Top 5 Fiat Currencies to Trade with Bitcoin

Is Bitcoin a possible solution to replace fiat money? What are the most traded currencies to buy Bitcoin?

"fiat currency" refers to a medium of exchange designated as money by the government. It only has value because a government or parties involved in a trade agreement support it. Governments created fiat currency by issuing new coins made of a desirable physical item, like gold or silver, or printing paper money from a specified amount of a valuable physical commodity. The majority of today's currencies are fiat currencies.

Fiat currencies are any money that has been proclaimed legal currency by a government, state-issued money that is neither convertible to anything else through a central bank nor fixed in terms of any objective standard, any cash used as a result of a government directive, and any non-valuable object that functions as a medium of exchange.

Here is the list of fiat currencies most traded with Bitcoin:

• US Dollar (USD)
• Euro (EUR)
• Korean Won (KRW)
• Japanese Yen (JPY)
• British Pound (GBP)

Why are those currencies often paired with Bitcoin? Let's dive deep into the discussion below.

The Most Common Fiat Currencies to Trade With Bitcoin

With the growing interest in Bitcoin and other cryptocurrencies in recent years, more and more people are buying them for various purposes, ranging from payment to trading and investment. From the many fiat currencies exchanged to earn Bitcoin, Coinhills gathered the most common currencies to trade Bitcoin and why they entered the list.

1. US Dollar (USD)

With about 84.61 percent of the market share, the US dollar is now the most popular fiat currency for the Bitcoin exchange. The US dollar's consistent top ranking in Bitcoin transactions is due to several factors. One of the is that the blockchain-based Bitcoin, swiftly gaining acceptance in the United States, has managed to attract a significant user base.

Meanwhile, many other countries and their officials have been sluggish in embracing Bitcoin's growth. Individuals who possess Bitcoins directly or through intermediaries in populous nations like India, for example, obtained them by first converting Indian rupees to US dollars and then using the cash to buy Bitcoins.

Strong economy is one key driver that leads the US Dollar as the most popular fiat to exchange into Bitcoin. Due to the stability and potential to generate a satisfactory return on investment, a strong economy will draw investment from worldwide. The growth in investment, particularly from foreigners, creates a strong capital account and, as a result, high demand for dollars because investors always want good profitability within a solid economic condition.

Moreover, the United States has virtual currency law. Virtual currencies, like commodities, are controlled by the Commodity Futures Trading Commission, which may continue to do so. Any virtual currency trading in the United States is categorized as security, and any trading platform that fulfills the Securities and Exchange Commission's definition of exchange must be registered.

The low fees are another factor that makes US Dollar the most common currency to trade into Bitcoin. For instance, Binance US attracts consumers' attention with low fees. In 2019, the original platform ceased allowing US customers. It announced that it would work as Binance US, a separate entity operating under the brand based in the United States.

The majority of Binance investors in the United States can choose from more than 50 cryptocurrencies. Beginners will appreciate the simple buy/sell option, while professional traders will appreciate the popular exchange's in-depth "basic" and "advanced" platform.

2. Euro (EUR)

Euro, the European currency, is ranked second on the list, with a 4.91 percent market share in Bitcoin trading. Euro's rise in buying Bitcoin is partly limited compared to the US dollar because it is restricted to a few regions. In this case, Germany has the most Euro transactions for Bitcoin, followed by the Netherlands and Belgium.

The majority of Europeans want their governments to regulate cryptocurrencies. Many polls show support for national digital currencies to express monetary independence from the European Union. The results come as the European Commission considers new legislation to create a new EU-wide legal framework for crypto assets in September.

The COVID-19 pandemic has been crucial in signifying a considerable shift away from cash in favor of digital choices, which banking institutions such as the European Central Bank (ECB) watch carefully. In addition, the EU is put into a difficult position to follow other countries when adopting virtual currencies.

Cryptocurrencies are finding their way into the political and economic mainstream, from Bitcoin becoming legal payment in El Salvador to crypto-friendly laws in the US state of Wyoming.

The European Commission originally proposed its rule on 'Markets in Crypto-assets' in September 2020 as a part of its digital finance plan. This legislative proposal, which is presently going through its first reading in the European Union Council, aims to create a fully harmonized European market for crypto assets by establishing a legal taxonomy of crypto assets and outlining standards for issuers and service providers.

In Europe, 11 percent of the population has used cryptocurrencies to pay for products or services. This rate will rise even more across the EU in the following months. As for the remaining population who do not use cryptocurrencies is a lack of exposure. So when knowledge of cryptocurrencies becomes more mainstream in the future, adoption is likely to rise even more.

3. Korean Won (KRW)

With 4.89 percent of the market, the KRW is in third place. According to the cryptocurrency regulations, Korea was one of the first countries to implement complete cryptocurrency regulations in 2020.

But since Korean officials restricted cryptocurrency traders from utilizing anonymous bank accounts, the KRW's proportion of Bitcoin trading has dropped dramatically since 2018. Kim Dong-Yeon, the country's Finance Minister, stated, "There is no desire to outlaw or suppress cryptocurrencies."

