With Bitcoin banking in a +300% return in 2019, retail traders who are actively involved in other financial assets are beginning to question whether it could be a suitable asset to include in their portfolio. In order to help those who are trading forex, we’ve designed a brief comparison with Bitcoin and hopefully, it will help them understand the main differences and how they should treat the world’s biggest cryptocurrency.
Similarities between Bitcoin and Forex
The forex market is the most liquid market in the world, while Bitcoin is the largest cryptocurrency by market cap. At the time of writing, Bitcoin has more than $211 billion in market cap and the average 24h trading volume on traditional exchanges exceeds $28 billion according to coinmarketcap.com, excluding futures trading or other derivatives, which are also continuing to gain traction among investors.
Since Bitcoin is the most liquid cryptocurrency, it means traders can use the same strategies they use for forex trading. Support and resistance levels, breakout strategies, oscillators and price indicators, all proved to work well on Bitcoin.
Now that easyMarkets offers Bitcoin and most of the other online brokerage companies had included Bitcoin in their instruments list, it is easy for any forex trader to include it in their portfolio and apply the same trading methodologies.
How should Bitcoin be treated differently?
If in the case of forex, we have a market that’s stable and moves less than a few percentage points in a few months, with Bitcoin we have much higher volatility and a momentum-driven market. The psychology of the cryptocurrency market is completely different and we’ll most of the time witness overextended moves on either side (bullish or bearish), even though there won’t be any dramatic shift in fundamentals.
That happens because of FOMO (Fear Of Missing Out) and because the Bitcoin supply is very limited. With only 21 million tokens can be mined, fluctuations between supply and demand have a meaningful impact on the Bitcoin price, resulting in very impulsive market swings.
Forex traders wanting to include Bitcoin in their portfolio should be prepared to endure sudden market shifts, moves bigger than 10% in less than a few hours and should also monitor the weekend activity, since cryptocurrencies are being traded 7 days a week. If we analyze the past two years, we would conclude that most of the significant Bitcoin breakouts occurred during the weekend, and you as a trader don’t want to miss those particular situations.
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