Cryptocurrency trading is fundamental to the zeal for disrupting traditional derivatives and banking norms.
Although it may surprise some to learn that since the early ’90s, modern cryptography has been evolving and set off a new generation of technologies that could offer far more than it could initially provide, the creator of Bitcoin, Satoshi Nakamoto, published a white paper back in 2009 explaining how the blockchain technology they had created could provide the foundation of the future standard of the global financial system, as well as a truly decentralized currency.
Terms like “blockchain” and “crypto” are arguably one of the most potent buzzwords in recent years, associating thought with the novel technological practice. Although these terms are not exactly new, as they have been available for almost two decades, adaptable and accessible applications built on blockchain have only emerged in recent years.
Cryptocurrencies like Bitcoin have proved their worth, with 14 million Bitcoins in circulation. Investors speculating about this emerging technology’s potential have guided much of the current crypto market capitalization. This will likely remain the case until some level of price stability and consumer acceptance is achieved. In addition to the declared price of cryptocurrencies, those invested in them tend to depend on a cryptocurrency based on its “inherent value.” This includes the technology and the network itself, cryptographic code integrity, and the decentralized network.
Additionally to the traditional payments system, the blockchain decentralized ledger technology can disrupt a broad range of transactions. These include stocks, bonds, and other financial assets for which records are digitally stored, and a trusted third party is currently needed to verify the transaction. During this defining period, the cryptocurrency market will evolve at a pace set by crucial participants, marked by possible growth spurts of legitimacy from one or more participants. For the market to enter the next stage of its development towards mainstream acceptance and stable growth, each of the five core market players — merchants and customers, software developers, investors, financial institutions, and regulators- will have to play their part in driving the adoption rate.
The Advent of Cryptocurrency Trading
In the early days of blockchain, many regarded cryptocurrency trading as merely exchanging a couple of dollars for Bitcoins (BTC). The birth of other cryptocurrencies such as Ethereum (ETH) and Litecoin (LTC), coupled with the high liquidity and volatility in cryptocurrencies, has led many traders to gamble by purchasing cryptos through exchanges, hoping that the value would rise and, in return gaining a handsome profit.
In the second half of the last century, the decision to turn to float exchange rates was made when it became apparent to financial institutions that they could not provide the right amount of U.S. currency backed by a gold reserve. Financial regulators thus abandoned the gold standard by introducing a floating exchange rate system. This stage is considered by many as the start of the forex market emergence.
The difference between Forex and Crypto trading
Cryptocurrency trading is the opposite of forex trading and asset ownership options. It is an accurate exchange of one cryptocurrency for another. Traders buy the desired token on crypto exchanges and place an order for it to be sold or exchanged for another coin or fiat. Meanwhile, Forex exchange rates indicate countries’ state of the economy. Being very stable assets — when compared to most cryptocurrencies, except for stablecoins — the value of fiat currencies mainly changes within three to five decimal places. Cryptocurrencies are significantly more volatile than the former, and within a 24-hour timeframe, traders can earn as much as 100 percent against U.S. dollars. Therefore, due to the high margin attained through cryptocurrency trading, it can generate significant profits without leverage, which often leads to deposit losses. Investing in the early stages of the coins has proven to be a highly successful trading method for that money.
Whenever the market faces uncertainties due to reasons like a coronavirus pandemic, oil price instability, and regional conflicts, it has shown cryptocurrency traders that the crypto price movement is still impacted by the forex market. In times of uncertainty, many crypto traders start looking for or returning to the traditional stock market. Because of the high volatility in the crypto market, the price stability of many trading pairs puts the market in a state of hibernation, which is why many traders are losing money. Therefore, some are paying attention to alternative forms of trading in search of a solution: futures, options, commodities, or forex. Forex turnover is almost closing in at $6.6 trillion a day. Meanwhile, futures trading is $440 billion, and the U.S. stock market has a valuation of $257 billion, overshadowing the volatility of the cryptocurrency market, which is at just $4.8 billion a day.
Despite opportunities in cryptocurrency trading, the forex market’s long history remains one of its strengths. Traders have been provided with several popular platforms, such as MetaTrader 4 and 5, with thousands of indicators, forecasting, and technical analytics tools.
Reducing the impact of the Forex market
One of the key reasons traders have a hard time trusting cryptocurrency exchanges is that consumer funds may sometimes need to be included. A recent example is the 2019 hack of Binance, the leading centralized cryptocurrency exchange, in which an estimated $40 million was stolen from the hot wallets of the exchange. The Forex market effect can be eliminated if cryptocurrency companies can boost their safety levels.
The number of cryptocurrency exchanges exceeds that of traditional exchanges when compared with the conventional market. For traders who value privacy and anonymity, an additional crypto exchange option allows them to trade securely and anonymously. After the emergence of the decentralized exchange (like Idex and EtherDelta), the gauntlet was thrown by the crypto-verse. Those decentralized exchanges were the inevitable product of the decentralized revolution with minimal interference in the form of KYCs and long-drawn sign-up processes.
Decentralized Crypto Exchanges
Although liquidity in these decentralized markets was growing, the focus of regulatory authorities was also becoming more acute. With a regular daily transaction volume of over a billion dollars, these decentralized exchanges were no longer outliers but had become full-fledged mainstream exchanges. Some exchanges thought it was necessary to become centralized, follow regulatory guidelines, and use best practices to protect the funds deposited in their users’ trading accounts. However, as there is a gradual shift of a global consensus of privacy and handing the control of wealth back to the people, there is a likelihood of decentralized exchanges being the standard form of trading platform in the future, once the world weighs in the benefits of trading on a decentralized environment over a centralized and heavily surveilled exchanges. While a lack of liquidity made decentralized exchanges less appealing, they make up for it in terms of security. With a sufficiently distributed node structure, decentralized exchanges are virtually hack-proof.
Introduction of a Hybrid form of exchange
A hybrid form of exchange is introduced to counteract the appeal of decentralized exchanges and the lack of oversight from centralized exchanges, combining the robust features of both decentralized and centralized exchanges. This hybridization offers the flexibility of a centralized exchange and the security of a decentralized exchange. For instance, a hybrid exchange provides the full suite of centralized exchange features, such as margin trading, futures trading, and options trading. Traders who wish to access the full suite of features must complete the mandatory Know-Your-Customer (KYC) process, while those who seek to trade in small volumes do not need to perform KYC and meetings.
A hybrid exchange such as Bronix offers the full suite of trading avenues such as margin trading, futures trading, and options trading. Those traders who want to access this complete suite of trading avenues must perform mandatory KYC. In contrast, others who wish to trade in small values do not need to complete KYC or fulfill regulatory obligations.
The stage looks set for cryptocurrency trading.
There is still optimism within the community that cryptocurrency trading will dominate and likely replace today’s traditional markets. It looks clear that as the public interest in cryptocurrency increases, so will the market demands more sophisticated and advanced solutions. As the cryptocurrency market matures, persisting issues and flaws will be addressed and remedied, making the new asset classes more attractive for traders in both traditional and cryptocurrency markets. Today, the trade of Futures and Options is being fleshed out, but tomorrow, these will be the main drivers of the valuation of BTC, ETH, and other cryptocurrencies in the market.