Banking giant Goldman Sachs is forecasting a weaker US dollar following the interest rate reversal from the Federal Reserve. In a new note to investors covered by Bloomberg, Goldman strategists say a gradual weakening of the greenback is expected now that lower rates have lessened the dollar’s appeal. The bank said the Fed’s recent cut […]
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Forex trading involves the exchange of traditional fiat currencies, while cryptocurrency trading involves the buying and selling of cryptocurrencies.
Risks associated with cryptocurrency trading include volatility risk, regulatory risk, security risk, liquidity risk, market sentiment risk, technology risk and investment risk.
The price volatility of cryptocurrencies is well known. Over brief intervals, prices can fluctuate significantly and quickly, resulting in both big gains and significant losses.
The regulatory environment for cryptocurrencies varies by nation and is changing. The availability and liquidity of the cryptocurrency market may be impacted by new rules, prohibitions or restrictions.
A key concern in cryptocurrency trading is the possibility of hacking, fraud and theft. Strict security precautions must be taken by traders to safeguard their digital wallets and assets.
Due to lesser liquidity on some cryptocurrencies and smaller exchanges, it may be difficult to execute large trades without a major price impact.
News stories, social media trends and market sentiment can all have a significant impact on cryptocurrency values. Price swings can be triggered by abrupt changes in sentiment.
The usefulness and value of some cryptocurrencies may be impacted by problems, including network congestion, software glitches and hard forks.
Because cryptocurrencies are, by their very nature, speculative, many projects lack a track record of success. Traders may lose all of their capital if they don’t proceed with caution.
Forex trading comes with inherent risks, such as exchange rate risk, leverage risk, interest rate risk, risks posed by economic events and broker risk.
Forex traders are subject to exchange rate risk because they trade one currency against another. Exchange rates can vary quickly due to a number of factors, such as the release of economic data, geopolitical developments and market sentiment. Losses may result from unforeseen currency changes.
While it might increase earnings, leverage can also increase losses. Leveraged traders must exercise caution since even tiny negative price fluctuations can cause significant losses.
The foreign exchange markets may be impacted by changes in interest rates as determined by central banks. Interest rate differences between two currencies in a pair can impact a currency’s value by determining how appealing it is to traders.
Economic occurrences like alterations in governmental policy, the release of economic statistics (such as GDP, inflation and employment) and changes in geopolitics can have a big impact on currency exchange rates. Forex traders need to be aware of these developments and their potential effects.
Choosing the right forex broker is essential. In order to lessen the danger of fraud, unethical behavior or insolvency, traders should make sure they work with a recognized and regulated broker.
Forex offers stability, established practices and liquidity, while cryptocurrency trading provides innovation, flexibility and the potential for substantial returns. These differences highlight the contrasting nature of these two trading markets.
Traditional fiat currencies, such as USD, EUR, the Japanese yen and others, are the main focus of forex trading. Governments and central banks are in charge of issuing and governing these currencies.
One of the most developed and liquid markets in the world, the forex market is distinguished by huge trade volumes and small spreads. For instance, traders speculate on the exchange rate between the euro and the US dollar in the EUR/USD currency pair. Economic factors, such as interest rates or GDP figures, have a big impact on currency exchange rates.
Contrarily, digital or virtual currencies that are decentralized and run on blockchain technology are the focus of cryptocurrency trading. The markets for cryptocurrencies are relatively new and extremely volatile and have unique characteristics that set them apart from conventional fiat currencies.
Here are some key differences between forex and cryptocurrency trading:
Trading cryptocurrencies entails purchasing and selling them with the intention of earning a profit.
It operates through cryptocurrency exchanges that facilitate these transactions, pairing various cryptocurrencies against each other. For example, one can exchange Bitcoin (BTC) for Ether (ETH), and the symbol for this pair is BTC/ETH. Traders make predictions about how one cryptocurrency will change in value relative to another.
