The Evolving Financial Paradigm: Traditional Trading vs Crypto Trading
Over the years, banking operations has evolved dramatically and so has investing and trading activities. It is a known fact that the introduction of paper money made everyday transactions much easier. Similarly, the innovation of digital money made it easier to mobilize and track investments. A prospective investor can use a mobile application or any other online medium for making investments or for trading. After 2009, the innovative by-product of Blockchain technology — Bitcoin and other cryptocurrencies, along with technologies like artificial intelligence, machine learning & data analytics are reshaping the global financial paradigm.
The pandemic outbreak also played a substantial role in improving the popularity of cryptocurrency as a potential mainstream asset class. The Bitcoin Halving was a highly anticipated event in May 2020 and since then the price of Bitcoin surged to an all-time high of close to USD 60,000 in May 2021.
The breakdown of the supply chain mechanism coupled with global lockdowns brought the economic engine to a standstill. However, that did not affect the launch of new mobile trading applications. In fact, 2020 and the first half of 2021 saw a growing number of decentralized exchanges and an increase in digital assets investors.
How does crypto trading compare vis-à-vis traditional trading?
Traditional forms of investing and trading were initially limited to financial products like common stock, corporate bonds, treasury bonds etc. Over time, new investment products like commodity trading, derivative trading etc emerged. These instruments were mainly used by investment banks and corporates to mitigate market risks. Almost all of these instruments are traded in an exchange between Monday to Friday during business hours.
The launch of Bitcoin proved to be a critical milestone for the traditional investing methodology. With Bitcoin prices surging in value, there was a gradual shift towards investing in digital assets. The Ethereum network spurred this growth by giving developers and crypto enthusiasts a platform to build programmable networks with their own native cryptocurrency tokens. And thus emerged concepts like DeFi, decentralized exchanges, liquidity protocols, yield farming, staking etc. The digital assets market is open 24 hours a day, 7 days a week. In other words, unlike traditional investment methodology, crypto investors always had access to their investment portfolios as well as the freedom to enter or exit their market positions at any given time.
Innovative technologies and robot trading
A change in investment products was just one of the key factors. Innovative technologies also had a crucial role to play in decentralizing investing and trading services. Developers began using artificial intelligence and machine learning technologies to build trading robots. These robots use quantitative and algorithmic models to place buy or sell orders automatically.
Almost all of these algorithmic models are built by incorporating past historic trends as well as accounting for various other risk factors that could impact future investment decisions. Many financial entities are exploring these technologies to improve their efficiency. On the other, even boutique investment banks and fintech startups are coming up with their own computer programs that - so to say - "trades for you" based on a set of instructions.
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