Trading Bitcoin Versus Traditional Currencies: A Forex Comparison

Approximately 615,000 Americans trade forex, and countless more trade it outside the US. Given many traders’ strong opinions about the fate of the US dollar and other currencies, as well as historical trends that seem to confirm their predictions, it’s easy to see why so many people choose to include currency trading as part of their overall trading portfolio. The emergence of bitcoin as an alternative trading currency presents unique opportunities and challenges to those active in forex. We thought it would be a good time to cover some of the basics so that those who are interested in, but unfamiliar with trading bitcoin as a forex currency could better understand its potential.


First Thing’s First: Why Traditional Currencies Suck

Although traditional currencies are inviting because they’re strongly tied to macroeconomic influences (and hence are easy to understand), there is one big problem: the entire system for trading forex around traditional currencies is stacked against you. Self-induced-leverage-driven losses aside, the immense $4 billion per day forex market primarily consists of institutional forex traders (i.e. large banks). Deutsche Bank represents approximately 16% of the market alone! Generally speaking, successful trading strategies involve either information that is not readily available to the rest of the market or another “leg up” on competitors (for example, the ability to make trades faster than others). The average retail forex trader is competing against large institutions with more information and better systems in the most liquid and efficient market in the world. Talk about a disadvantage!

Bitcoins Are New, Scary and Awesome (And You Need To Get In Now)

Ultimately, although 10% of retail forex traders do run successful strategies, it is extremely difficult for the average at-home forex trader to achieve outstanding returns that are worth their time having no edge on the market.

While the traditional forex market is crowded and already efficient, the bitcoin forex market is anything but. The evidence for attainable trading opportunities can be seen through the inefficient pricing between exchanges and bitcoin currency pairs. Bitcoin Analytics offers an effective tool for finding and calculating such live arbitrage opportunities between exchanges. We have also heard of traders who are running more proprietary trading strategies based on statistical links to bitcoin-related news releases, tracking exchange transaction activity and correlation to commodity prices. Even if you follow a less mathematically-driven strategy, bitcoin price volatility a relatively smaller market size makes spotting patterns and resistance points much easier. Here are some other reasons why bitcoin beats traditional currencies in forex trading:

  • Price is based on demand alone. While a trading hypothesis may be sound based on the macroeconomics of a currency’s underlying economy, changes in interest rates and money supply by the government’s central bank have large and unpredictable influence on currency price that can’t be mitigated. This is not the case for bitcoin. Bitcoins are being created at a predictable rate up to an ultimately limited quantity, making the price of bitcoin solely a function of demand for the currency. This makes bitcoin akin to a commodity in many ways, and gives way to success with new, untapped trading strategies.
  • Market primarily consists of retail, not institutional traders. Retail traders are the primary drivers of bitcoin price, and the average trader can often create a unique strategy in the market. Retail traders also have more market power.
  • Trading bitcoin feels almost identical to trading traditional forex. Using a platform that offers margin trading (like Coinsetter), traders can lever their returns just as they would with any traditional forex account. With bitcoin’s increased price volatility, traders can achieve virtually all the leverage they could possibly want for their strategy.

Bitcoin as a new forex opportunity has an expansive set of advantages, but it’s not without its obstacles. Points to be aware of while trading the digital currency include:

  • News has a large impact on price. Some of bitcoin’s largest price swings were due to positive or negative news that came out about the currency. Article on buying drugs online? You best sell now! Article on how bitcoins are being used to bypass expensive moneygram services? Buy buy buy!
  • Hacks are an ever-lingering danger. While our company, Coinsetter puts an extreme emphasis on keeping our platform secure from hacks, many bitcoin platforms have nonetheless been the victims of hacks that lost large amounts of customer money.

We believe that bitcoin will be a unique and compelling trading currency for the foreseeable future. With that said, a lot of the opportunities that we mentioned will diminish over time as more traders enter the market and the overall bitcoin economy becomes more established. Volatility will come down. Only so many articles can come out about the abominable sins of the bitcoin currency before people stop being phased by them. This is why we believe now is the time to get over hesitations about trading bitcoin and begin trading. While there will be good trading opportunities for years to come, the low hanging fruit is free for picking now.



CEO & Founder at Coinsetter
Jaron Lukasiewicz is the CEO and Founder of Coinsetter, a New York City-based company that offers a high performance ECN trading platform and exchange for bitcoin. He is a frequent speaker at events on the topic of bitcoin and financial technology, being featured in The Wall Street Journal, The Financial Times, Bloomberg, CNBC, Fox Business, TechCrunch, Mashable, Entrepreneur, Institutional Investor, Forex Magnates and other news media.

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