Participation in crypto is exceptionally speculative, risky and unregulated. Nothing written is financial, trading or investment advice. Proceed at your own risk. Always consult a licensed professional before making any decisions.
Many outsiders view traditional financial markets as complicated. Just hearing about financial markets can give average guys and gals a headache from complicated terminology, numbers and data. Dividends, earnings and shorts (not the wearable kind) all sound like gibberish to beginners.
Cryptocurrency markets and traditional markets may seem equally challenging to understand. With the right point of view, however, crypto markets might actually be an avenue for financial market interest.
Equities, bonds and commodities are three examples of tradable assets in traditional finance (these are called securities). Along with these three securities comes the ability to buy and sell. Although, buying and selling bring further complexity. For example, a trader can buy or sell options or futures on those three securities.
Success is also difficult because of the high barrier of entry. Trading and investing in traditional securities is extremely competitive. According to a study referenced by Tradesociety.com, “[p]rofitable day traders make up a small proportion of all traders – 1.6% in the average year. However, these day traders are very active – accounting for 12% of all day trading activity.”
Traditional market involvement means going up against professionals with decades of experience. They know the terms, they’ve studied the graphs and they are looking to make consistent gains. Trading and investing is a zero-sum game. There must be winners and losers.
Additionally, trading fees can get expensive. For example, TD Ameritrade charges $6.95 per online trade. That means $6.95 to buy and then $6.95 to sell. For someone looking to learn about the markets and make small trades with $50-100 total, those trading fees would likely lead to a rapid loss of capital. (Crypto trading takes a percentage trading fee instead, which makes trading small accounts possible – more on that below.)
Robinhood is an app offering free trading. Overall, Robinhood may be a viable option for beginners looking to get their feet wet. Although, very few things in life are free. According to one Seeking Alpha article, Robinhood appears “to be selling their customers’ orders for over ten times as much as other brokers who engage in the practice. It’s a conflict of interest and is bad for you as a customer.”
It may be a good idea for new traders and investors to learn via paper trading (using a simulated account). A whole new level of psychological learning becomes present, however, when actual money is on the line. That’s why starting with a small amount of money might be a good idea for beginners.
But crypto is also confusing
Crypto is often confusing to the average person, so learning two new concepts, trading and cryptocurrency, seems like double the work. Currently, if mainstream adoption ever occurs, cryptocurrency needs to be simplified and taught to the public.
Learning how to safely store crypto funds is complicated for beginners because it’s different than common money storage methods. Traders and investors holding crypto often use physical or digital storage devices called wallets. Sending funds to a seemingly random string of keyboard characters (aka – a crypto wallet address) can be difficult to grasp initially.
Even the process of getting funds onto an exchange like Binance can be confusing. An example of the process could include buying bitcoin on Coinbase, a popular exchange, and then sending that bitcoin to a wallet on the Binance exchange. The person could then use that bitcoin to buy or trade other altcoins.
Crypto: less confusing?
Here’s a very enticing thing about crypto – it’s only been around for about ten years. Jumping into crypto at this stage means only competing against about ten years of experience.
Crypto trading, on a core level, is similar to traditional markets in psychology, process and methodology. Although, it is also different. Market cycles can be faster, swings can be larger and the number of professional traders in the space might still be less than that of traditional finance.
Taking into account the current U.S. traditional financial bull market, Barrons.com stated that “[t]he huge run-up in stock prices has brought the total market capitalization of the Russell 3000 Index—which covers 98.5% of the country’s market capitalization—to $30 trillion, a ‘staggering’ amount of money, according to a recent report from Bespoke Investment Group.”
Cryptocurrency currently only has a total market cap of about $123 billion, according to CoinMarketCap. Involvement in crypto now could mean getting in on the ground floor of something with significant potential where the barrier of entry is still somewhat low.
When starting in crypto, there is also no concept of dividends or earnings to be learned, because those concepts do not yet exist in crypto. The people involved now might be able to learn these aspects as they come into play while the crypto space grows and adopts them.
There is also the topic of trading fees in crypto. On most crypto exchanges, like Binance for example, fees are taken as a percentage of the trade and not a flat rate. On Binance, according to their fee structure page, “if you are not using BNB (Binance Coin) to pay your trading fees, each trade will carry a standard fee of 0.1%.”
This type of fee setup may not be great for large trades. A flat rate might be better. For someone looking to make small trades for experience, however, this concept could prove more effective.
One could, in theory, buy about 30 Wanchain (WAN) coins for roughly $10 (at current prices on Blockmodo at the time of writing). Fees would be around 1 cent to buy in. Buying 10 shares of a $1 stock on TD Ameritrade online would incur $6.95 in fees just to buy $10 worth of shares. These small stock trades would not work well.
Things to consider
One must consider the trade-offs that come with crypto involvement. “The Wild West” is still a fitting title for the crypto space. Regulation is slowly starting to enter the crypto space, providing more customer protection. Although it may be safe to assume that no funds are safe on most crypto exchanges at present. Many exchanges make headlines frequently, either seeing rumors of foul play, confirmed questionable activity or government seizures.
Even holding personal crypto funds in private wallets can be risky, subject to hacks. There is clearly reason to be cautious in the crypto space.
As far as opportunity goes, crypto possibly could be the perfect storm to garner financial market interest in otherwise uninterested folks.
It is solely up to readers to decide on the trade-offs and opportunities for involvement in crypto versus traditional finance, or even no involvement at all.
*Everything written is based on my personal opinion, my interpretation of the data/material (which can be subjective), and is not financial, investment, or tax advice whatsoever. Readers may need to conduct more research. Make personal conclusions for yourself based on your own personal research.
*CryptoInsider is sponsored by Blockmodo. As part of our arrangement, we may occasionally link to them and quote them when appropriate. This is done at the discretion of CI staff and CI sponsors have no say in any editorial decisions made by CI.