Are cryptocurrencies more volatile than forex?

The volatility of currency markets is much higher than that of stocks, commodities, indices, ETFs, and bonds. When comparing volatility between cryptocurrencies and forex, it's important to understand the precise definition of volatility. It refers to the change in the price of an asset. While forex prices certainly fluctuate about the mean, it is nowhere near the level of volatility seen in the crypto market. The historical charts represent the extreme fluctuations in crypto prices. In October 2016, 2017, 2018, 2019, 2020, the price of Bitcoin was $693, $6130, $6276, $9226, and $13,573 respectively. In May 2021, Bitcoin was $58,000!

Is retail ownership of cryptocurrencies greater than institutional ownership?

In the world of trading and investing, institutional ownership comprises the lion’s share of activity. While much has been made of Elon Musk’s interest in Dogecoin and Bitcoin, institutional investors comprise a minor percentage of crypto ownership. Most of it is held by smaller retail traders. Consider that bitinfocharts.com* data found that 133,304 accounts hold 85% of all Bitcoin wealth (10 BTC – 100 BTC per account). While nobody can predict crypto price movements with any degree of certainty, there is a limited supply of 21M BTC in the market. Already, 18.6 million are in circulation, with just 900 BTC mined daily.

Cryptocurrency Trading | Trade Cryptos in 2022

Off-exchange cryptocurrencies trading at AvaTrade

Please note that crypto trading is not available to UK Retail clients

What are Cryptocurrencies?

A cryptocurrency is a digital coin, designed to be transferred between people in virtual transactions. Cryptocurrencies exist only as data and not as physical objects; you cannot actually hold a Bitcoin in your hand or keep Ethereum in your pocket. Owning a Bitcoin means you have the collective agreement of each and every computer on the Bitcoin network that it is currently owned by you and – more importantly – that it was legitimately created by a miner.

At AvaTrade UK, we offer you the chance to trade a selection of leading Cryptocurrencies. This means you can speculate on whether you believe the price will rise or fall. When you trade with us, you can take advantage of some of the industry’s leading Crypto conditions, including the lowest spreads.

What Cryptocurrency Miners Do

Cryptocurrencies are handled like cash but are mined like gold. Mining is simply the process of verifying a crypto transaction. People around the world transfer e-coins from wallet to wallet, while miners use computer-processing power to maintain the blockchain and verify these transactions. The miners receive some of the cryptocurrency they are mining as their reward.

When a new crypto is launched, its founders announce how many coins will be mined by putting a cap on it. Once this quota is reached, no further coins can be produced. This is a way to keep on top of supply and demand and thus control the volatility to some extent. The first digital coin introduced was Bitcoin, which remains today the benchmark for all other digital coins. Among other currencies that have made their way into the cryptocurrency hall-of-fame we have: Ethereum, Ripple, Litecoin NEO, EOS, Stellar Lumens and a number of derived currencies, including Bitcoin Cash and Bitcoin Gold.

Blockchain – The Technology Behind Cryptocurrencies

Unlike traditional transactions, cryptocurrency transfers are not handled by banks or other financial institutions. Every time someone pays via e-coin, his payment is recorded on a digital ledger called the blockchain.

What is a Blockchain

A blockchain is a list of transaction records, called blocks, which are linked to each other and encrypted. The blockchain is continuously growing and is completely open to anyone. Each block in the blockchain contains:

1.The details of the sender, receiver and amount of e-coins.
2.A hash, which serves as a unique fingerprint.
3.A hash of the previous block in the chain.

When a new block is created, it is sent to all the users in the network. Each user then verifies the block and it is added to the blockchain.

Every one of the numerous cryptocurrencies existing today has its own blockchain, and the complex maths that is at the heart of the blockchain is computer generated. In order to run a transaction on the blockchain you need an e-wallet (or a cryptocurrency wallet).

What is Tangle

The biggest problem with the blockchain, is its reliance on miners. This is exactly why the cryptocurrency called IOTA (the Internet of Things Application) was created in 2016. IOTA also battles increasing transaction fees and network scalability. IOTA’s blockchain is called Tangle. It is a blockchain with no blocks and no chains. In this system, the users themselves are responsible for validating transactions. This means there’s no need for approval from miners; so users enjoy a fee-free transaction and an increased process speed.

What is a Cryptocurrency Wallet?

A wallet is a piece of software or hardware that gives you the ability to store and exchange your cryptocurrencies. Each cryptocurrency wallet is encrypted and unique to you. When you send funds you actually broadcast an encrypted message to the recipient. Only the recipient’s cryptocurrency wallet can decrypt that message and thus receive the funds. A hardware cryptocurrency wallet is considered to have key advantages over other software wallets:

It is immune to viruses or malware
Its private keys are not exposed to your computer
It does not require an import to software
It is more secure and cannot be hacked
It uses an open-source software that allows you to validate the entire device operation
It can host multiple cryptocurrencies

Why Trade Crypto CFDs With AvaTrade UK?

