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“There are 3 eras of currency: Commodity based, politically based, and now, math based.”—Chris Dixon

At Square Mile Accounting, we share crypto resources and information on cryptoassets from our expert crypto accountants, as well as information distributed by the FCA in Britain (Financial Conduct Authority), to ensure that our clients are well informed, and that integrity is upheld. We deliver accounting and tax services to individuals and businesses operating in crypto and blockchain technologies.

What are the main differences between forex and crypto?

Forex

Forex is a market where one currency is converted into another. Forex stands for foreign exchange – a financial market where you can trade international currency pairs. Trading forex involves buying and selling one currency against another at an agreed price.

What are cryptoassets?

Cryptoasset is a broad term and covers many different types of products. The most popular forms of cryptoassets include tokens like Bitcoin, Ether and Litecoin.

“We call these ‘exchange tokens’ because they are intended to be used as a method of payment. They are sometimes referred to as cryptocurrencies, cryptocoins, or payment tokens.
Exchange tokens, like other cryptoassets, operate using distributed ledger technology (DLT), like blockchain, and are not issued or backed by a central bank or other authority.
Most cryptoassets are not underpinned by any currency or other asset and are not considered to be a currency or money.” – FCA 

Crypto, or cryptocurrency, is a digital asset or digital currency, that can be transferred, stored or traded electronically on any cryptocurrency exchange. Crypto is monitored and maintained by a peer-to-peer network called a blockchain, which also serves as a secure ledger of transactions. Unlike physical money (also called FIAT), cryptocurrencies are decentralised, which means they are not issued by governments or other financial institutions.
There are differences between forex trading and bitcoin trading; the prices of both paper and digital currencies are based on global supply and demand metrics. When demand for bitcoin rises, the price increases, and when demand falls, the price falls.

Market Players

Forex Participants

There are several players that make up the forex market:

  • Commercial Banks
  • Central Banks
  • Governments
  • Hedge Fund Managers
  • Exchange-traded funds
  • Brokers
  • Multinational Corporations
  • Institutions
  • Retail Traders
  • Regulators

The large commercial banks contribute the largest capital traded in the Forex market, and are therefore the most significant players in the Forex market. Over 80% of the money traded in the forex markets comes directly from large commercial banks.

Crypto Participants

The Cryptocurrency market is usually segmented on the basis of offering, process, type, end user and region.But to simplify, there are mainly three types of participants in the crypto market: miners, exchanges, and traders.

Miners are the individuals or companies that invest in equipment that generates computational power. Miners spend electricity to run computer nodes within the network to validate transactions and potentially be rewarded for their efforts in Bitcoin. These nodes collect transactions and consolidate/organize them into blocks.

Exchanges are digital marketplaces, also called trading platforms, where individuals can buy, sell, or transfer cryptocurrencies for other digital or traditional currencies.

Cryptocurrency traders speculate on the rise and fall of the price movement and don’t take ownership of the underlying crypto coins.Traders can be individuals or companies.To start trading, people need to choose a cryptocurrency wallet and a cryptocurrency exchange to trade on. There are about 1,500 cryptocurrencies in existence.

Market Size

The forex market has approximately $6.6 trillion in average traded value each day, making it the largest financial market in the world. The 24-hour trading volume of crypto currency is only in the hundreds of billions of USD. It has a total market capitalisation of about $2.8 trillion.

Accessibility of assets

Forex

Forex traders usually focus on main currency pairs such as (EUR/USD, USD/JPY, GBP/USD, USD/CHF, USD/CAD, AUD/USD, NZD/USD). Some traders prefer to work with exotic currency pairs, which include a major currency and a currency of a developing economy, such as CHF/HUF, EUR/CZK and EUR/HUF.

Crypto

By now there are more than 11,000 different cryptocurrencies, and the number is growing. Some of them are actively traded, like Bitcoin or Ethereum which are the most actively traded cryptocurrencies.

Volatility

Cryptocurrencies tend to be more volatile than forex pairs, although both markets are volatile. This means that crypto prices are very likely In a single trading session, even the smallest market movements can cause significant fluctuations. Forex pairs have high daily trade volumes with frequent movements within narrow bands.

Forex vs crypto regulation

The forex and crypto market are not regulated by the same authority. The forex market is an OTC market, which involves many transactions between institutions like central banks and investment funds, and it is heavily regulated by the Financial Conduct Authority (FCA). Working closely with the Bank of England, this industry body ensures that brokers create and promote an environment that puts the interests of traders first.

Regulation of cryptoassets

Exchange tokens (such as Bitcoin and other cryptocurrencies) are only regulated in the UK for money laundering purposes. – FCA https://www.fca.org.uk/firms/cryptoassets
Regulations in the United Kingdom allow residents to buy and sell cryptocurrencies. However, since 6 January 2021, the FCA has banned the trade of crypto derivatives and exchange traded notes that reference certain digital or cryptocurrency assets to retail consumers. The UK regulators only enable professional traders or institutional firms with a history to access these riskier financial products.

Need to know more about accounting and tax for cryptocurrencies?

Get in touch with us to arrange an informal chat with a Square Mile adviser – we’d be happy to answer your questions and help you with accountants for cryptoassets.

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