In response, Binance has announced that it would no longer offer trading pairs or payment alternatives in the South Korean Won. The exchange announced adjustments to its product offerings in South Korea, including removing P2P merchant applications and support for the Korean language.

The most recent crypto legislation in South Korea requires exchanges to meet two primary requirements: acquiring ISMS certification and securing a bank contract that would enable consumers with real-name withdrawal and deposit accounts. Exchanges that do not receive ISMS certification will be shut down.

Those who have received ISMS certification but have not yet achieved the real-name account bank contract must cease all cash-to-crypto services and notify users.

4. Japanese Yen (JPY)

The Japanese yen is the fourth most popular currency for Bitcoin transactions, with roughly 3.97 percent in the market. Because of various bans placed by the Chinese government on China-based exchanges since September 2017, China's Bitcoin trading activity quickly spread to its neighboring countries, with Japan profiting the most.

As of March 2018, approximately 3.5 million people in the country actively utilized and traded cryptocurrencies. Because of the popularity of cryptocurrencies in Japan, some of the country's best crypto laws have been enacted.

Japan is the only country to recognize cryptocurrencies as legal tender and offers citizens a lawful means to participate in the cryptocurrency market.

The Japanese regulators were the first to adopt the virtual currency and were among the most welcoming. They have been quite proactive in implementing the required rules and have quickly streamlined Bitcoin trading, allowing it to take over the entire market.

Amendments to the Payment Service Act (PSA) and the Financial Instruments and Exchange Act (FIEA), which took effect in May 2020, are the most current rules. The modifications change the word "virtual currency" to "crypto-asset," impose stricter limits on managing users' virtual money and tighten regulations on crypto derivatives trading.

The PSA applies to Bitcoin custody service providers (those who do not sell or buy crypto assets), whereas the Financial Industry Expenditure Act (FIEA) applies to cryptocurrency derivatives enterprises.

Japan has played a unique role in the Bitcoin industry throughout all of the histories of cryptocurrencies. There is no reason to expect that its importance will decrease in the future. There is still much interest in Bitcoin in Japan, and the country has much power in the cryptocurrency markets per capita.

Despite the recent hacking of Japanese exchanges, Japan remains the most advanced country regarding cryptocurrency regulation and official support. It is expected for other countries to follow Japan's lead toward normalizing digital money as it plays a leadership role in handling crypto effectively.

5. British Pound (GBP)

The British pound (GBP) is also a significant currency in the worldwide market. This fiat currency is the world's fifth most traded Bitcoin, about 0.57 percent in the cryptocurrency market.

BTC/GBP is one of the most popular crypto/fiat pairings due to the global prominence of both BTC and GBP. As a result, it may be a suitable option for investors, mainly if their trading account's base currency is already GBP. Inflation, politics, and monetary policy all influence the pound's value.

The Bank of England has authority over the British pound, and its goal is to keep inflation and investors' sentiment high. However, following the Brexit vote in 2016, the value of the pound plummeted by 20%.

In the United Kingdom, Bitcoin users do not have to pay tax on any Bitcoin they purchase. But if the entire value of their investments reaches £12,000, they may be subject to capital gains tax (CGT).

Bitcoin as a New Alternative to Fiat Currencies

While gold and coins can be bought and sold, they are rarely exchanged or utilized for everyday purchases and are more of a collectible or speculative asset. Cryptocurrencies, like Bitcoin, have developed in the last decade as a threat to fiat currencies' inflationary nature.

In general, Bitcoin has some characteristics of a fiat money system:

• It is scarce and can be divided into Satoshis, which are smaller units.
• It cannot be replicated; the only way to make a counterfeit Bitcoin is to use a technique known as double-spending, which occurs when a person "spends" or "transfers" the same Bitcoin in two or more different places, thus producing a duplicate record.
• Its worth is determined by its scarcity. Demand for Bitcoin has risen as the cryptocurrency's supply has shrunk, prompting investors to pursue the ever-increasing profits made through trading the limited supply.

Bitcoin is anonymous and operates outside of government control. It first appeared in 2009 during the financial crisis amid concerns about the global financial system's soundness. Fears of political instability and governments taking on too much debt helped it gain traction rapidly.

Bitcoin transactions are digitally validated using blockchain technology, tied to a global network of computers, making them less susceptible to fraud. This concept is also the procedure that allows for creating new currencies, albeit there is a limit to the number of new Bitcoins that may be created, which is expected to be reached by 2040.

Conclusion

Fiat currency has always been considered the most durable and least vulnerable to deterioration or loss of value over time by many governments and cultures. The demand and supply of fiat currencies determine their value. Among the many fiat currencies, the US dollar is considered the most valued because it is used in the world's economy and controls the flow of payments in international trade.

Bitcoin has what it takes to be an interesting alternative to fiat currency. But since the cryptocurrency's status as a legal payment method is still debated in many jurisdictions, many users choose to utilize Bitcoin as an investment or speculative asset. It, in turn, pushes the increase in transactions between fiat currencies and Bitcoin, with the abovementioned currencies leading in the most used trade with Bitcoin.