In this article, we’ll explore four developments in the cryptocurrency space that every Forex trader should know.
Specifically, we’ll look at stablecoins, cryptocurrency CFDs, Initial Coin Offerings, Bitcoin and Blockchain technology.
After you’ve read this article, you’ll be up to date with the most important cryptocurrency topics.
Here’s what the article covers:
- Price Stability With Stablecoins?
- The Growth Of Cryptocurrency CFDs
- Initial Coin Offerings (ICOs)
- Blockchain Smart Contracts
Price Stability With Stablecoins?
Currently, most cryptocurrencies are pegged to Bitcoin.
As most Forex and cryptocurrency traders know, Bitcoin is prone to extreme price swings and volatility. The performance of Bitcoin also affects the price of other cryptos (and therefore the whole cryptocurrency market).
Price volatility is a popular criticism of cryptocurrencies. Specifically, this volatility makes it difficult for any one cryptocurrency to be adopted as a mass method of payment.
However, stablecoins are an attempt to solve this problem. These cryptocurrencies are pegged to real fiat currencies to make them more stable.
Tether (USDT) is an example of a stablecoin. One USDT is equivalent to 1 US dollar, as dollars are held in reserve and are redeemable against each USDT token.
It remains to be seen whether stablecoins gain traction as cryptocurrencies enter the mainstream. The truth is that price stability is sorely needed if any one cryptocurrency has ambitions for mass utility.
The Growth Of Cryptocurrency CFDs
The volatility of cryptocurrencies has also seen an increase in cryptocurrency Contract For Difference(s) (CFDs).
Remember, CFDs essentially allow traders to speculate on the future price of a financial asset (up or down), rather than physically own it.
When it comes to cryptocurrencies, CFDs can be advantageous. Firstly, traders can place long or short trades, meaning that they can profit from both an increase or decrease in a cryptocurrency’s price.
Secondly, traders can employ established risk management tools to protect their capital, including stop loss and take profit levels.
Thirdly, should a trader actually own a cryptocurrency, they can use CFDs to minimise their losses when its price is falling by placing a ‘short’ trade.
Initial Coin Offerings (ICOs)
The number of Initial Coin Offerings (ICOs) continues to increase.
For those unfamiliar, an ICO is a form of crowdfunding for cryptocurrency or Blockchain-based technology.
The mechanics of an ICO are simple. In return for capital investment, a startup company will give an investor its own digital tokens or coins. The idea here is that these tokens or coins will appreciate in value as the company becomes successful, giving the investor a return on investment.
An ICO is the cryptocurrency equivalent of an Initial Public Offering (IPO). Instead of receiving shares, investors receive digital tokens or coins.
Over the course of 2017, there were 435 ICOs. These ICOs generated a total of $5.6 billion. That total has been surpassed in Q1 of 2018 already, generating $6.3 billion.
Blockchain Smart Contracts
Most cryptocurrencies use Blockchain technology.
Blockchain is a decentralised public ledger, managed by a peer-to-peer network. This means transactions are instantaneous and secure.
But there’s more to Blockchain technology than just cryptocurrencies. It’s also revolutionising many areas of business through something called ‘smart contracts’.
Smart contracts use Blockchain technology to process exchange transactions (these transactions can include money, property or anything of value).
Essentially, smart contracts cut out ‘middlemen’ from complex transactions. They also have the ability to enforce contract obligations automatically. This technology is disrupting numerous industries, including real estate, finance and law.
As smart contracts gain popularity, it’s likely that we’ll see financial institutions embrace certain cryptocurrencies, such as Ripple.
Four Crypto Developments Every Forex Trader Should Know
In this article, we’ve explored the four cryptocurrency developments that every Forex trader should know.
Particularly, we’ve detailed how stablecoin aims to bring price stability to cryptocurrencies. We’ve also explored the growth of cryptocurrency CFDs and how they can be advantageous to traders.
In addition, we’ve highlighted the popularity of Initial Coin Offerings as a way of raising startup capital. Plus, we’ve detailed the potential of Blockchain technology.
If you have a topic that you’d like us to explain, then please type your suggestions in the comments section below.
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