Differences between the traditional financial markets and the crypto market
There are obviously some differences between traditional markets and crypto markets. Some of the differences are
Some advantages of the crypto market are:
- Greater accessibility to investment opportunities for persons who might not have been eligible to invest for any of a wide range of reasons
- Greater transparency
- One has control of their assets
- The ease of converting assets
- The ability to remain anonymous
- Markets are always open
- Cryptocurrency facilitates P2P transactions that would be impossible very costly or possibly attract scrutiny whether warranted or not.
Some of the drawbacks to crypto markets:
- Lack of regulation. While this can be seen as good or bad depending upon your outlook, the fact is traditional markets offer some benefits. You do not have to worry about security with the traditional markets and your assets are insured against theft. Although as we have recently seen the traditional system is not foolproof it has any checks and balances and must comply with Government regulations. Great care is taken to make sure that the system is seen as safe and reputable although as always the small fish suffer most when problems arise.
- Another advantage of traditional markets is that they protect inexperienced investors from themselves. Someone just wildly trading with no idea of what a stop losses are or bids and ask or how easily a position can be liquidated with margin or binary trading is akin to sending someone with no training to diffuse a bomb, a recipe for disaster.
Since there are no or very few barriers to investing in the crypto space, it’s a double edged sword. A lot of people just blindly pumped money into any ICO between 2016–2017. Also, any people bought coins and tokens at ATHs without even analyzing their risk tolerance and were forced to be stuck in a position or take a 90% or more loss. This would have been very unlikely in a traditional market because they probably would not have met certain requirements and if they did they would have been warned against such a risky strategy
However, there are also many similarities between traditional and crypto markets just as there are similarities to any kind of market, starting with the most basic principles of supply and demand.
Many of the processes which take place behind the scenes are very similar and in fact, many cases companies are not only offering Fintech investments but also migrating their whole infrastructure onto the blockchain.
Many of the same investing principals apply to crypto investments as traditional ones. Crypto trading can be much more volatile traditional markets even without using strategies such as margin trading. Some of the reasons for that are that it is a nascent market that can be easily affected by things such as news whether false or true or whales and insider trading. As the market matures and more regulation brings about more trust a d confidence this volatility should subside.
However, this very same volatility is what allows many seasoned investors to capitalize and make exponential returns. Once again it can be a double-edged sword a very effective weapon in the arsenal of an expert or the cause of losing an arm and a leg to the foolhardy investor.
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