Why Cryptocurrency Will Not Surpass FX Trading in 2022

Now, it is true that for a sector that was literally created from scratch just 12 years ago and continues to attract bigger names on Wall Street, this was quite an achievement.

Source: coinmarketcap.com

Also, it is simply mind-boggling when looking at the large diversity of coins such as Ethereum, Cardano, Stablecoin (in addition to the mighty Bitcoin) listed on Coinmarketcap, with 30 added during the last 22 hours alone. Here, one of Bitcoin’s attractiveness is that it can be used as a means of payment, just like any currency in an expanding number of scenarios, but more importantly, it can be produced digitally in a decentralized way, using the computing power of IT equipment and encryption techniques allowing for security. This is in sharp contrast with the bulky notes printed by central banks. Additionally, any individual can participate in the creation of new Bitcoins or any other crypto through a process called “mining”.

FX Strength

Now, looking at Fx, there are dozens of central banks each printing their own countries’ currency, and, whether it is for international exchange of goods or for speculation purposes, each nation’s money has to be traded with another. This, in turn, has given rise to over a hundred currency pairs, out of which there are about 18 (including EUR/USD or CAD/USD) that are quoted by Fx market makers due to their liquidity positions.

Furthermore, with a daily volume of over $6.6 trillion (according to a 2019 bank survey), the Fx market remains the largest financial market in the world dwarfing the entire 24-hour trading figures of the entire crypto market which only peaked at around $248 billion in 2021. Consequently, Fx outperforms cryptos in daily volumes despite being composed of only 170 currencies that are traded on the global market compared to a whopping number of 8,589 digital coins.

Pursuing further, the FX monthly volume visualization chart below, based on the trading of foreign exchange derivatives on swap execution facilities in the U.S. shows that trade volumes have been consistently increasing from 2014, in the order of trillions of dollars, with the peak of 1.6 trillion dollars coinciding with March 2020’s market crash.

Source: fia.org

This chart further shows that despite the advent of cryptos as from 2008, the Fx market hasn’t slowed down despite its immense size, with some forecasts predicting that it will experience a compound annual growth rate of 7.5% during 2021-2026. Now, there are uncertainties associated with COVID-19, but it is unlikely for cryptos to overtake Forex anytime soon. Another reason for Fx strength is that the exchange of fiat currency pairs remains “the largest and most liquid asset market on earth”. and is becoming more popular among small traders in addition to the big institutions.

Crypto becoming stronger

This could change as blockchain technology becomes more prevalent in everyday life such as for transactions, real state, works of art, fashion, and others. For this purpose, there are metaverse projects like Sandbox using its own token or digital coin called SAND. The project leverages the Ethereum blockchain to manage ownership of digital land and non-fungible tokens or NFTs assets. In the same way, another Blockchain metaverse called Decentraland will host its first fashion week in March 2022 leveraging on the business of virtual clothes. It has teamed up with UNXD, which recently hosted Dolce & “Gabbana’s first NFT clothing collection”.

Finally, virtual land on Sandbox and Decentraland are being sold for millions of dollars according to Markets Insider, but to be realistic, the whole crypto ecosystem will require considerable expansion in order to rival Fx, and there is absolutely no chance of this happening in 2022.