The latter has been brokers’ favorite toy to talk about in the last two years, but this is a long-term game and only the strongest and most patient brokers will survive to reap the rewards.
This article outlines key differences between the stock markets and the crypto markets, which should help brokerages understand where to allocate their funds for best effect.
Crypto market crashes vs. stock market crashes
Investors look at the recent falls in the crypto and stock markets through the same lens and expect a crypto bull run similar to those stock market investors enjoyed till now. However, there are critical differences to note.
For one, studies show that the latest crypto bull run was largely driven by price manipulation which was amplified by the media and investor reactions. There were organized pump and dump groups, and downloadable software such as ‘Quatloo Trader’ that allow investors to easily manipulate prices.
These issues have not gone away and having a decentralized structure means the markets are still susceptible to market manipulations. So, the market decline is a result of traders realizing that this, among other events, has happened.
Stock markets on the other hand are a function of how company and economic fundamentals are doing. President Donald Trump’s blitzkrieg victory and swift economic policies led to strong economic growth and market confidence that led the stock markets to rise in the first two years of his presidency.
The recent crash is indicative of the diminished confidence that investors have in the stock market and global trade.
Understanding the decline in markets is key to understanding future bull runs which in the near term are more likely to come for the stock markets rather than the crypto markets.
Where the masses are investing
Unlike the stock markets, which are highly regulated, vigorously covered by the media, and has institutions and retail investors participating; the crypto market still has a long way to go before the masses truly participate in crypto trading in a safe and reliable manner.
The uncertainty in the future of cryptocurrencies remains a huge barrier for the masses, and brokerages cannot count on cryptocurrencies to become a reliable asset like forex, shares, or commodities any time soon.
A pointer to the reliability of the crypto markets could be indicated by the amount of pension fund investments pouring into cryptocurrencies. But there’s an awful lot of regulatory ground to cover before the general public will participate in this market.
Information, information, information
Traders evaluate their trades with technical indicators, market events, data, and financial analysis. These information sources are time consuming which is why Fintech companies are taking advantage of this opportunity to make information more accessible and actionable.
Forex traders use economic events, and stock investors use fundamental analysis and other methods to decide how to trade, but all in all, investors in these markets have plentiful and reliable information.
Cryptocurrency traders on the other hand have almost no reliable information; Fake news, lack of historical data, lack of liquidity, and manipulated prices are making life very difficult for crypto investors. It’s no joke that traders are better off ‘Hodling’ and forgetting about their coins – only to one day find out it’s worth 1000% more.
Information about the stock markets is highly reliable and consistent, which is why companies like TipRanks develop technologies that distill big data from online media into stock research tools for investors to use in their stock analysis.
Take for instance the kind of data available only for stocks: SEC insider transaction reports, analyst stock recommendations, and hedge fund holdings reports. These are just some of the datasets TipRanks makes easily accessible for retail traders around the world through brokerages like eToro, Santander Bank, and Interactive Brokers.
Even though the stock markets are tumbling right now they’re here to stay, and there are many indicators to show for it. Cryptocurrencies on the other hand have a long way to go before they become an adoptable trading asset like stocks. Brokerages should compare and decide what fits their strategy and prepare accordingly.
Disclaimer: The content of this article is sponsored and does not represent the opinions of Finance Magnates.