Every now and then a new type of investment comes along that looks as though it is going to change the world. Currently, it is cryptocurrencies that are attracting a huge amount of media attention.
Bitcoin, in particular, has been a magnet for investors, with spectacular price increases registered since it began life in 2009. However, is it now a better option than more traditional investments such as foreign exchange trading?
Currency trading is a long-established type of investment that has been around for as long as people have used money. Forex trading can be carried out on any pair of currencies, so it will always be done as long as there is more than one type of currency in the world.
A lot of the speculation around bitcoin right now is over whether it is a short-term bubble or a genuine, long-term investment opportunity. Analysts and investors are sharply divided over this point and the debate is likely to intensify if the price continues to rise as it has been doing.
Volume of Transactions
Forex trading is the biggest market in the world by volume, by quite some distance. Cryptocurrency trading is rapidly gaining traction but it is still a significant way behind forex in terms of volume.
Bitcoin is the most widely traded digital currency, with some $4.2 billion being its high point in 24 hour trading volumes figures. This is from an overall cryptocurrency daily volume of around $11.5 billion.
While these figures are impressive, they still trail way behind the $5 trillion dollars of currency trading carried out on forex markets every day. Since cryptocurrencies are limited in volume – only 21 million bitcoins will ever be made – it is highly unlikely that they will ever reach the same levels of transactions as forex trading.
Naturally, lower levels of trading mean there is a chance of greater volatility.
|"Foreign Currency and Coins" (CC BY 2.0) by bradipo|
The truth is that both forex trading and cryptocurrency dealing are easy to do these days. Both can be done online very quickly and with no fuss. In terms of bitcoin, there are a number of exchanges in Nigeria that you can use to buy from or sell to, as well as the possibility to peer to peer transactions.
The use of bitcoins for international remittances is growing in Nigeria due to the ease of sending and receiving across borders. Of course, by doing this, people are using it as a currency rather than as an investment.
A point worth bearing in mind is that it is possible to have a trial run of trading major FX pairs without investing any money, which is done simply by setting up a forex demo account. Once you get fully started with online forex trading, you could also consider trading on bitcoin prices without having to buy and store the actual coins. This approach has allowed the sector to attract more traders, as many like to get a sample of the action without having to invest real money.
Another alternative approach to investing directly in bitcoins is to mine the coins. In this case, the investment comes in the shape of buying the high-end computers needed and the enormous amounts of energy needed to complete the complex transactions.
A key point for many investors is around the legal issues. At the moment, cryptocurrency markets remain un-regulated in most countries and, as such, represent a risk to investors. Some investors may see this lack of regulation as an opportunity, of course.
Forex trading is based on heavily regulated currency markets and each firm that offers this service has to comply with the laws applying to their own country.
Two Very Different Types of Investments
Bearing all of these points in mind, we can see that bitcoin trading and forex trading are two very different types of investment.
Those people who want the thrill of a fast-moving and highly volatile type of investment may be tempted by the appeal of bitcoin. Forex trading also offers the possibility of big gains, but it is a longer established and more highly regulated market.