Technical analysis, which uses charts and price patterns; fundamental analysis, which evaluates elements including technology, adoption, and news; and sentiment analysis, which measures market sentiment using social media and news sources, are some of the strategies used by traders to analyze the market.
To make money on the cryptocurrency markets, traders use a variety of strategies, such as day trading, swing trading, long-term investing (hodling), arbitrage and algorithmic trading. Security is a top priority for traders, who use digital wallets to protect their funds. Wallets can be software-based (online, desktop or mobile) or they can be physical devices (hardware wallets).
The volatility of cryptocurrency markets is well known, offering traders both possibilities and risks. To navigate this dynamic environment, traders frequently use leverage, risk management and various trading tactics. Regulatory considerations and the evolving nature of the industry further impact cryptocurrency trading.
Forex trading, commonly referred to as foreign currency trading, entails buying and selling other currencies to increase one’s financial gain.
Forex trading involves trading fiat currency pairings and is open 24 hours a day during weekdays — i.e., closed on weekends — with trading sessions in major financial hubs, such as London, New York, Tokyo and Sydney. The first currency in the pair is known as the “base currency,” and the second currency is referred to as the “quote currency” or the “counter currency.” For instance, the United States dollar (USD) is the quotation currency, and the euro (EUR) is the base currency in the EUR/USD pair.
Traders make predictions about the strength or weakness of one currency relative to another and base their choices on analysis (fundamental, technical and sentiment). To forecast how currencies may behave, fundamental analysis looks at economic and political aspects, such as interest rates, inflation, gross domestic product (GDP) growth and geopolitical events. Using this analysis, fundamental analysts explore the larger economic environment and how it affects currency rates.
Technical analysis, on the other hand, uses charts, indicators and historical price data to spot patterns and trends in currency pair prices. Technical analysts contend that past price trends might offer insightful information about the direction of future prices.
Additionally, sentiment analysis is essential for determining the general attitude of the market. To assess the general sentiment and attitude shifts among traders and investors, this involves tracking market sentiment through news, social media and other means. Sentiment analysis is used by traders to analyze market psychology and make informed trading decisions.
Moreover, usually, standard lots, mini lots or micro lots are used in forex trades. To control a larger position size with a relatively small amount of cash, traders frequently employ leverage in forex trading. Leverage can boost profits, but it also raises the possibility of significant losses. Therefore, risk management is also necessary to guard against losses. This involves employing the appropriate position sizing and using stop-loss orders to reduce potential losses.
The Australian digital dollar was used in a trade for a U.S. dollar stablecoin using an Ethereum layer 2 blockchain.
Australia has successfully made its first foreign exchange transaction using eAUD as part of a live pilot for the country’s potential central bank digital currency (CBDC).
It comes amid a rising interest from countries around the world to learn about or launch central bank-issued digital currencies.
In a statement, blockchain infrastructure provider Canvas said on May 17 local time, crypto fund managers DigitalX and TAF Capital traded eAUD against the stablecoin USD Coin (USDC).
Canvas reported the transaction was settled instantly and touted it as a success over what it called the “slow, expensive and prone to errors” traditional FX and remittance networks.
The FX trade was part of a series of tests currently underway as the country explores possible use cases for a CBDC. The pilot program was launched by the Reserve Bank of Australia (RBA) in conjunction with the financial research institute the Digital Finance Cooperative Research Centre (DFCRC).
Canvas’ test explored use of eAUD in tokenized FX settlements, which could point towards the benefits of using the CBDC over fiat currencies and existing settlement platforms.
We’ll demonstrate the benefits of using CBDCs like eAUD in tokenized FX transactions using our privacy-focused Layer 2 Network and blockchain-based financial markets applications. Read more here https://t.co/RPjSF5B8s0
— CANVAS (@canvas_defi) March 6, 2023
The transaction was done on a decentralized app on Canvas’ “Connect” — an Ethereum layer 2 that uses StarkWare’s zero-knowledge (ZK) roll-up technology.
