The headline sounds like another fevered diatribe about why decentralised cryptocurrencies are going to the moon on a hype train, but we aren’t going down that rabbit hole.
Instead, we are going to explore customer experience, consumer empowerment and flexibility of products & services.
Not what you expected, huh? Well, good.
Let’s jump into what investing platforms and other wealth management services could learn from the world of cryptocurrency trading.
What key differences are there?
Let’s start with the most basic element, accessibility.
You can open an account on a cryptocurrency exchange today with as little as £10. Just you try to start investing in any traditional market or having a conversation with an equities broker with a tenner in hand! You’ll be laughed out of the room.
Next, let’s look to availability.
The London Stock Exchange is open from 8:00am to 4:30pm GMT. whereas cryptocurrency exchanges are open 24/7 – 365, similar to the Forex markets.
And lastly, let’s think about empowerment.
Most people who engage with traditional markets are in no way entitled to trade directly, which leaves the individual investor at the mercy of intermediaries and middlemen. Whereas in the crypto exchanges, you can set your own limit orders and watch as they are filled.
What are these differences exposing?
Well, for a start, they show that the traditional markets have been built, refined and optimised towards already wealthy people. Now whilst some organisations may refute this, the organisational confirmation bias is there for all to see. This walled garden approach has meant that the old adage of ‘you need money to make money’ ever more prescient.
The average person on the street has access to limited savings products with minimal potential upside and little risk, which I am sure was fine when credit interest rates were 9% but with easy access savings accounts offering just 0.45% AER and money being printed at a rate of noughts during the pandemic, it is easy to see why a new generation of retail investors without the aforementioned ‘deep pockets’ are appearing.
These new retail investors are also emboldened by the proliferation of information that has occurred on the internet. Now you no longer need to earn your stripes at a trading desk, when information on how to evaluate fundamentals, how to do your own technical analysis and how to accurately perform a short squeeze can be found in places like Twitter, YouTube or Reddit.
In short, technology has lowered a barrier to entry, which is bound to disrupt existing business models, but that might just be for the best. How so, I hear you ask.
Let’s find out.
What can traditional markets learn from crypto?
Let’s start with a really interesting one.
Decentralised exchanges (DEX) that utilise smart contracts are essentially a swap shop for digital assets. Now, let’s not get into the technicals here, but what you can do on a DEX like Uniswap is swap one asset for another in a trading pair. So if I have ETH and I want COMP, I can just trade them directly.
Imagine now if, in a traditional stock exchange, instead of settling my AAPL stocks in US dollars and then buying AMZN stocks with the proceeds (with all the fees and lack of pace that I would incur). If I could just choose a trading pair on a web or mobile app platform and swap one for the other. It’d be pretty neat huh?
Next, let’s take a look at a really hot topic. Real-time data.
In some instances, and especially when you are dealing with a fund manager or IFA, there is a deliberate information asymmetry in place that means you don’t pour over your gains and losses in your reporting on an hourly basis and complain to your advisor about investment performance.
But if in the traditional markets, retail investors could see real-time order books, could understand the movement of the market and make better-informed decisions based on finding the right execution at the right time, wouldn’t that provide real value?
Access to data and real-time reporting is now scalable and accessible through your smartphone, you don’t need four screens and a custom-built desktop computer anymore, so why shouldn’t the retail investor have access?
Now, let’s speak about the real elephant in the room. Fees.
There are a number of established industries that rely on fees for the majority of their revenues, based solely on the information asymmetry that I mentioned in the last paragraph. But just as hotels had to adapt to AirBnB and taxi drivers to Uber, so will IFAs and fund managers have to adapt to a new world in which technology democratises access to both information and investment & wealth management systems.
There will always be fees, but the number of middlemen profiting in a chain from the outside of the walled garden to the interior will be less and they will need to find new business models, digital products and revenue streams going forward.
So in summation, a new generation of technologically advanced digital platforms and mobile toolkits are creating a new generation of investors who will expect the same toolkit availability whether they are buying cryptocurrencies, digital assets, stocks, bonds or foreign currency.
To just reiterate how popular this new generation of platforms are already, FTX just agreed a deal to sponsor the Miami Heat basketball stadium (and secure the naming rights for 18 years) and their owner/founder was the biggest tech donor to Joe Biden’s presidential campaign.
The paradigm shift that has already occurred will drive traditional organisations to transform their operations to service this new generation, whether they want to buy Coca-Cola stocks like Warren Buffet or Bitcoin like Elon Musk.