How Forex Trading Is Going To Be Affected By Cryptocurrency
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There’s a lot of buzz around cryptocurrencies, their super volatile and making millionaires in weeks not years. Bitcoin & co have also started hitting the mainstream, even banks are onboard. And even personally I was super skeptical I’ve now invested a lot of money for a long term hold in one crypto.
Personally I’m still skeptical apart from one crypto that I’m personally all in on.
It seems every passing month there are more and larger significant players in the market from the financial world.
What does this mean for the forex markets – How will currency exchanges change?
In this post I aim to tackle this question. If you haven’t yet signed up to the email list and received the free ebook, do that now and you’ll be notified when new posts go live! I hope you enjoy the post!
What Is Cryptocurrency?
Starting with the very basics.
If you’ve been living under a rock for the past year and haven’t heard about BitCoin or Cryptocurrencies then here is the basic breakdown. Cryptocurrency is based on blockchain technology. It began years ago but has only recently exploded in the public with the explosion in the price of bitcoin & investors looking into crypto investing more seriously.
The blockchain technology itself is actually quite difficult to explain and honestly I still don’t fully understand the ins and outs of it. It’s kind of like electricity. It’s a great tech that has millions of applications but I don’t need to know exactly how electricity is created to be a successful trader, I simply need to analyse the impact of it in specific industries or applications. Saying that I have embedded a video below that explains (on a few different levels) what blockchain tech is.
What are some examples of cryptocurrency?
There are hundreds of cryptocurrencies avaiable to mine and trade. These are launched using ICO’s in most cases but for the sake of keeping this post simple I’m going to talk about the major ones in the industry.
Bitcoin is the father of cryptocurrencies. Seen as the original crypto it is the leader in market cap and has a massive potential to change the face of the financial industry as we know it. The reason for this is Bitcoin is a decentralised currency. Meaning it is not controlled by banks or governments. Originally Bitcoin was seen as an almost “dodgy” currency being used to exchange valuable goods on the black market.
Instead of copying Ethereum’s definition I’ve pasted an image pulled directly from their website below. This shows very similar benefits to Bitcoin but in a slightly different way.
Etherium is seen as a faster and more secure way to create what they call digital smart contracts. More about this below in a very non-technical way that I liked.
My favourite Crypto because the NEED for it is so big. Ripple (the company) is creating a payment system that is drastically needed by the market. Unlike Bitcoin ripple is a centralised crypto (which is why so many in the industry actually seriously dislike them.) But there product is increadible fast and incredible useful. The core use for Ripple XRP is to transfer money between banks and across borders without waiting days for payments to clear using the old methods.
For example Ripple takes around 7 seconds to transfer a payment. Ever tried to send money abroad? It takes about 5 days…. That’s a massive solution to an existing problem, which is why as Ripple gets more attention more people are starting to invest.
Note: Since investing in Ripple 2 weeks ago the price has increased by 100%. That’s a 100% ROI in 2 weeks! Although as mentioned in the specific Ripple post on this blog I do not intend to withdraw or close that trade anytime soon.
Will people move away from Forex?
Now I didn’t want this article to just be an introduction to Cryptocurrencies, there are thousands of those online many of which are a lot better than I could write.
Instead I wanted to relate this back to forex trading as that is what this blog and 80% of my business is about. Trading currencies.
Now there are some things to note. An important one is that CURRENTLY Cryptocurrencies can be traded normally as if they were their own currency.
Note: You thought the forex markets were volatile…. What till you see these ones.
Amateurs are throwing away a lot of money (in much the same way as they do in normal old school forex trading) with the lack of knowledge, rushing into trades without the correct education and essentially throwing money away and wasting a bunch of time in the process.
Do not be that person.
The type of people that are trading Cryptocurrencies are the moment are amateurs, they have very little knowledge about investing or even trading in general and are just following the hype. This is both and advantage and a pain to good traders.
The advantage is that where dumb money is, all you need to do is look in the opposite direction and you will usually be right. Don’t invest in something that has already risen 50% in 2 days, instead wait for a pullback, wait for people to get scared and start selling. It’s the basic foreign exchange rules just in highly volatile markets.
Cryptocurrency will do 1 thing to forex trading and that’s it.
It will speed up your success or demise.
If you lost money trading currencies, you’ll lose money faster trading cryptos.
If you made money trading currencies, you’ll make money faster trading cryptos.
Which kind of trading suits you?
What kind of trader are you?
That’s what a lot of this comes down to. If you are a high risk trader looking for higher ROI’s in shorter periods of time but understand the volatile nature of the markets and the risks associated, then of course Cryptocurrencies are for you. For the trader looking to mitigate risk, there is a high chance that sticking to currency trading that you understand and currency pairs that have behaved in much the same way for decades may be more for you (although of course you still need to learn that in the first place.)
Will countries/banks work with Cryptos?
Companies such as Ripple or another not mentioned above such as Stratis are looking to work WITH banks and governments (unlike what most of cryptos are looking to do.) These of course increase their security as financial institutions have specific regulations and even ethics (although some might disagree there) to what they are allowed to do.
But the real question is with Cryptocurrency being talked about so much by one side as a bubble and so much by the other side as the future of value exchange and financials, it’s honestly tough to draw the line before anyone knows.
The side stating this is a bubble refer to the dotcom bubble in 2000. The issue I personally have with that is that Amazon and other tech giants were born in this era. Just because a huge range of companies were over-valued, did not mean that incredible value and advancement was made by the ones that did not burst in the bubble.
Needless to say no one really knows what is going to happen in the next 6 months to a year but I think diversifying into cryptocurrency is a very good idea in the short term. I’ve got the guide on Ripple here for anyone interested.
Cryptocurrency is going to change the game in a big way.
It’s not just that it allows almost instant borderless ways to transfer wealth, but it is also the progression of how value and wealth exchange should occur. Luckily for those of us that already understand forex trading, we can literally make a killing through smart investing in Crypto. The difference is the people who are investing in cryptocurrencies at the moment are… Not the smartest.
As a result the overall industry is getting a bad name.
Don’t be fooled though.
Stay the course.
As always remember to do your own research, I write this blog for personal reasons and to educate I do not claim to be a financials expert.
Let me know what you think.