Crypto vs. Forex: Difference between forex and cryptocurrency



The world of money-making changed dramatically over the last decade introducing new financial instruments regularly and providing unique opportunities for those who can seize them. Setting aside “traditional” financial markets, we have two main domains that dominate the minds of contemporary financiers:

  • Cryptocurrencies. These new assets created a whole world of new endeavors for people interested in both speculative trading and long-term holding of appreciating resources. Understanding blockchain is quite important but not necessary if you want to enter this market.
  • Forex. The foreign currency exchange is quite old, but not as old as the stock market. While Forex is focused primarily on fiat currencies and their relations to each other, it is also the biggest derivative market in the world with futures and other instruments traded back and forth around the clock.

These two distinctly different domains share many similarities despite working with assets that seem opposite in nature and purpose. We will start our analysis of crypto vs. forex here, by defining crypto and fiat currencies.

Fiat money

Contemporary retail traders who do not want to indulge in learning the history of monetary systems call all money fiat. However, there is a deterministic definition of fiat. Any government-issued currencies that are not backed by a valuable commodity is considered fiat. If the US dollar was still backed by gold, it would not have been called fiat in the modern economy.

Banknotes were always backed by a specific commodity. Usually gold, but many other examples exist. Other precious metals like silver and platinum were also used to back national currencies. Everything changed when the US dollar became the backbone of the global trade making it impossible for a single government to issue enough banknotes backed by gold.

Just 50 years ago, every single US banknote could be exchanged for gold. Nowadays, the US dollar is just a piece of paper looked down upon by crypto enthusiasts. The difference between Forex and cryptocurrency markets is that the former works with fiat currencies and facilitates international trade while the latter deals with the innovative money in form of digital ledgers.

Understanding Bitcoin

The introduction of Bitcoin as a concept happened in 2008 when an anonymous developer under the pseudonym Satoshi Nakamoto released technical documentation (the white paper) outlining the idea of a blockchain ledger which could be used to track transactions ensuring that people could use a set-in-stone history of deals instead of paper money.

The concept of blockchain was not new at the time. In fact, the earliest proposals of such ledgers were made in the end of the 1980s. In 2008, after the infamous financial crisis caused in part by using government-controlled fiat currencies, the idea of using a decentralized monetary system where nothing can be changed on a whim of a central authority became quite appealing to masses.

Explaining how Bitcoin works in detail will take a whole separate guide, but several key aspects will be sufficient for our purposes:

  • A Bitcoin token (BTC) is a representation of a record in a digital ledger maintained by a network of computers with validating nodes (PCs that make new entries in the ledger or simply blocks) regularly updating the data in the ledger.
  • Only miners can create new blocks and validate any transaction which requires adding a new entry. To ensure that writing down a transaction is not free and ineligible, these validating nodes have to perform complex calculations (do the work). This system is called the proof-of-work protocol.
  • Bitcoin has a set amount of units that will be produced making it both a valuable commodity due to its rarity and an anti-inflationary currency that does not depreciate when more units are issued by the network.

As you see, fiat money has its downsides and can be issued at will by governments making it hard for other participants of the economy to stay independent from monetary policies employed by their politicians. The decentralization is achieved by using a network of validators that have to agree to add a new block making every transaction final and irreversible. This level of community-driven control is what made the concept of Bitcoin so appealing to early adopters.

It took 10 more years for BTC to truly take off and captivate the minds of experts, but it happened. Massive bull runs allowed the asset to pick at $69,400 in November of 2021. This ATH was never achieved since, but it is still a very impressive bull run that may very well repeat in the future.

Pitting Forex vs Cryptocurrency

The unique idea of using blockchain as a form of currency and the novelty of the technology made it a perfect breeding ground for elitists. During the early period of the crypto industry, many retail traders preferred to stick to P2P platforms making sure that they are interacting with other cryptocurrency enthusiasts. Since P2P transactions had to be final, it created an immense pressure on the mining sector.

While it seemed like a dream for those interested in decentralized finance, the technology was still confusing and hard to utilize preventing widespread adoption. The lack of tools and financial instruments easily accessible by others made it hard to enter the market. Elitists also tried to create a rift between people who wanted to use fiat and those interested in crypto.

Forex and crypto trading were two opposing camps with many people not willing to even consider switching sides.

Bitcoin in Forex trading

Brokerage service providers with experience in the Forex field were consumed by the idea of introducing a new financial instrument to their clients. There were several key problems that had to be solved before Forex Bitcoin trading could become reality.

1.      The cryptocurrency market lacked liquidity and sufficient trading volumes to be considered good foundations for derivatives. Despite the arrival of new coins and the growth of Ethereum, flagship tokens were still traded within certain limits.

