If you’ve ever ventured into the cryptocurrency space, even just out of curiosity, you’ve surely come across crypto duos such as BTC ETH, ETH USDT, USDT BTC, BTC DOGE, and so on, and you’ve probably wondered why these ticker symbols are coupled together like that. The answer is simple: these represent crypto pairs – a fundamental component in the crypto market that facilitates the selling and buying of digital currencies.
With the rapid evolution of the industry, gaining access to crypto has become easier as there are now multiple ways for people to build, expand or diversify their crypto holdings, either directly or through derivatives. However, trading crypto pairs remains the preferred method for a large number of users, which is why it’s worth delving deeper into the topic.
What are crypto trading pairs?
Crypto trading pairs are not much different from forex pairs. The concept is the same: you have a combination of two different assets, and you can swap one for another directly, on a centralized (CEX) or decentralized (DEX) exchange, with the purpose of earning a profit. These pairings serve as a method of quotation as they express the value of one asset by comparing it to the other, or in other words, they show traders how much of an asset is needed in order to acquire a unit of another cryptocurrency.
All the trades that happen on a crypto exchange platform imply using a trading pair. Trading providers usually include multiple pair options in their offering to cater to a broad range of investors. This gives users the possibility to choose the pairs that suit their investment preferences and objectives.
The most common pairs include BTC and ETH as these are the two leading cryptocurrencies and, therefore, the most attractive, so you’ll find them listed on the majority of exchanges. However, some platforms also offer pairs of lesser-known digital assets, providing access to unique and diverse investment opportunities.
While trading pairs can come in all sorts of different combinations, they are all structured the same, being made of a base currency and a quote currency. The base currency is listed first and is the one you’re buying or selling. The quote currency comes second and is the benchmark against which the first asset is valued. For example, if we have the BTC/ETH pair, BTC is the base currency that is being purchased or sold, and the price you’d have to pay for it is denominated in ETH, which represents the exchange rate.
As the initiator of the crypto class, Bitcoin was the first base currency and continues to be a dominant component in crypto trading pairs.
The importance of trading pairs in crypto trading
Back in the day, exchanges only allowed user to trade crypto for crypto, as digital currencies weren’t as integrated into conventional finance as they are right now and exchanges weren’t connected with traditional banking services just yet. It took a while for to people and, most importantly, companies and organizations to recognize the potential that crypto holds and accept digital currencies as viable financial instruments.
As a result, at the time, most cryptocurrencies corelated strongly with one another. While this brought certain advantages for investors, it also put them in a tough spot when the market went down and they didn’t have the possibility to sell their crypto for fiat to protect their investments.
Things are different nowadays, as you can easily trade digital assets for fiat money on most exchanges. So, one would naturally wonder why market participants still use crypto trading pairs to manage their investments. There are multiple reasons why crypto pairs continue to be important, as we’re going to detail below.
Value assessment
The fact that crypto is a volatile asset class is a secret to no one. With prices going up and down all the time, assessing the real value of digital currencies can be difficult. Crypto pairs can bring more clarity in this respect by placing two coins side by side, allowing traders to compare prices and evaluate the relative values of digital currencies.
Liquidity
Trading pairs are also essential for measuring liquidity in the crypto market. This refers to how easily an asset can be sold or bought without disrupting market dynamics. As expected, some crypto pairs, such as BTC/USDT or ETH/BTC, are more liquid than others, meaning you can trade these assets without worrying about significant price changes. Higher liquidity correlates with lower volatility, so the more liquid an asset is, the easier it is to trade it at the desired price.
Market access
Although trading fiat for crypto has become increasingly common in recent years, not all crypto assets are paired with national currencies. So, if you want a crypto that is not available for trade with fiat, you might first have to purchase a different base currency, such as Bitcoin, and then swap it for the coin you’re interested in. By doing so, you gain access to assets that would otherwise be out of reach.
Diversification
Trading crypto pairs can be used as a diversification strategy. This means you can exchange some of the crypto funds you already own for other digital currencies and diversify your crypto portfolio, especially if you hold large amounts of one single coin. You can also swap currencies quickly based on changing trends and protect yourself against market risks.
Arbitrage
It’s also common for traders to use crypto pair for arbitrage. This is a trading strategy where users seek to capitalize on the price differences for the same trading pair across different platforms, and earn a profit.
As the gateway to crypto trading, choosing your crypto pairs wisely is key to making successful investments. By understanding how trading pairs work and paying attention to pair dynamics, you can identify new opportunities and boost your earnings.