Uncompromised Safety – With seven regulatory authorities globally, and segregated accounts, security and reliability becomes a priority.
Many Cryptos to Choose From – Choose from a wide selection of cryptos, including the crypto 10 index to trade directly through our platforms. No wallet necessary.
No Hidden Fees – We offer zero commissions and no bank fees on transactions!
Crypto Never Sleeps – AvaTrade UK is one of the few brokers to offer around-the-clock service and support in 15 languages.
Generous Leverage – Use the facility of leverage to multiply the value of your capital. This increases your trade value and gives you more exposure to the markets. It can also increase your risk too. Get leverage of up to 2:1 (for EU residents) and 25:1 (for non-EU residents).
Limit Your Risk – You can manage your risk by using stop-loss orders or take profit limits when you trade. Determine the maximum amount you are prepared to risk when speculating on the price, or set a price at which you want to take profits. The order will trigger your position reaches that level. Future orders, otherwise known as pending orders like Buy Stops and Buy Limits are also available. These are programmed to trigger once a preset price is reached.
Trade Cryptos Against Fiat Currencies – Unlike many exchanges out there, who limit their clients to trade only Crypto to Crypto, our clients can trade Cryptos against Fiat currencies (USD, EUR, JPY etc.), as well.
Powerful Trading Software – Enjoy a range of popular trading platforms, ranging from MT4 and MT5 for manual trading, to a selection of best automated trading platforms in UK.

Cryptocurrency Trading at Avatrade UK vs. Crypto Exchange
Feature	AvaTrade UK	Exchange
Onboarding/registration process	Traders can start to trade immediately	Opening an account directly is a lengthy process
Speed of opening a trade position	Immediate	Each trade is confirmed via an arbitration panel and takes up to 30 seconds
Regulation	AvaTrade UK is Regulated on 6 continents and continuously monitored for transparency and quality	Cryptocurrency exchanges are rarely, if ever subject to regulatory authorities
Earning potential	Potentially profit even when markets are moving downwards	Earn only when the invested asset is on an upward trend
Security	No risk of hacking or cryptocurrency wallet theft	High risk of hacking and cryptocurrency wallet theft
Trade execution	Immediate	Clearing house required
Liquidity	Extremely liquid	Liquid
Commissions	None	Mandatory

Today’s Most Popular Cryptocurrencies:

Here are Today’s Most Popular Cryptocurrencies:

Bitcoin

This mega-powerful currency has not only opened the gate for other currencies, but also leads the cryptocurrency world with pride. It is limited to 21 million bitcoin units. Once this number has been reached, no further bitcoin can be produced. When first introduced, the rate was $1 to 1,309 BTC. The wheel has turned, and when Bitcoin reached the all-time high of $19,783.21 in 2017, it was certainly a meaningful milestone for Satoshi Nakamoto, the anonymous creator of Bitcoin.

Bitcoin Cash (BCH) was created by the Bitcoin hard fork on August 1, 2017, resulting in a new version of the blockchain with different rules. By switching from the main Bitcoin blockchain to a new version, the software now has a capacity for a larger number of transactions.

Bitcoin Gold (BTG) is the second fork from Bitcoin (i.e. the second version to stem from Bitcoin’s source code). It retains Bitcoin’s transaction history, meaning that if you owned Bitcoin before the fork, you now own the equal amount of Bitcoin Gold. This cryptocurrency aims to introduce an alternative mining algorithm that is less susceptible to ASIC-based optimization, therefore allowing users to earn more with their computer cycles.

AltCoins

Altcoins is the general term associated with the cryptocurrencies launched after Bitcoin’s success. At first, these were mere copies mimicking the original Bitcoin. Today, there are over 1,000 of altcoins, and the list just keeps growing. Most crypto coins are launched following an ICO (Initial Coin Offering – a form of crowdfunding) in which the developers raise cash by offering a limited number of initial coins to finance technological development. So far, besides the list below, we can find names, such as Namecoin, Peercoin, Bytecoin, Deutsche eMark, Novacoin, Cryptogenic Bullion, Quark, DarkCoin and Mangocoinz (for smartphones).

Ethereum

Ethereum (ETH) is more than just a currency – it’s like one giant computer housing many computers around the globe. Ethereum can respond to sophisticated requests. Its ability to store revolutionary computer programs, known as smart contracts, gives Ethereum an edge over Bitcoin and has attracted attention from banks around the world. This, among other factors, led to a jump of almost 10,000% in 2017! After reaching a price of $1098 by January 2018, it has not yet managed to come close to this high ever since. However, with all the ingenious developments and smart apps being based on the Ethereum blockchain, watch this space!

Litecoin

Litecoin (LTC) is similar to Bitcoin in many of its characteristics and is also one of the more veteran cryptocurrencies out there. However, there are two main differences between Litecoin and Bitcoin: Speed and amount. While it takes 10 minutes to create a Bitcoin block, Litecoin demands roughly 2.5 minutes to create a block – meaning 4 times the speed. Moreover, Litecoin attracts many users, as it can produce 4 times the quantity of Bitcoin! However, as Litecoin uses highly complex cryptography, often mining it is more complicated than other cryptocurrencies.

