Cryptocurrencies have attracted international attention this year. Although the currency of exchange is not new, it certainly looks like an old concept that is renewed thanks to a new technology. The rapid rise in prices of almost all digital tokens, which is especially noticeable in the 1,600% improvement of Bitcoin this year, and their surprising integration into traditional investment markets thanks to futures contracts, have made crypto an attraction for many investors. In fact, with a total market capitalization of more than 400 billion, encryption is becoming one of the most interesting investment opportunities.
Unfortunately, many traders find that technological advances or basic business needs investment exchanges are cruelly lacking crypto exchanges. This could be a big problem.
While cryptocurrencies have never been more popular or requested, exchanges that are meant to facilitate the purchase and sale of cryptocurrencies are subpar and inefficient. In their current state, they are the tangible manifestation of people's worst fears about cryptocurrencies. In general, they lack equity between exchanges, they use obsolete and obsolete technologies, and they are infused with bad actors.
It is clear that cryptocurrencies will form an important part of the financial landscape, but these problems need a solution. Perhaps by better understanding how cryptographic markets are broken, we can begin to find answers to their weaknesses so that they can thrive.
Lack of Liquidity
Some of the very principles that make crypto-currencies so attractive – mainly their decentralized and autonomous nature – also make them responsible for bargaining. When trading cryptocurrencies, investors can choose from over 100 exchanges, and prices fluctuate within these exchanges. The World Economic Forum has examined price differences between three cryptographic exchanges and found "big differences in Bitcoin prices". They listed several disparity factors, including time and value discrepancies resulting from the Bitcoin exchange to the USD and Bitcoin. but, ultimately, price differences can be attributed to a lack of oversight and regulation.
In traditional financial markets, the SEC has mandated the National Market System, which guarantees traders the best price. This is a bit like a price guarantee for investments, but this ensures that everyone participates on a level playing field. Moreover, as all exchanges must offer the same prices, they are forced to compete with other exchanges by offering lower costs and better technology.
Since cryptographic exchanges do not adhere to this principle, the price of digital currencies varies enormously. , and exchanges are less incentivized to innovate their platforms. As cryptocurrencies continue to skyrocket and integrate into the traditional financial system, they continue to operate in the Far West Financial.
New investors are teeming with cryptographic exchanges. These newcomers are immediately confronted with obsolete trading systems that have the functionality of a simple website. As a result, a simple task like changing the price or the size of an order can be extremely difficult. Cryptocurrencies are based on speed and technological innovation, so these restrictions hinder their ability to function effectively.
Unfortunately, outdated technology is not only related to the experience of investors. Algorithmic triggers that stop trading when dramatic price swings deform the market are insufficient or non-existent on cryptographic exchanges.
CNBC reported that unlike regulated US exchanges, cryptocurrency exchanges are not required to have circuit breakers in place. during wild price fluctuations. Even during this year of phenomenal growth, Bitcoin saw its price fall four or more times four times. This is relatively common in crypto-markets, so the absence of these mechanisms is particularly problematic.
The Bad Actors
The lack of regulatory oversight and the abundance of technological limitations make crypto trading targets for bad actors
Merchants deep pockets can manipulate the crypto markets and make a disproportionate impression on the value of crypto-currencies. A practice, known as "spoofing," allows a trader to place buy or sell orders above or below market value in the hope of manipulating the price of A currency in both directions. This maneuver is illegal, but without regulatory oversight, it is difficult to apply this standard.
In addition, when Mt. Gox made the headlines because he was a victim of a hacking operation that stole $ 450 million from Bitcoin, he was one of the first of a long list of blatant hacks that cost investors hundreds of millions of dollars. On this point, crypto exchanges make promises to fight against these problems; however, if they are only promises, they can limit their ability to meet investor demands.
What can be done?
The cryptocurrency markets must evolve and be the most effective way it is to look to its much older cousin: Wall Street. The technological and regulatory infrastructure that Wall Street manages is decades old, but far superior to the fractured cryptocurrency markets we are experiencing today. Emulating Wall Street would also provide the cryptographic markets with a structure and stability that would bring large institutional investors and trading houses to the table to guide these markets as they mature in the years to come.
Alexander Kravets, Guest Author
Alexander Kravets Co-founder of XTRADE.IO, a technology company seeking to bring Wall Street's mature technologies to the world of cryptocurrency. Prior to assuming the position of general manager of a self-regulatory broker who managed four percent of NASDAQ's daily trading volume, he successfully launched Sogotrade, a retail investment platform with more than 100,000 customers.