Cryptocurrencies are changing the way the financial world operates. With low transaction fees for international transfers, user autonomy, speedy transactions and complete accessibility, digital money is the future of global monetary transactions.
Compared to the third quarter of 2016, when there were only 8.95 million crypto wallet users, the number of users increased to 44 million in Q4 2019. Bitcoin alone accounted for $3 billion worth of daily transactions, as of February 2020, with the number of BTC addresses almost doubling every year.
This shows that long term users of cryptocurrencies care little about price volatility. Cryptocurrencies are considered as a safe hedge against inflationary assets like stocks, especially during financial downturns like the one sparked by the COVID-19 crisis.
In this article, we take a look at forex brokerages, an industry that seems a natural pioneer of cryptocurrency adoption, but is yet to embrace its advantages fully.
Major Forex Brokers Don’t Allow Crypto Funding
Not all forex brokers have facilitated crypto-based deposits and withdrawals for their clients as yet. Taking a look at the top 10 forex brokers in the UK, we see that only 1 of them allows a cryptocurrency-based funding option.
It’s interesting to note that all of them offer crypto-CFD trading. CFD or Contracts for Difference are derivatives instruments. They are an agreement between the trader and the broker to exchange the difference in the value of the underlying asset (in this case, cryptocurrencies) between the opening date of the contract and a pre-decided future closing date, without actual ownership of the asset. CFDs have been popular instruments to speculate on the rising and falling crypto prices in this fast-moving market.
The option to trade crypto derivatives means that the clients of these brokers are already familiar with the crypto assets market. Yet, only one broker allows crypto funding. Are there significant challenges or blockages to implementing crypto acquisition?
What Holds Forex Brokers Back?
1.Brokers are Wary of Illegal Transactions
For starters, brokers are wary of the regulatory implications of dealing with crypto transactions. The anonymous nature of these transactions facilitates the existence of illegal activities. The status of cryptocurrencies was also indefinite earlier, since different countries had varying regulatory stances regarding crypto transactions. But the regulatory landscape has come a long way in the last few years. With the launch of the AML5 directive by the European Union in 2018, digital currencies now fall under strict guidelines to prevent money laundering and terrorism financing.
Crypto trading platforms and wallet users now have to strictly fulfil their KYC responsibilities and remain compliant with all AML5 regulations. Anonymous transactions are no longer permitted. Further, for users from non-EU countries, background checks need to be conducted and financial records audited.
2.Confusion of Settlement in Cryptocurrency
Most brokers do not know the possibility of fiat settlement in accounts. Even if brokers do not want clients to maintain account balances in cryptos, fiat settlement can be made in all currencies, like GBP, USD and EUR with simple integration of exchange wallets.
3.Woes of Complicated Integration
The concept of wallets, addresses, network commissions, blockchain technology and custodies can be confusing and overwhelming for broker firms. Firms are already dealing with complications in trading technologies and global financial market volatility on a daily basis. Integrating an extra feature that they have limited knowledge of can be scary. It is important to understand that there are readymade solutions for facilitating crypto funding and withdrawals for clients. They do not have to understand everything about cryptocurrency operations to use such solutions.
Perks of Implementing Crypto Funding and Withdrawal Options
The world is slowly and steadily moving towards digital assets, due to the high level of transparency and stability offered by them. Alt coins are untouched by geo-political pressures and financial downturns, offering freedom from exchange rate fluctuations.
By enabling crypto funding and withdrawals, forex brokers can offer their clients many advantages, such as:
- Better User Experience: By offering them alternative financing options, brokers can enable greater customer satisfaction and loyalty. It might be safe to assume that some of those who keenly trade crypto CFDs will have an interest in owning and funding their accounts in cryptocurrencies.
- Low Transaction Fees and More Profit: Allowing clients to deposit and withdraw in cryptos will mean low transactions fees. Cryptocurrencies don’t require the assistance of financial intermediaries, which makes them cheaper to deal with. There will also be 0% chargeback fraud. All this can translate to greater earnings.
- PR in Crypto Community: By promoting cryptos to a larger audience, brokerage firms can get extensive coverage in the crypto community. Coins with large market caps have huge developer-based and user-based communities, where they can get plenty of traction.
What Does DSX Offer?
We understand the scepticism of forex brokers to allow crypto transactions of their platforms. Our solutions are based on providing a safe and compliant way to please clients.
- Accepting Crypto Deposits: Easy deposits in cryptocurrencies, which are converted into fiat money, based on the current rate of conversion in designated wallet addresses. This money is then transferred to the account of the forex broker.
- Processing Crypto Withdrawals: Brokers prefer to process withdrawals to the same source from which the deposits were made. DSX allows clients to withdraw and receive cryptos in their external wallets. The broker balance on the platform is then charged, based on the agreed conversion rate.
- Processing Crypto Exchange: DSX allows clients to exchange fiat to crypto on the broker’s platform, for firms that allow crypto trading. DSX supports a large number of popular cryptocurrencies with high market cap, so that brokers can offer clients huge flexibilities in funding or deposits. In addition, we are always on the lookout for new promising currencies to add to our platform.
Do you think forex brokers can take crypto adoption to the next level? Connect with us on Twitter, at @DSX_uk, and tell us what you think. Looking to invest in cryptocurrencies with promise? Simply register with DSX today.