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 offer. 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 powerful buzzwords in recent years, establishing an association of 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 its worth, now having 14 million Bitcoins in circulation. Investors speculating on this emerging technology's potential have guided much of the current crypto market capitalization, and this is likely to 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 it 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 has the ability to disrupt a broad range of transactions. These include stocks, bonds, and other financial assets for which records are digitally stored, and for which 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 key participants, marked by possible growth spurts of legitimacy from one or more of those participants. In order 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 floating 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 forex market emergence.
The difference between Forex and Crypto trading
Cryptocurrency trading is the exact opposite of forex trading and its asset ownership options. It is a real exchange of one cryptocurrency for another. Traders buy the desired token on crypto exchanges, and place an order for it to be sold, exchanged for another coin or fiat. Meanwhile, Forex exchange rates are indicative of countries' state of the economy. Being very stable assets — when compared to the majority of cryptocurrencies, with the exception of 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 the high margin attained through cryptocurrency trading, it can generate great profits even without leverage, which very 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 still exist in cryptocurrency trading, the long history of the forex market remains as one of its strengths. Traders have been provided with several popular platforms such as MetaTrader 4 and 5, thousands of indicators, forecasting and technical analytics tools.
Reducing the impact of the Forex market
The Forex market effect can be eliminated if cryptocurrency companies can boost their safety levels. One of the key reasons traders are having a hard time trusting cryptocurrency exchanges is that consumer funds may sometimes go missing. A recent example is the 2019 hack of Binance, the leading centralized cryptocurrency exchange, in which an estimated $40 million was stolen from hot wallets of the exchange.
The number of cryptocurrency exchanges exceeds that of traditional exchanges, when compared with the traditional market. For traders who value privacy and anonymity, there is an additional crypto exchange option which allows them to trade securely and anonymously. After the emergence of the decentralized exchange (like Idex and EtherDelta), the gauntlet had been 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 on 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 the 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 back 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 is what 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
To counteract the appeal of decentralized exchanges and lack of oversight from centralized exchanges, a hybrid form of exchange is introduced, combining the strong features from both decentralized and centralized exchanges. This hybridisation offers the flexibility of a centralized exchange and the security of a decentralized exchange. For instance, a hybrid exchange offers the full suite of centralized exchange’s features such as margin trading, futures trading and options trading. Traders who wish to access the full suite of features must successfully complete the mandatory Know-Your-Customer (KYC) process, while those who seek to trade in small volumes do not need to perform KYC and meeting
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 full suite of trading avenues must perform mandatory KYC while others who just want to trade in small values do not need to perform KYC and fulfill any regulatory obligations.
The stage looks set for cryptocurrency trading
It looks clear that as the public interest in cryptocurrency increases, so will the market demands for 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 found in the market. There is still an optimism within the community that cryptocurrency trading will dominate and even likely replace the traditional markets operating around the world today.