Both cryptocurrency and forex markets have become more linked with each other over the past years and have grown far more than previously. They have quite literally bounced off of each other over the past year and the links and bonds between them is not to be taken lightly.
Trading Volumes
Forex has a daily trading volume of around $6.6 trillion and, even though crypto is comparatively far younger than forex, it still boasts trading volumes of up to $45 billion. These are figures which are not to be taken lightly.
Trading pairs such as bitcoin and the US dollar, for example, have increased in popularity on the cryptocurrency exchanges and also the forex broker services show great interest, too.
Collapse of the FTX Crypto Exchange
With there being a huge and publicly reported collapse recently with the FTX crypto exchange, there have subsequently been some flaws discovered which has increased the level of alert of both traders and investors alike. Loosely speaking, the collapse was due to suspicious and fraudulent activity which resulted in some huge losses and major funds disappearing. It was reported that several (at least thirty) billionaires who had made significant investments in cryptocurrency, had lost huge sums of money. The resultant case is ongoing into 2023 and possibly beyond but has, quite understandably, rocked the markets.
Value of bitcoin drops
Going back further to the start of December 2021, bitcoin value had started to drop from its all-time high value – a drop of around 15-16% and this was just the beginning of a steep downward trend which continued throughout the year of 2022. This downward decline lost bitcoin even more during 2022, up to 70% of its value on top of the initial drop at the end of 2021.
Cryptocurrency value decline
Most interestingly, during the decline in value of cryptocurrencies, the forex and cryptocurrency markets remained at their most interlinked and intimate during this period of time. While cryptocurrency values were falling, there was a link to a fall in prices and investors pulling back from riskier assets largely linked, but not exclusively, to economic uncertainty caused by Russia’s invasion of Ukraine.
Drop in asset prices
There has also been a broader drop in assets since Covid partly because of the ‘pandemic hangover’. This is easily demonstrated where companies such as Zoom and Netflix’s stock prices rose exponentially during lockdown, but are rapidly dropping during 2022 and now lockdown is over. But cryptocurrencies have dropped even further during this time even though the wider opinion is that cryptocurrency will bounce back.
Here to stay
Cryptocurrency is not going to go away and prices, although it may take a few years, will stabilize and rise again. There are an increasing number of forex brokers with a crypto deposit option which allow traders to fund their trading accounts with bitcoin. With transactions remaining quick, easy and relatively cheap to carry out, this will only encourage more to get onboard.
It is clear that the collapse of the FTX has caused major fallout and alerts with crypto traders and investors alike, resulting in a very downcast year of 2022 but experts predict that crypto will rise again.
