FXCM Insights

Bitcoin vs Forex: Understanding The Differences

A broad spectrum of individuals actively engage both the forex and cryptocurrency markets in pursuit of opportunity. Arbitrage, short-term trading strategies and long-term investment plans may be executed in both. However, each market is very different, offering its own unique advantages and disadvantages to aspiring participants.

A Brief History of Forex and Bitcoin

The exchange of foreign currencies has been a pastime of traders since the widespread adoption of the gold standard during the late 19th century. Determining a currency’s worth in relation to gold established a standardised manner of valuation. In time, hedgers and speculators alike were able to swap currencies in an attempt to realise profit or preserve wealth.

As technology evolved, the global currency trade transitioned from the physical transfer of money to an electronic one. By the turn of the 21st century, international currency exchange revolved around the newly digitised over-the-counter forex marketplace.

However, technology did not cease moving forward with the advent of the electronic marketplace. In 2009, an anonymous computer programmer under the alias Satoshi Nakamoto invented a revolutionary digital form of money known as bitcoin (BTC).1)Retrieved 1 October 2017 https://www.coindesk.com/information/who-is-satoshi-nakamoto/ BTC quickly became the standard for a budding asset class of internet-based modes of payment labeled “cryptocurrencies.” As BTC became more accepted by consumers, its popularity grew in trading circles.

Bitcoin and other cryptocurrencies have been touted as the future of money. While that may or may not eventually be the case, the traditional global financial system remains the benchmark of value and stability when it comes to commerce.

Market Capitalisation: David Vs Goliath

Before deciding to trade BTC or forex pairs, it is important to understand the contrast in size of each market. Typically, the larger the market, the greater liquidity, depth and stability. This is certainly true in the case of BTC and forex.

The forex is by far the largest marketplace in the world. Participants from around the globe engage the forex remotely on a daily basis, ensuring liquidity and relative pricing stability. Rapidly advancing internet technologies have promoted robust growth of the forex for the last 20 years.

The degree of forex expansion is evident when examining traded volumes. Average daily turnover exploded from just over US$1 trillion in 1998 to US$5 trillion in 2016.2)Retrieved 1 October 2017 http://www.businessinsider.com/heres-how-much-currency-is-traded-every-day-2016-9 A dominant portion of this volume is readily attributable to the public interest facing the seven major global currencies.

Each currency in the following list is involved in the corresponding percentage of the US$5 trillion in aggregate daily forex turnover3)Retrieved 1 October 2017 http://www.businessinsider.com/heres-how-much-currency-is-traded-every-day-2016-9:

Currency Percentage of Daily Volume
United States dollar 89%
Euro 31%
Japanese yen 22%
British pound 10%
Australian dollar 7%
Canadian dollar 5%
Swiss franc 5%

Conversely, BTC are traded on a much smaller scale and represent only a portion of the total cryptocurrency marketplace. With a limited supply predetermined to be a maximum of 21 million4)Retrieved 3 October 2017 http://www.weeklystandard.com/bitcoin-is-dead/article/784187, BTC is a miniscule market in comparison to the trillions included by the forex.

In terms of value, BTC has proven desirable to investors. For the year of 2017, BTC rose to more than US$4,000 apiece, with a total market cap valued at over US$70 billion.5)Retrieved 3 October 2017 https://coinmarketcap.com/ Daily BTC market turnover regularly exceeds US$1 billion.6)Retrieved 3 October 2017 https://coinmarketcap.com/

In comparison, the least traded major currency on the forex, the Swiss franc, has an average daily turnover of US$243 billion.7)Retrieved 3 October 2017 http://www.bis.org/statistics/d11_3.pdf

Simply put, the relative size and value of the BTC market is microscopic in comparison to the forex.

The Pros and Cons of Trading Bitcoin

From a perspective of market liquidity and depth, BTC is no match for the forex. However, this can afford active traders several advantages:

From a practical standpoint, many opportunities are furnished to individuals trading BTC. However, there are a few drawbacks:

Forex Pros And Cons

Trading currencies on the forex furnishes participants with numerous advantages and disadvantages. The forex possesses several favourable characteristics that BTC does not:

Although it is the world’s biggest destination for investment and trade, engaging the forex does have a few drawbacks:


In many ways, the BTC to forex comparison is an apples to oranges analogy. It is true that both involve the electronic trade of various currency forms. Yet, the size, structure and behaviour of each venue is very different.

Of course, opportunity knows no bounds. Many active traders have foregone the relative safety of the forex market for the potential of BTC and cryptocurrencies. Ultimately, the decision of whether or not to trade forex or BTC is dependent upon an individual’s objectives, risk tolerance and resources.

Any opinions, news, research, analyses, prices, other information, or links to third-party sites are provided as general market commentary and do not constitute investment advice. FXCM will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.

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