How do Cryptocurrencies Impact Foreign Exchange?

How do Cryptocurrencies Impact Foreign Exchange?

Much like the cryptocurrency market, foreign exchange or FOREX is a market through which trading and investment can take place. Yes, this is a very fundamental description of how markets work, but it is nice to give some background information to those readers who may not be aware of what FOREX is. A new report by Peter Lloyd, from the Market Oracle, discusses how cryptocurrencies are having an impact on FOREX, I believe this impact is important to consider simply because if cryptocurrency becomes more widely adopted, it will begin to further impact other economic entities as well. According to Lloyd:

“For many traders and investors, the forex market has always been a shining example of what a financial exchange should be: a truly global, highly liquid and decentralized platform where the diversity of participants ranges from sovereign central banks to institutional investors and from investment banking firms to day traders.”

Unlike cryptocurrencies, FOREX markets halt trading between Friday evening and Sunday evening, cryptocurrencies however aren’t set to any time restraints simply because as we know cryptocurrencies are not directly associated with any central banks, FOREX is. So, with regards to cryptocurrencies, this is what Lloyd has to say:

“At this time, cryptocurrency markets are as pure as they can be; they are very similar to money changers on the street corners of Latin American capitals when the greenback was obliterating all other currencies. In fact, the dire economic situation in Venezuela and Zimbabwe has turned Bitcoin into a de facto currency, much to the dismay of central banks in those nations. Digital currencies are clearly the future of forex markets due to the high level of innovation they bring to the table. Retail forex brokers will love to use the blockchain as their trading ledgers, and thus we can expect to see cryptocurrency traders evaluating bid and ask quotes, applying trailing stops, taking opposites sides of trades, and even shorting cryptocurrencies in the near future.”

So, cryptocurrencies at the moment aren’t really changing the market values of FOREX stocks, this, as we have suggested comes down to the fact FOREX is moderated by central banks. However, the technology presented by cryptocurrencies will, as Lloyd suggests, penetrate the FOREX system. Essentially, as central banks become more aware of blockchain technology, it would be natural for them to integrate this technology into their trading systems, like FOREX etc. What this could present FOREX traders and investors is a way for trading to take place outside of central bank operating hours as, with blockchain technology the bank needs no involvement in the verification and authorisation of transactions. A blockchain based FOREX for example could operate over the weekend, this really would help to influence FOREX trading volumes. Okay, this isn’t groundbreaking stuff but I think it’s quite important to consider. Before cryptocurrency can be adopted in unison, the potential effect it can have, industry wide needs to be measured. If you’re interested, you can see Lloyds full report for yourself, here-

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