Though at best a quasi-form of currency, bitcoin had reportedly become an instrument of increasing interest for FX brokers in the recent past. Demand for it had reportedly been on the rise as foreign exchange markets lost favor in the eyes of some traders. The FX markets were a boring bunch in the first half of 2014. For many, they became unbearably exciting in the final quarter and early 2015 with unprecedented moves in the ruble and Swiss franc.
The increasing popularity of cryptocurrencies, punctuated by the hype-driven bubble in late 2013, led several brokers to add bitcoin and litecoin instruments to their offerings. CFD and binary options providers tapped what was a huge appetite. And it was theorized that the average FX broker can woo clients to its general offerings by adding digital currencies into the mix.
Easier Said than Done
At this year’s iFX Expo in Cyprus, we had a chance to check up on the market’s interest. Most of those we spoke to seemed slightly confused when the term “cryptocurrency” was raised, but had an elementary understanding of what Bitcoin is.
Businesses having any sort of involvement with Bitcoin were, understandably for an event of this genre, few and far between. One of the bigger names offering bitcoin as a trading instrument was Tradologic for its binary options solutions. There were also a couple of startups that have been working on crypto exchanges, hoping to soon see the fruits of their labor.
Of the companies not involved with bitcoin, the representatives of some were not familiar enough with it to assess if it’s worth considering. The general consensus was that, from what they do know, it is something which holds significant potential. Should demand prove sufficient, a bitcoin trading instrument is something they would seriously consider. Some businesses will take a cue if others adopt it first, especially banks. Others indicated that they are waiting for regulation, not wanting to take any risks. Others still indicated that their business models were based on trading relationships with financial institutions, and as such, it would likely be long time before they consider any such offering.
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Some more familiar with Bitcoin expressed concern over its susceptibility to theft. It was pointed out, however, that the typical models of these businesses do not necessitate the physical possession of bitcoins, and even if they did, robust security solutions (e,g, multisig) have been developed and have thus far proven fail-safe.
Volatility was also expressed as a concern, from two angles. Some felt uncomfortable with the financial risk, although this can be a non-issue depending on the broker’s trading model. If the broker remains protected, it was agreed that the volatility can be attractive to traders. Concern was also expressed over how bitcoin’s volatility is a sign of an unregulated asset of unknown value, frequently used for illegal activity.
The concept of the blockchain as a financial technology, with payments among its applications, was understandably a foreign concept. But even the already developed art of bitcoin payment processing, offered to merchants and other payment gateways by large players in the industry, was not seen as a priority.
Worth noting is that in 2015, it has been noticeably quieter when it comes to Bitcoin’s application as a currency. Though there has been unprecedented progress in the development of regulated bitcoin exchanges and securities, trading in bitcoin has been relatively uneventful, save for the extreme volatility in early January. Altcoin interest has waned considerably. And fewer big names have announced their accepting of bitcoin for payment, which even if they would, is trivialized by the fact that they are ultimately having fiat deposited into their bank accounts.
While the price stability (if it lasts) can be interpreted as a possible sign of maturity, one can’t help but notice that institutional interest has formed around Bitcoin’s application as a ledger technology and payment protocol. This has begun to overshadow what remains of interest in it as a currency.
It is hard to tell if FX industry interest would have been different had crypto trading remained as exciting as it once was. In the final analysis, it will be more sustainable in the long run to take a deliberate, well timed and well thought out approach rather than diving into unfamiliar territory.