The most liquid cryptocurrency pair is Bitcoin. It trades against the dollar, euro, yen, pound and a slew of other sovereign currencies. Bitcoin also trades against other cryptocurrencies such as Litecoin, Bitcoin Cash, Ripple and Ethereum.
Before you jump in and risk capital in the cryptocurrency pair market, you should spend some time learning how to trade these relatively new and innovative products.
Cryptocurrencies are methods of storing value outside standard currencies, as well as gold and silver. A cryptocurrency comes in the form of a coin and there are several methods to create the coins. Bitcoin, for instance, is mined. The number of Bitcoins in existence has a maximum total number, and when a Bitcoin changes hands, all transactions associated with it can be tracked.
How does a cryptocurrency pair differ from a sovereign currency pair?
A cryptocurrency pair differs from a sovereign currency pair in that the crypto unit is not controlled by a central bank. The currency unit is created by either a block or transaction or initial coin offering. By tracking all the historical transactions, cryptocurrency can avoid fraud, as miners consistently evaluate all transactions on a coin they mine using heavy duty computers.
Central Bank issues
One benefit of not having a central bank monitor a cryptocurrency is that it cannot be manipulated. There are no regulators using money market operations in an effort to keep the exchange rate of the cryptocurrency pair in a specific range. There is also no interest rate associated with a cryptocurrency pair. So if you hold a crypto versus a currency that pays an interest rate, over time the value of the sovereign currency should gain in value.
Where can you store your cryptocurrencies?
Cryptocurrencies are held in a wallet. A wallet is a company that engages in exchanging sovereign currencies for cryptocurrencies. A wallet is a software programme that will show you your cryptocurrency balances, and allow you to trade as well. Many of the wallets have significant trading platforms, which allow you to chart historical exchange rates, as well as perform different types of analysis.
There are several different companies that offer cryptocurrency wallets. Many of them are regulated, such as Coinbase in the United States. If you don’t want to actually own the cryptocurrency, you can also trade contracts for difference (CFDs) on cryptocurrencies. A CFD tracks the change in price of a security or exchange rate. You don’t actually own the cryptocurrency pair. You are only responsible for the difference in price.
Regulators exist
The cryptocurrency market is growing, as billions of dollars are traded daily. In December the Chicago Mercantile Exchange and CBOE introduced futures markets on cryptocurrencies. These are regulated by the SEC. The Federal Reserve regulates Coinbase. Cryptocurrency pairs will continue to grow in a regulated fashion. This bodes well for the cryptocurrency market.