2.      The absence of a good medium that could bridge the gap between crypto and fiat was something that held back trading. Retail traders needed a convenient way to trade on P2P platforms while operating something familiar and easily comparable to fiat.

3.      The rate of adoption and the technology was still too slow creating issues for Forex brokers. Creating wallet addresses for holding without compromising security and taking custody of clients’ funds with sufficient transparency was quite challenging.

These three issues were soon addressed by various developments in the crypto industry allowing a new era to begin. Trading Bitcoin on Forex became possible thanks to the arrival of new technologies and practices.

  • The explosion of interest toward cryptocurrencies facilitated by the expansion of CEX platforms like, Binance, and Kraken allowed more international retail traders to join the market and provide the much needed liquidity and trading volume. Slowly, the growth of the industry led to the creation of perpetual and standard futures on flagship tokens like BTC, ETH, DOGE, LTC, and many others.
  • USDT became a game-changer. Tether is still the most popular stablecoin pegged by the USD. It is a good medium used by many exchanges. Binance and Coinbase issued their own unique stablecoins (BUSD and USDC respectively), but USDT remains the preferred medium for many retail traders. This stablecoin made it easier for many retail traders to understand values and start using crypto.
  • Lastly, the crypto industry focused strongly on creating new decentralized finance projects that allowed for faster transactions, safer storage, and quicker swapping enabling other companies to enter the market using new technological windows without any compatibility and interconnectedness issues.

Thanks to these developments, a wide range of contemporary Forex brokers offer different financial products based on cryptocurrencies granting millions of international retail traders access to the still emerging world of digital assets.

Forex vs Stocks vs Crypto

Choosing the right financial market is a challenging task for newbies without any prior experience with investing. It is hard to analyze financial instruments and learn technical analysis for the first time. Everything seems confusing and the sheer volume of information may feel overwhelming. However, it is possible to compare these markets. Forex and cryptocurrency trading are slightly different compared to traditional stocks and commodities.

Each market has its own advantages and downsides, but they all have something interesting to offer to very specific retail traders and investors depending on their preferences and long-term aspirations.

1.      The stock market is the oldest one. Companies issuing stocks are trying to collect funding to grow which means that potential investors must follow rules of fundamental analysis. The latter is a technique of using different information to forecast the future of any given stock. If you think that it is overvalued, you sell. If you think that it is undervalued, you buy. Since you can gather lots of data, analyzing stocks seems easy.

2.      The Forex market requires learning mean analytical approaches. The pattern of determining the value of a stock is used for fiat currencies, but on a national level. You try to evaluate performances of whole economies following news released by various agencies and official authorities. However, technical analysis is also important and allows retail traders to create efficient strategies based on indicators.

3.      The cryptocurrency market is all about technical analysis. The information about projects if often scarce and unreliable. Many DeFi platforms promise everything at the beginning of the development phase, but may never deliver. The only thing that is true is what the community of traders thinks about any given token. Since the market is highly speculative, you need to learn how to use technical indicators.

There are many more differences, but in terms of what type of investor should be interested in which domain, it is sufficient characterization. Forex trading vs crypto trading is a slightly more intense topic since both require investors to excel at technical analysis.

Can you trade Forex with Bitcoin?

Multiple brokerage service providers and exchanges offer futures and perpetual futures on Bitcoin and Ethereum. Companies like TradeStation also offer BTC/USD pairs and similar pairings involving other coins and fiat currencies can be found in the market. However, the direct swapping is still a relatively rare offering.

There are two main ways to use Bitcoin in Forex trading:

  • Use BTC to deposit funds to your trading account. The vast majority of contemporary Forex brokers allow their users to make deposits using BTC and other cryptocurrencies making it easier for enthusiasts to engage with financial markets without having to swap their coins for fiat money. Note that some brokers accept BTC, but won’t allow you to withdraw them or trade crypto/fiat pairs.
  • Search for brokers that allow cryptocurrency in Forex. Some platforms provide pairings with Bitcoin. BTC/EURO, BTC/YEN, BTC/REAL, BTC/BPD, and a plethora of other financial instruments are available to retail traders. These are accessible only via margin trading accounts meaning that you will need to control risks.

