I was speaking with a friend of mine in traditional finance recently and we began to talk crypto. He and I discussed the merits of both industries, exploring what each could learn from the other. I wanted to share some of what we discussed here.
What Traditional Markets Can Learn From Cryptos
One area that my friend was particularly vexed by was the amount of young people purchasing cryptocurrencies. He feels that young people are far more interested in purchasing cryptos for investment purposes than they are willing to open up a brokerage account, or even an IRA. He may be right in thinking this. There is a disturbingly high number of Americans – young and old – who are financially illiterate.
The cause of this is up for much debate, but one reason why I think cryptos have an edge with young investors is simply because they have not yet built up capital. Let me explain. To open a brokerage account and be able to really do anything with it, you need something called a “margin account.” This means that the trader only needs to put up a percentage of the necessary capital to hold a position. This is opposed to cash accounts where any position held must be backed fully. However, “hitting margin” for most trading platforms requires a liquid value of at least US$2,500. Considering that some studies show about 70% of Americans have less than US$1,000 to their name, the possibility to invest properly in the traditional markets is just unattainable.
Here’s where crypto thrives, and may be one of the reasons young people flock toward it. I can take the five dollars in my pocket, walk over to the Bitcoin ATM on my corner, and suddenly I’m in the crypto market. It’s that simple. While I may need to provide KYC information for exchanges if I want to buy or sell larger amounts, it is not necessary that I do so.
In short, the barrier to entry for crypto markets are just so much lower than they are in other markets. This is something that traditional markets should do their best to rectify if they hope to attract investment by younger people or those with lower capital.
What Crypto Can Learn From Traditional Markets
I’ll admit, I am a bit biased. I write for a cryptocurrency website, I hold cryptocurrencies, and I love the idea of cryptocurrencies. That being said, I can recognize that the traditional market does a few things right. For one thing, its taxes are way simpler, in my opinion. Though the blockchain makes it very easy to prove how much I bought at what price, then extrapolate gains or losses for tax purposes from there, it is just not nearly as convenient as getting the massive end-of-year tax report that broker platforms provide – though The Merkle has some great resources for doing your crypto taxes.
I also feel the sheer number of options for investing in traditional markets provides better opportunities to diversify one’s portfolio. Often, the price of alts is tied to the price movement of Bitcoin. This is not always the case, but it is enough of a trend that it makes me worry sometimes. This is why I think that adding options and futures trading on even more platforms (and I realize that some already do) would benefit the ecosystem.
Finally, I think that somehow people just “get” fiat currency markets more easily than they do crypto markets. The cryptocurrency markets should consider educational promotions so that potential investors better understand how cryptos work. If some are held back from investing because they follow Warren Buffett’s advice to not invest in things they do not understand, then we should be trying to help people understand.
This is not, nor should it be taken as, investing or trading advice. Always do your own independent research.