Bitcoin VS Forex

The Foreign Exchange market (Forex) is the world's center for exchanging currencies. Traders gauge currencies' health and attempt to exploit its volatility in exchange rates with other currencies to make a profit.  The more a currency varies, the bigger the profit (and risk).  Bitcoin trading is similar as traders are essentially exchanging a cryptocurrency for another currency, which is the principle Forex is built on. However Bitcoin's more unpredictable volatility and influential price-driving factors are divergent from Forex.

In this article, we will explore the framework for how Bitcoin trading components compare to foreign currencies on a trading platform and how they impact Bitcoin's and Forex's behavior.

Supply

The amount of foreign currency in circulation is regulated by the specific central banks. Meanwhile, an exponential algorithm that systematically decreases inflation as the stock of bitcoin increases controls the production of the cryptocurrency illustrated by blue in the Bitcoin Inflation vs. Time graph. This design was meant to rapidly create Bitcoins at first and exponentially decrease production after "enough" Bitcoins are generated. While this computerized method is new and hard to comprehend for some, it is important to note that it decreases unpredictability as you already know how many Bitcoins will be produced in the short-term and long-term future.

Inflation

Many Bitcoin enthusiasts believe that Bitcoin is immune to inflation; this may be true for monetary inflation, but not for price-level inflation.
As emphasized in the Supply graph above, Bitcoin's algorithm has a maximum limit of 21 million Bitcoins that can be mined, shown as a horizontal asymptote.  Due to the fact that once all 21 million Bitcoins are distributed, and no more can be found, Bitcoin will be immune to monetary inflation or debasement.  This is not the case with foreign currencies that are government regulated since they can produce fiat currency at anytime resulting in monetary inflation.
While (the reason for fiat) debasement has a more apparent answer, Bitcoin's and Forex's price-level inflation simply does not.  Multiple factors that affect Forex include the involving nation's public debt, interest rates, political stability, and economic health.  These factors cause steep derivatives; impacting foreign currency inflation.  Bitcoin is even more complicated with only speculation theories on what causes price-level inflation.

Demand

One of the advantages of having a centralized currency is uniform demand.  Since the government controls the currency, its application within the economy is indisputable.  Bitcoin does not have this convenience; Bitcoin's demand is determined through numerous factors including public adoption, marketplace emergence, and the public's confidence in Bitcoin holding value.

As public adoption expands so will the demand for Bitcoins; coupled with emerging marketplaces that accept Bitcoins, the prevalence of Bitcoin will widen.   Bitcoin's public opinion has been negatively impacted by news stories, such as Mt. Gox declaring bankruptcy and Bitcoin's heavy use within the deep web.  However, the involvement of the New York Stock Exchange and NASDAQ in the blockchain has boosted the general population's opinion of Bitcoin's ability to retain value. Even with the negative elements, such as the media's criticism, Bitcoin's demand has and continues to rise steadily.

Volatility

Forex's volatility is around 1% for the extreme foreign currency couples and 0.5% for less.  On the contrary, Bitcoin has a volatility around 5% to 15% with a 10% volatility average.  For this sole reason, Bitcoin attracts high-risk traders.

Trading Platform

Both Forex and Bitcoin offers multiple trading platforms; Kraken, BTC-E, Bitstamp, Bitfinex, Coinbase, and others offer Bitcoin trading/exchange platforms  Forex has copious amounts of platforms with the most popular being FXCM.  The main difference between the two is the alternative currencies offered to trade with.  Bitcoin's popular platform, Kraken, regularly trades with USD (United States Dollar) and EUR (European currency), along with alternative cryptocurrencies such as Litecoin and Dogecoin.  These crypto currencies are not integrated within Forex platforms but replaced with less well-known currencies.

Bitcoin and Foreign currency have many similarities, but their divergent behavior says otherwise.  Measuring one order of magnitude higher than that of Forex, Bitcoin's volatility is an intense contrast from the variance of foreign currency.  Despite the fact that a Forex trader could have some success trading Bitcoins using Forex fundamentals, Bitcoin has created a riskier trading market that has yet to reach its potential.

What are your thoughts on Bitcoin's trading potential?

Image Sources Bitcointalk, Kraken, Coinbase

Kraken Announces New Fee Structure

Founded in 2011, the San Francisco-based Kraken exchange is the leading Bitcoin exchange for professional traders who demand fast execution, innovative features, exceptional support, and high security.  Kraken is trusted by hundreds of thousands of traders, the Tokyo government and court-appointed trustee, and BaFin regulated Fidor Bank, with an exclusive partnership and full regulatory compliance.

The company is the leading Bitcoin exchange for Euros while also supporting several other currencies like the US dollar, Canadian dollar, and the Yen. Kraken is consistently rated the top Bitcoin exchange by independent news media and was the first Bitcoin exchange listed on Bloomberg terminals.

Today, the San Francisco-based exchange announced it was reducing all market fees. Kraken will be reducing the platform trading fees and moving to a maker-taker model. In the press release, the Kraken team explains that in a maker-taker model, reduced fees are given to the market makers who provide liquidity to the market takers.

How does it work?

The maker fee applies when the trader adds liquidity to the order book by placing a limit buy below market price or a limit sell above market price. The maker fee is paid only when such orders are taken by new incoming orders. The taker fee applies when the trader removes liquidity from the book by placing a market or limit order that executes immediately against a limit order already on the book.

All advanced orders trigger either market or limit orders and the triggered market or to limit order will be maker or taker as described above.

Since the company has reduced the fees overall, most traders removing liquidity from the book will also benefit from reduced fees compared to the exchange previous fee schedule. Although takers pay a little more than makers (only 0.10% more), this is generally offset by the deeper liquidity and tighter spreads found in the maker-taker model.

For the bitcoin-fiat pairs, the maker fee goes as low as 0% and up to 0.16% depending on the amount that is being traded. The taker fee goes as low as 0.10% and up to 0.26% depending on the traded amount.

Kraken is consistently rated as one of the top exchanges in the Industry and people all around the world have been choosing the San Francisco-based exchange to buy and sell bitcoins.

The company aims to be the most competitive exchange in the industry and the new fee structure will certainly attract a lot of new traders to the exchange.

What’s your opinion on the Kraken exchange? Let us know in the comments bellow!

Press Release & Image provided by Kraken