Bitcoin (BTC) was the world’s first cryptocurrency, although there had been previous attempts to create virtual currencies. Now, a decade after the launch of Bitcoin, there are many hundreds of virtual currencies to choose from.
Cryptos initially emerged as a form of protest against the centralized power of the banking sector in the wake of the 2007-2008 financial crisis. Bitcoin gave people the chance to take control of their transactions through a decentralized global system.
A cryptocurrency is a virtual currency based on a public and fully transparent distributed ledger. This technology is known as blockchain and allows peer-to-peer money transfers without any intermediaries. In other words, each of us can effectively become our own bank, slashing the fees we would otherwise have to pay to intermediaries like banks and other financial institutions.
According to data from CoinMarketCap, there are currently more than 2,100 cryptocurrencies. Bitcoin is still number one in terms of market capitalization, followed by Ether, Ripple, and Litecoin.
These rival cryptocurrencies have been developed with different characteristics, depending on what their creators wanted to focus on: dApp (Ethereum), anonymity (Monero, Zcash), internet of things (IOTA), global payments for banks (Ripple), the ticketing industry (Aventus), solar energy (Solarcoin), stability (stablecoins like Tether), etc.
However, not all of them are available to online traders and most are not very liquid, which can be a significant issue. It’s important to remember that the most liquid markets usually bring the best trading opportunities at the lowest cost.
Indeed, without good market liquidity, traders might find it difficult to quickly enter or exit the market at the desired price, which can strongly impact their overall trading performance. More importantly, market liquidity has an influence on the spread traders have to pay to execute their positions.
For these reasons, most traders prefer to invest in highly liquid markets like the Foreign Exchange market (Forex), which provide better trading conditions, including tighter spreads, quicker executions, and lower slippage risk.
The Forex market is considered the most liquid in the world, as it has the highest trading volume and frequency. Central banks, governments, financial institutions, multinationals, investors and even individuals going on holiday contribute to the overall daily activity of the Forex market.
A lack of market liquidity means increased risk for traders. Cryptocurrency trading might therefore not be right for you, and your trading style and all traders should seriously consider their options before entering the altcoin arena.