Using a wide range of financial instruments is not something new for retail traders, but using cryptocurrencies adds another layer of complexity to investment strategies. You need to consider several factors when engaging with the FX market from the crypto angle:

  • The swap rate may affect your bottom line. Trading at a profit and withdrawing funds after converting them to fiat can wipe away all earnings. Since the cryptocurrency market is so volatile, the exchange rate may change overnight making you lose money in the process.
  • Prices may differ significantly depending on where you trade. Some crypto exchanges carry different prices compared to their counterparts from across the globe. Arbitrage is still a very successful approach because prices converge relatively slow compared to the FX market. Be careful and search for the best deal.
  • Using technical indicators is often the only way to make reliable forecasts in the crypto market. While the world of fiat money still obeys some rules that you may have learnt from fundamental analysis, tokens may behave unpredictably and depend on the mood in the community.

These nuances make it harder for newcomers to orient themselves in the emerging financial market and adds more fuel to the “cryptocurrency vs Forex” dispute. Some experts say that the convergence of these two domains is inevitable and will only accelerate as more and more people adopt crypto. On the other side of the spectrum, skeptics think that fiat will remain the only valid form of financial relations in the foreseeable future.

Volatility is a huge concern

When it comes to comparing Forex vs Bitcoin trading, the conversation eventually boils down to the problem of volatility. Conservative investors say that the FX market is the most volatile environment, but cryptocurrencies leave fiat bite the dust when it comes to swings. Just in May 2022, the total market cap of the crypto market was over $3 trillion. Three months later, it lost over 60% of value.

Prices swing dramatically overnight. We want even talk about meme coins, failed projects, pump and dump schemes, and other things that skew the perspective. Flagship tokens like BTC and ETH may lose 10% today and gain 20% tomorrow. The unpredictability and large swings make this market a great hunting ground for speculators, scalpers, and swing traders, but presents challenges for those favoring calculated investments.

If you want to enter the world of Forex trading cryptocurrency, you will need to follow several important rules:

  • Learning technical analysis is a must. You have to rely on time-tested ways to identify the current market mood and use price corrections to benefit in the short-term. Day trading is the most popular form of retail trading in this domain.
  • Use automation and social trading. Since the market operates around the clock, avoiding automation is not an option. If FX traders may ignore these tools and rely on their gut feeling by entering long-term market positions, many crypto traders do not have the same luxury.
  • Get a personal cold wallet. If you plan to work with cryptocurrency in the future, make sure to protect your tokens by using a cold wallet. Purchasing a hardware storage unit like Ledger Nano or Trezor is a good idea. When it comes to Forex Bitcoin trading, having a way to withdraw and store tokens is essential for long-term success.

Types of exchanges

A big difference between Forex and trading Bitcoin or any other cryptocurrency is that you have to choose a certain type of exchange. There are two distinctly different variants of CEX platforms:

  • A centralized platform (CEX) run by a corporate entity and offering specialized financial products and access to various instruments. These exchanges operate much like FX brokerage service providers. CEX platforms will take your money and assets in custody which is something that rubs crypto enthusiasts the wrong way.
  • A decentralized platform (DEX) is a blockchain-based network that operates as an exchange. Most popular P2P exchanges are decentralized and have their unique tokens that are often used for governance purposes allowing users to decide the future of the platform. It is a good choice if you are a diehard crypto fan.

A decentralized platform is a middleman that never takes assets into custody. Instead, they simply allow two users to exchange their assets and take a small commission for their service. While it is a good alternative to custodial exchanges, these platforms have notable limitations like the absence of financial instruments, slow processing, and confusing user experience.

CEX platforms dominate the market with Binance boasting a 17% market share and Coinbase following closely behind. Their presence in the market is quite palpable. However, multiple incidents in the crypto industry made it clear that not every centralized exchange is managed by trustworthy people.

The FTX collapse drove thousands of users to DEX platforms like UniSwap, PancakeSwap, Curve, Kine, and many others. These exchanges reported a significant influx of new users following incidents with FTX and Terra Luna.

Profitability comparison

Cryptocurrency has a much bigger potential to make a lot of money, but the Forex market is more consistent and reliable. In both markets, you may lose everything if you act without caution. However, the FX ecosystem provides a little bit more leeway and appears to be slightly more forgiving if you know what you are doing.

The issue with cryptocurrencies is that they are still in their infancy. We won’t be able to truly analyze Bitcoin until the last coin is issued which will happen in 2140. Blockchain has immense potential, but you cannot predict how they will behave in the nearest future making it hard to forecast market changes.

Again, cryptocurrency trading can be very profitable during bullish trends. However, FX traders may argue that working with fiat is easier and safer even if you can’t expect the same returns.

The main takeaway

The dispute between two sides representing the FX market and the cryptocurrency industry will continue in the future. It is hard to marry fiat and crypto, but some nations are preparing to issue their CBDC (Central Bank Digital Currency) which may bridge the gap between digital assets and paper money we are so used to.


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