How Cryptocurrency Will Evolve Forex Industry
Cryptocurrency has endured something of a rocky ride since its inception more than 12 years ago when Bitcoin first entered the commercial marketplace. Whilst Bitcoin was initially given a bad reputation for its involvement in the Darkweb and other illicit activities, it has since evolved to lead a burgeoning and viable marketplace. This is reflected by the market capitalization of Bitcoin (and indeed cryptocurrencies as a whole), which currently sits at an impressive $117.81 billion and continues to dominate the marketplace (despite declining from a peak of $237.62 billion during a price surge in 2017).
Of course, this market cap also hints at the volatile nature of cryptocurrency trading, and in this respect, it has a great deal in common with the forex market. But how will crypto evolve and expand the forex market in the near-term?
What is Cryptocurrency?
Let’s start with the basics; as cryptocurrency represents a digital asset class that is based on the ground-breaking Bitcoin technology.
As for blockchain itself, this is a complex and far-reaching technology that has applications in a raft of industries from healthcare to the supply chain, and it essentially serves as a decentralised system in which different types of transactions can be recorded in an immutable and transparent manner.
These transactions, which may be made in a number of different cryptocurrencies, can also be maintained and accessed across several devices that may be linked within a peer-to-peer network.
As we’ve already said, there are now a wide and diverse range of cryptocurrencies in the market, many of which have evolved as viable assets in their own right.
Aside from Bitcoin, we’ve also seen the emergence of broader and more practical digital currencies such as Ethereum and Ripple. The former has a great deal in common with Bitcoin, although many consider it to be a faster and more secure asset that can also underpin so-called digital smart contracts.
In the case of Ripple, this also underpins a wider (and ultimately transparent) payment system that is benefitting from sustained demand at present. So, although this is a centralized cryptocurrency, it boasts a far greater purpose which boosts its underlying value and creates a more stable foundation from the perspective of investors.
How Will Crypto Impact on the Forex Market?
As cryptocurrency has benefitted from sustained market growth and the introduction of some (albeit relatively small) regulations, it has become increasingly popular across the globe.
It has even broken down barriers in the Asia-Pacific region, the Hong Kong authorities recently approved the region’s first approved cryptocurrency fund. This was backed by Venture Smart Asia and set an initial 12-month target fund of $100 million, while there’s also the promise of more funds being launched in the near-term.
Such funds will allow for the trading of crypto tokens as individual assets, and this draws a clear parallel with the globally popular forex market. In this respect, there can be little doubt that the emergence of these currencies will diversify and develop the forex market further, increasing the range of assets available to traders and the level of volatility that exists within the space.
This was borne out recently when a raft of cryptocurrencies lost the cumulative sum of $21 billion in market capitalization following the decline in oil prices and wider currency values.
This trend is far from unprecedented too, with Bitcoin having enjoyed a historic price run from $900 to a staggering $20,000 in 2017 (only to lose more than 50% of these gains by June the following year).
Beyond this, the wider integration of blockchain into the forex market could change the way in which trades are recorded, potentially minimizing the risk of fraudulent activity and market manipulation over time.