle differences that distinguish forex from Bitcoin, from their innate volatility and the leverage available to the risk-profile associated with each asset class.
We’ll explore these further below, while asking which option is best for you in the current economic climate.
Forex vs. Bitcoin – What are the Key Elements of Each?
The forex market is a medium of exchange for major, minor and exotic international currencies, which are traded in pairs and as derivative assets.
This allows investors to speculate on price movements rather than assuming ownership of the underlying assets, creating far greater flexibility for traders as a whole.
Conversely, Bitcoin is a standalone crypto asset that provides a more secure store of wealth, with this having evolved to boast a market capitalisation of $1.059 trillion.
In essence, it’s a digital currency that can be exchanged, traded and used to purchase a growing range of assets, while it also leads a vast and constantly evolving crypto market.
Volatility, Leverage and Accessibility
In general terms, the forex market is more accessible than Bitcoin, both from the perspective of price point and the number of brokers that allow you to trade international currencies.
A single Bitcoin token will cost you more than $56,000 in the current market, for example, while you can open disproportionately large currency positions through the provision of leverage as a forex trader.
Contemporary forex platforms such as the metatrader 4 also offers access to real-time market data and trading opportunities through a single interface, alongside other assets that may help you to diversify your interests over time.
Forex trading and currencies are also considerably more liquid than Bitcoin, as they’re far easier to buy and sell in real-time. While BTC is narrowing this gap, this is a gradual process that will take place over several years.
While both asset classes are inherently volatile, Bitcoin tends to experience more pronounced price movements over time. This has been borne out during several bull runs, with BTC significantly more volatile and unpredictable to fiat currencies such as the US dollar, the Euro and the Japanese yen.
Does BTC Have More in Common with Gold?
Let’s start with the basics; as 2020 undoubtedly saw BTC experience exponential growth against the backdrop of the coronavirus crisis.
In fact, it mirrored the performance of gold for much of 2020, suggesting that it has far more in common with the iconic safe haven asset and has evolved to become a more secure store of wealth in the digital age.
This has made BTC and increasingly popular asset, particularly with its price having increased 10-fold since March of last year.
However, the global economy is expected to grow by 6% in 2021, with this forecast up from 5.5% according to the IMF. This is even higher in developed economies such as the US (6.4%), so we’re likely to see most investors seek out riskier assets such as currency as the year progresses.
Given this, and BTC’s failure to hold a position in excess of $60,000 in the current market, forex and fiat currencies may well be your best investment option through 2021 and beyond.