Canvas’ CEO David Lavecky called the trade “historic” and added the digital dollar could potentially address challenges in FX and remittance markets such as “improving transaction times, reducing fees and providing more open access.”
Related: BIS issues comprehensive paper on offline CBDC payments
An April pilot test from Australia and New Zealand (ANZ) bank used the CBDC to trade carbon credits.
ANZ used eAUD to back its A$DC stablecoin to trade the credits on a public blockchain and reported the settlement happened “in near real-time.”
Other use cases being tested include offline payments, distribution, custody, tax automation, use in “trusted Web3 commerce” and even livestock auctions.
The pilot started on Mar. 31 and is set to finish on May 31. A report and assessment of the various use cases are set to be published on Jun. 30.
Magazine: Here’s how Ethereum’s ZK-rollups can become interoperable
CBDCs are here to stay, it seems, and Moody’s is looking at their implications for the global economy and international banking.
Emerging central bank digital currency (CBDC) cross-border transaction technology could transform the global economy by providing faster, cheaper and safer services for many of its players. But banks may not fare as well in that new economy, Moody’s Investor Service said in a report dated March 21.
Many proposals for the domestic use of CBDCs foresee a crucial intermediating role for banks in their operations, but cross-border CBDC transactions would depend on entirely new infrastructure that reduced the role of banks more severely, Moody’s pointed out. Banks would see benefits from the new technology, too. Settlement risk could be reduced or eliminated:
“Banks would be able to make, clear, and settle cross-border payments at low cost and in seconds without needing to sign up to multiple payment systems or rely on correspondent banks in other countries.”
The same innovations would also “reduce banks’ profits from payments, correspondent services and likely also from foreign-exchange transactions.” The role of correspondent banks could be eliminated entirely. Not only that:
“In a CBDC-driven economy, banks may well need to redesign their operations. They may be obliged to join new networks and create the infrastructure necessary to support CBDC interoperability at scale, which will impose a burden on resources in the short term.”
Interoperability for both retail and wholesale CBDC is being worked out in experimental projects, often with the participation of the Bank for International Settlements. “Central banks may need to compromise on some of the decision-making to make their CBDCs interoperable,” Moody’s said. Otherwise, “digital islands” could be created among small groups of countries that can transact with each other but no other countries.
Related: India, UAE to explore CBDC bridge to facilitate trade, remittances without USD
Issues such as Anti-Money Laundering, sanctions and privacy would require a legal and regulatory framework, and support for CBDCs is not universal. “Financial incumbents who benefit from existing architecture will likely not help facilitate adoption,” the report said.
A U.S. CBDC faces opposition from some lawmakers because of privacy concerns. Direct exchange of currencies could also reduce the role of the U.S. dollar in the world economy, which does not add to its appeal in Congress.
5. Moody's Downgrades the Entire Banking Sector
— Investopedia (@Investopedia) March 15, 2023
Moody’s Investors Service cut its outlook for the entire U.S. banking sector and placed six banks on review for potential credit downgrades in the wake of the collapse of SVB and Signature Bank. https://t.co/IcY2jjQF7W pic.twitter.com/EvkwSaC58Z
Moody’s downgraded the U.S. banking sector to “negative” on March 14. It has examined the potentially disruptive effects of CBDC on commercial banking before. The present report came out nearly simultaneously with the U.S. Treasury report detailing potential effects a CBDC could have on the domestic banking system.
Five low-cap altcoins have doubled their value or more over the past seven days following weeks of bloodbath in the crypto markets. One of this week’s biggest gainers is CEL, the native token of crypto lending platform Celsius Network. After collapsing 99% from its all-time high, CEL rallied hard last week, erupting from a seven-day low […]
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US-based digital asset exchange Coinbase is expanding support for three Ethereum-based altcoins across its entire trading ecosystem. In a new blog post, Coinbase announces that the governance token Function X (FX), which is designed to power a cross-chain platform for decentralized applications and financial services, can now be purchased on Coinbase.com and on the exchange’s […]
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