Crypto trading has certainly increased in popularity over the past couple of years. The transition from a solely academic domain to a very real financial exchange world with its own fundamentals of trading psychology is certainly something that makes a lot of financial researchers wonder about the true nature of this digital asset, as well as how it managed to achieve such tremendous levels of popularity.
A P2P technology designed to change the world of finances
Back in 2008, the world was first introduced to a product that should have revolutionized the way we go about with our finances, as well as other aspects of our life. Satoshi Nakamoto, an alias behind a person/team that created the peer-to-peer decentralized digital cash system called Bitcoin, claimed that by using Bitcoin for all sorts of transactions, we would avoid the limitations of the regular fiat money.
And those limitations are pretty apparent. For instance, since the regular money is issued by a government, it is monitored and controlled by the central bank. Therefore, every single transaction that you make digitally is recorded in the government ledger. And this can be quite a disadvantage for many people.
For instance, if you live in a totalitarian country with an oppressive government, fiat money can be a very effective medium for the rulers to control your actions. They can ban international transactions, as well as certain types of activities (gambling, trading, etc), and easily check whether you’re complying with the restrictions or not.
Besides, these transactions with online banking or the majority of other online wallets aren’t properly encrypted, meaning that it’s not as difficult to breach the system and use it to your advantage, be it stealing the money or altering the details of a transaction.
With the introduction of Bitcoin and the blockchain ledger, the limitations of fiat money became somewhat non-relevant. For instance, since the transactions occur within a totally decentralized blockchain system, there is no unitary monitoring body to check your activities. Therefore, even if your government is using regular money to curb your financial freedom, you can easily use cryptocurrencies to perform international transactions or engage in prohibited activities.
Plus, the cryptographic protection of the system takes security to the next level, making it more difficult for hackers to steal other people’s money. And as for altering the details of a transaction, it’s totally impossible as everything is written in blocks, which are densely interconnected with other blocks in the system. Therefore, altering even just a tiny piece of information will require all of the members of the blockchain to agree to it.
Tremendous volatility levels
Now, even though the whole blockchain community was enthusiastic about integrating cryptocurrencies into everyday finances, the reality turned out to be less dreamy and more critical.
Despite the above-mentioned benefits of cryptocurrencies, they were still pretty clunky to use for shopping and other purposes. That’s because somewhere along the way, their price started to fluctuate in higher-than-usual levels.
The classical example of this development is a surprising hike in Bitcoin’s price in December 2017: in just a couple of months’ time, the price went from 9,000 USD all the way up to 20,000 USD - the highest-ever price point for Bitcoin.
There’s one more example from the earlier days of Bitcoin famously dubbed as the Bitcoin Pizza Day: On May 22, 2010, Laszlo Hanyecz paid 10,000 Bitcoins for two Papa John’s pizzas. To put it in today’s BTC prices, it would mean that back in 2010, Hanyecz paid almost 120 million dollars to get two pizzas.
It goes without saying that owning such a tremendously-volatile asset is no good for everyday expenses like buying food, paying utility bills, and whatnot. However, due to the same volatility levels, cryptocurrencies are great for financial trading.
Benefits of crypto trading
In financial trading, be it online or offline, the goal of traders is to buy assets at the lowest price possible and sell them at the highest price possible. And if the volatility is high, meaning the price of an asset is fluctuating more frequently, it means that traders can potentially increase their profitability on the market - yet it also increases the risk of losing money.
But besides high volatility, there are many other benefits of trading cryptocurrencies than other financial instruments. Let’s take a look at stocks and how stock exchanges work.
After a devastating financial crisis in 2008, regulators across the world decided to put out some restrictions on investing opportunities, so that people would make fewer rash decisions and reduce the risks of yet another financial crisis. One such initiative was called the “Pattern Day Trader” rule, according to which investors weren’t allowed to close more than three positions in a market week if they didn’t have at least $25,000 on their trading account.
While this may be somewhat beneficial (although not to a huge extent) to the stability of the market, the PDT rule curbs the ability of the beginner and moderate traders to generate more profits. Additionally, it contributes to this age-old phenomenon of “rich getting richer and poor getting poorer” simply because more experienced traders usually have more than $25,000 on their accounts.
With crypto trading, there are no such restrictions whatsoever. The majority of crypto brokerage firms don’t have tough verification requirements, nor strict age limits or other rules that exclude people from this market. Therefore, regardless of whether you have $100,000 on your trading budget or just $10, you can buy and sell cryptocurrencies and succeed on the market, if you’re skilled and lucky enough to do so.
Additionally, the crypto exchange market works all-day and all-week long, whereas other financial markets operate 24/5 at the most. But there’s more: even if Forex works 24/5, there are certain times of the day when the market is the least liquid and therefore, profitable. With cryptocurrencies, any point of the day is active inasmuch as there are no centralized financial entities with regular 6 to 8-hour workdays to align with. This added benefit also increases your chances of generating more profits by trading Bitcoin, Ethereum, or hundreds of other cryptocurrencies.