Ripple

Ripple (XRP) can be described as the next generation of payment networks, it is also a technology that acts as a cryptocurrency (XRP). Originally set up to engage financial industry leaders, just one year after being founded, the digital currency’s creator Ripple Labs was named one of the 50 Smartest new Companies by MIT University.
Since then banking institutions like American Express, Santander and Money Gram starting adopting Ripple’s payment system. At the time of writing, the RippleNet advanced blockchain is currently being used by over 300 providers spanning 40 countries.

EOS

This is the e-coin that is considered Ethereum’s biggest competitor. The EOS blockchain gained its fame because of the way it effectively records and secures transactions. It is similar to the Ethereum blockchain but faster, more scalable, and allows users to build decentralised applications more efficiently. Market analysts are promoting the currency as ‘The Most Powerful Infrastructure for Decentralised Applications’ and expect the coin to be dumped and pumped, which could provide some interesting short-term opportunities.

Leveraged Cryptocurrency Trading

On Wall Street, most crashes have been triggered and overextended by leverage. But this can also be seen in cryptocurrencies, where in recent months, investors have witnessed massive tumbles in practically all coins and tokens, except, of course, Stablecoins. After hitting a high of just around $65,000, Bitcoin tumbled to around $30,000 and has been unable to break above $40,000 as of July 2021.

Ethereum has also fallen from around $4,400 to around $1,700. This has been the recurring theme in many other crypto coins and tokens, with some losing as much as 80% of their value within a couple of weeks of hitting their all-time highs.

There are many reasons for this plunge, but it is no coincidence that it happened when many exchanges enabled easy leveraged cryptocurrency trading. Like in other assets, trading cryptos with leverage allows investors to amplify their profits, but it also significantly magnifies their losses. But the impact of leverage in cryptocurrencies is even bigger because they are inherently more volatile than other asset classes. While professional traders can handle risks and rewards of leverage, the same cannot be said of retail traders.

During the 2020 coronavirus pandemic, many retail traders (understandably) joined the crypto community as they sought other income-generating means. While institutional players were the major catalyst of the late 2020 and early 2021 crypto bull run, retail traders also reaped big as their leveraged bets overextended the rally.

But leveraged crypto trading also accelerated and deepened the subsequent plunge. This is a trend that professional traders have observed and become wary of. Leveraged cryptocurrency trading is now capable of influencing price direction, kick-starting trends, or overextending price cycles. This means that with leverage, crypto coins and tokens can only be even more volatile. For professional traders, this is an opportunity as much as it is an additional risk. (Read this article to learn more on how to trade cryptocurrency in UK)

Why are Cryptos Ideal for Trading?

Cryptocurrencies allow traders to diversify their investment portfolio, as their price is mainly determined by demand and supply; Their value has a low correlation to national economies or political scenarios. Once Bitcoin surpassed the price of gold in 2017, US markets introduced 2 ETFs on Bitcoin and drew more and more institutional money into the world of cryptocurrencies. In 2017, Indian PM Narendra Modi has announced the gradual replacement of paper currency with electronic currency; In March 2018, the Marshall Islands announced that they would be introducing a cryptocurrency to replace US dollars as their main currency; other central banks are investigating the adoption of blockchain-like technologies… in short cryptocurrencies are probably here to stay. A growing number of crypto investors all over the world have already discovered the benefits:

Cryptocurrency trading allows traders to diversify their investment portfolio, as cryptocurrency price is mainly determined by market sentiment, demand and supply
Benefit from a wide range of today’s top traded cryptocurrencies
e-coins offer a new form of high-volatility investment
Cryptos are traded 24/7, even during the weekend

Please note: The cryptocurrency market’s high volatility may offer endless trading opportunities, but also high risk of loss. Due to price fluctuation, certain crypto pairs may be suspended and/or removed from our trading platforms periodically. Please see our crypto trading conditions page for available crypto currencies. When trading with AvaTrade UK you are trading on the price changes of the digital coin, and not physically purchasing it.

Cryptocurrencies FAQ

Are cryptocurrencies more volatile than forex?

The volatility of currency markets is much higher than that of stocks, commodities, indices, ETFs, and bonds. When comparing volatility between cryptocurrencies and forex, it’s important to understand the precise definition of volatility. It refers to the change in the price of an asset. While forex prices certainly fluctuate about the mean, it is nowhere near the level of volatility seen in the crypto market. The historical charts represent the extreme fluctuations in crypto prices. In October 2016, 2017, 2018, 2019, 2020, the price of Bitcoin was $693, $6130, $6276, $9226, and $13,573 respectively. In May 2021, Bitcoin was $58,000!
Is retail ownership of cryptocurrencies greater than institutional ownership?

In the world of trading and investing, institutional ownership comprises the lion’s share of activity. While much has been made of Elon Musk’s interest in Dogecoin and Bitcoin, institutional investors comprise a minor percentage of crypto ownership. Most of it is held by smaller retail traders. Consider that bitinfocharts.com* data found that 133,304 accounts hold 85% of all Bitcoin wealth (10 BTC – 100 BTC per account). While nobody can predict crypto price movements with any degree of certainty, there is a limited supply of 21M BTC in the market. Already, 18.6 million are in circulation, with just 900 BTC mined daily.

Please note that crypto trading is not available to UK Retail clients