Bitcoin is considered as an investment, which is often purchased in anticipation of an increase in value because of its deflationary nature. This is determined by the fact that the best strategy for digital currencies is to invest in it and expect growth. At the beginning of its existence, Bitcoin was worth a few cents, recently reaching a value of 12 thousand dollars for one coin (data from August 2020), so in the long run Bitcoin is more volatile than ordinary currency pairs (especially large ones like EUR / USD or GBP / USD). It is said that Bitcoin is a virtual gold, meaning that it has characteristic features for stocks. Lately Bitcoin is no longer seen as an investment because of its ability to pay for various forms of currency in the world.

Liquidity Factor

The main difference between Bitcoin and the Forex market is actually the liquidity factor. Forex is the largest and most liquid market in the world, where the average daily turnover can reach trillions of dollars. Bitcoin is a smaller market with an estimated value of $137 billion (data from August 2017).

Liquidity is the rate at which the market allows you to buy and sell assets at stable prices. The greater the liquidity, the more stable the market will be, and prices will not falter significantly. If there are $1 million in transactions a day, the market can absorb these transactions easily, without much change in the dollar value. In the case of Bitcoin, the same transaction may have a much larger effect on the value of the digital currency due to the relatively small trading volume. For price stability, the demand for Bitcoin must match inflation.

Bitcoin exchange vs Forex market activity

Bitcoin works 7 days a week within 24 hours. The Forex market is open 24 hours a day, Monday to Friday. During the weekends, as well as during important holidays, the market is on a break. This is important information for investors, because the market at such times can be irrational and difficult to carry out speculative transactions.

It means that opening the Forex market 24 hours a day, for 5 days a week is a huge advantage and challenge for investors due to the inability to participate in the market directly all the time. That is why special tools that work 24 hours a day have been created, to ensure that participants do not have to independently monitor their open positions. The biggest moves are seen in this market in the middle of the week, on Tuesday and Wednesday.

In the case of Bitcoin, the strong advantage is 24/7 opening, due to decentralization and a lack of cryptocurrency regulation, which means we don’t need a financial institution like a bank to exchange it. The stock exchange automatically connects traders with investors any time of the day or night.

Factors affecting exchange rates

Due to the limited amount of Bitcoin in the market and low liquidity (due to the freshness of this market, which has the highest growth at the moment), buying it at a favorable price may take longer than for fiat currencies (eg USD, EUR, PLN). If someone is interested in buying Bitcoin quickly, he or she will issue a higher priced order than any other pending order. In this way, the price of digital currency increases. The price will fall when the seller drops the price dynamically or consecutively.

The behavior of the exchange rates available on the forex market can be influenced by various events (political, social, economic, etc.). Publications of macroeconomic data such as GDP growth, monetary policy or central bank reports have the greatest impact on the high volatility of this market. The degree of influence variability is much more dynamic here (the forex market) than in the case of Bitcoin.