As financial technology continues to fascinate retail investors, the first quarter of 2021 demonstrated the power and challenges of current financial markets. GameStop's extensive appeal to retail investors on the r/WallStreetBets subreddit sent the stock soaring to $348 in January, forcing investment firms to close short positions at a cost of billions of dollars. Ta.
Traders flocked to zero-commission trading apps like Robinhood, forcing the platforms to temporarily suspend trading on GameStop and locking retail investors out of the market. The resulting wave of criticism highlighted the imbalance of fiscal power.
Cryptocurrencies emerged as a financial instrument last year, but reached new heights this quarter, becoming a tool of financial equality and putting power back in the hands of investors.
Unique advantages of cryptocurrency investment
Over the past year, cryptocurrencies such as Bitcoin and Ethereum have become extremely popular among retail customers, changing the way investors interact with financial products.
According to the Financial Conduct Authority, Cryptocurrency Consumer Survey Report 202077% of those surveyed purchased cryptoassets through online exchanges and 27% used cryptoassets to purchase goods and services, showing that cryptoassets can be easily purchased and used as exchange goods. Ta.
Applications like Robinhood, built on the democratization of investing, show that economic equality can only really be achieved if all parties have access to the same level of knowledge and control. This led to a move towards decentralization, a process in which central authorities no longer mediate the actions of actors. Instead, users rely on blockchain technology to directly interact with each other and make investments.
The main benefit of decentralization is that it puts power back into the hands of users. Cryptocurrencies such as Bitcoin are designed as a decentralized alternative to traditional finance, making them more resilient, efficient and democratic with no single point of failure.
By allowing agents to access wealth without moderators and trade in a blockchain-secured virtual marketplace, it serves as a powerful tool for investors to take wealth building into their own hands. And after the 2008 financial crisis, the emergence of cryptocurrencies brought new perspectives on how to build trust in the financial industry.
Charles Hoskinson, co-founder of Ethereum and current CEO of crypto and blockchain company IOHK, explains how cryptocurrencies have unique advantages. “Technology in our industry is meant to broker trust between people who don't trust each other,” he says.
Disadvantages of cryptocurrency
Cryptocurrencies have outperformed many traditional investments, but like GameStop, their volatility is a product of the investment frenzy.
Daniel Ahmed, co-founder of Facet, a digital asset platform for frontier markets, said: “Cryptocurrency definitely democratizes wealth because it provides average people with exposure to an asset class that is growing rapidly and has high potential returns.” In my opinion, day trading Cryptoassets like Bitcoin should be a long-term investment for individuals, as they can be very risky in nature. ”
Ahmed points this out because volatility is shaking up the crypto market. Bitcoin is currently on track to surpass an all-time high of $58,000 per Bitcoin, with alternative cryptocurrencies such as Ethereum, Litecoin, and Dogecoin each increasing in value by 5 to 15 percent, reflecting the market's prosperity. I'm showing it. This follows weeks of investment volatility that saw Bitcoin drop 20% in a matter of hours. These extreme highs and lows can either encourage or discourage investors from entering the market, as large gains and losses can occur within seconds. there is.
Continued market volatility can increase uncertainty for new investors who are less familiar with market performance. One way to alleviate this is to invest in asset-backed cryptocurrencies. “Asset-backed cryptos act as a hedge against traditional, more volatile crypto assets,” Ahmed explains. “Because they reflect tangible economic value from real-world assets.”
Hoskinson agrees. “Volatility is a big issue and very difficult for commercial operations and retail implementation,” he says. “That’s why stablecoins and regulated products are created.”
This comes at the cost of decentralization. Asset-backed crypto is an asset class, but by introducing real-world entities, cryptocurrencies lose their unique selling point. This is because assets are subject to the trustworthiness, oversight, and regulation of a single organization or group of stakeholders.
But Hoskinson believes their position in financial markets remains. he says: “You can trade on a global market and have access to all kinds of new people. For example, non-fungible tokens representing art offer real utility. But how do you take insurance issues into account? How would you rate Picasso? Historically, monetizing art has been difficult and reserved for the wealthy. We further highlight the revolutionary potential of cryptocurrencies by providing access to an exclusive asset class.
Mr Hoskinson continued: “When you're talking about securitization and liquidation of these exotic assets, there's real value there, but it comes at the cost of decentralization. This is a major drawback for a financial tool that is supposed to put power back in the hands of the people.
Another consideration is access to education. As a new market that relies heavily on technology, understanding that blockchain is central to financial models can help investors make more informed choices.
Carlos Betancourt, co-founder and principal of BKCoin Capital, a digital asset hedge fund, promotes the use of education as a wealth-building tool. “Knowing what’s going on in the market and educating yourself are all readily available options. Attending university-accredited online courses will help investors create financial equality in cryptocurrencies.” It helps you understand how powerful it is.”
The future of cryptocurrencies
As the financial industry evolves, new investors should consider the implications of investing in cryptocurrencies. As this is a relatively young market, fluctuations are to be expected. Potential investors should be aware of the risks involved, not only by considering the level of investment made, but also by further enhancing their knowledge of cryptocurrencies. However, including cryptocurrencies as part of a broader investment portfolio can reduce wealth inequality through the democratization of finance, putting control back in the hands of investors and adding new value to a traditionally exclusive asset class. may allow access.
The crypto market needs to consider how to build trust among new entrants. Further development of the market will be possible as regulators better understand how investments are protected. Abdul Haseeb Basit, director of Global Digital Finance, also supports this. “We must ensure that the industry better embeds investor protection through high consumer conduct standards,” he says.
As the future of investing changes, so do investors. Once the preserve of the wealthy and financiers, the cryptocurrency market has promoted the democratization of wealth. And this is just the beginning.
