Due to the popularity of crypto currency trading, many people have shown interest to crypto currencies, which are being compared to foreign exchange (forex) and commodities. Before you start trading, it is a must to identify the similarities and differences of crypto currencies, traditional currencies, and commodities first.
Crypto Currencies VS. Forex
When we talk about crypto currency trading and forex trading, it is difficult to point out actual differences aside from their respective factors if you only look at the surface. However, if analyzed carefully, it could easily be said that there are a few differences between the two. Their liquidity factors is a good example.
Forex value depends on each individual country’s economic fundamentals. Some currencies will go up, while some will go down depending on certain factors – economic situation being a major influencer. On the other hand, crypto currency value depends on the underlying crypto currency eco-system’s macroeconomics.
While the government has complete control over the value of traditional currencies, they do not have any control over crypto currencies simply because they are decentralized. The government can easily print more dollar bills (or any currency) if needed, while the generation of crypto currencies is limited to a certain number of electronic coins only.
Crypto Currencies VS. Gold
Another currency that is often compared to crypto currencies is gold. While the two have a lot of differences, they also have notable similarities. Crypto currencies are digital cash so one can neither hold nor touch it. On the other hand, gold is a physical investment.
Now, let us go to their similarities. Both the value of crypto currencies and value of gold depends on the confidence of their investors and the entire market sentiment. Since both only have limited supplies, they are expected to raise their values through time.
Many people see crypto currencies as having the ability for a better currency. This is why they go into crypto currency trading, or hoard some crypto currencies and wait until their values soar. On the other hand, there are still a lot of people who prefer gold over crypto currencies as an investment simply because of its proven long historical record.