Examining forex as an alternative to cryptocurrency investment

With cryptos not looking appealing with recent trends, investors are seeking alternatives. Is forex trading an answer? Let’s take a look.

Cryptocurrency

Cryptocurrency has become a trendy investment topic over the course of the last five years or so, and it’s never been hard to see why. It offers an entirely new opportunity, decentralized and set apart from ordinary investment markets. For many in Africa, it can also be somewhat more accessible than those traditional investment markets. And, of course, there have always been arguments suggesting likely profits. That bitcoin and its closest counterparts will one day skyrocket to high values. Or that cryptos will serve as “hedges” in times of economic downturn. There is definitely some logic to all of this. But all of a sudden cryptos aren’t looking quite as appealing, which could lead some investors to seek alternatives.

Crypto mining in Africa

For starters, there’s the fact that crypto mining in Africa has begun to feel somewhat problematic. Last year, we wrote about the ‘Top Five Countries Mostly Impacted By Ransomware And Cryptocurrency Mining’. Several African nations (Ethiopia, Cameroon, Tanzania, and Zambia) were included. While not nearly as many people mine cryptocurrency as actually use it or invest in it, this does pose a larger problem. Concerns over malware could reduce the flow of new cryptocurrency into Africa, stunting the market and potentially dissuading would-be investors.

There’s also the “hedge” argument to consider. For many years now, crypto advocates have tended to suggest that digital currencies would resist economic downturns and serve as financial safeguards in much the same way gold has occasionally done in the past. Now, however, faced with its first big test on this front, cryptocurrency is coming up short. As world markets plunge in reaction to the coronavirus pandemic, NewsBTC writes that bitcoin is at risk of a massive drop-off (and it has already plunged sharply). This is not to say that the hedge argument has been conclusively disproven. But right now cryptos don’t look any safer or more reliable than ordinary market investments.

Fresh alternatives for investors

This brings us to our main point, which is that we may begin to see African investors seeking fresh alternatives. Options that are not tied to traditional stock markets, but which also don’t involve cryptocurrency. And one logical option is going to be the forex trade.

If you aren’t well versed in the forex trade, it’s actually fairly simple to grasp. At least on a fundamental level. Basically, it is the worldwide market comprised of the exchange of different currencies for one another. It is by nature a decentralized investment market, and one that operates 24 hours a day during the week. FXCM adds that it is the most liquid market in the world as well. Meaning its trade volume exceeds that of any other market (and vastly so, in fact).

In a sense, that description closely matches how many investors view cryptocurrency. The characterizations that the market is decentralized, enjoys high liquidity, and functions via the exchange of different currencies could certainly apply equally to forex and cryptocurrency. This is one reason that the former could become such an attractive alternative to African investors if indeed they start to back away from cryptocurrency. Fundamentally it’s a similar way to invest. Except that it does away with some of the uncertainty that surrounds crypto markets.

Similar?

It may also be that the similarities don’t end there, either. Another thing investors tend to like about the crypto market is that transactions occur via blockchain technology. Which ensures a certain degree of security, fairness, and in many cases efficiency. This method of trading transaction initially only found in crypto markets. However, the last year or so has brought about continual stories concerning the adoption of blockchain tech by other trading entities. For instance, Reuters covered HSBC’s blockchain venture just last year. Revealing that the company had “reduced the cost of settling foreign exchange rates by a quarter” through a blockchain-based system. This could indicate that before long a significant portion of worldwide forex trading will use this technology.

None of this means that forex trading is identical to crypto investment. There are significant differences between the two. However, if crypto does start to look like a shakier prospect, we could begin to see investors in Africa and elsewhere turn to forex as a fairly logical alternative.

Featured image via Good Free Photos