The following article was written by Adinah Brown, content manager at Leverate.
There are two types of financial-market players—those who trade, and those who “buy and hold” (B&H). Many recent investors in the cryptocurrency market are of the B&H variety and are in it for the long haul.
There is an old expression in the financial markets—bells don’t ring, meaning nobody will sound an alarm at the top or bottom of a market move. Another piece of market lore is that seven out of every ten trades are losers, and it’s up to the good trader to cut those seven losses short and run the gains for as long as possible. With the ascribed volume of Bitcoin capped at 21 million coins, many investors believe that following a B&H policy will reap significant rewards. However, since reaching a high just shy of 20,000 USD in December 2017, bitcoin was trading around half of that value four weeks later. Anyone who bought at 20,000 USD is currently sitting on an unrealized loss of approximately 10,000 USD.
Naturally, B&H is less profitable for the owners of cryptocurrency exchanges who seek to make commission on each transaction, as is the practice in any other financial market. This presents a real challenge for crypto brokers. On the one hand, they want to make commissions on rapid trade turnover, but this is not their experience. With more investors sitting on their coins, with their unrealized profits, or losses, the broker is losing out. Some have imposed trading restrictions on crypto, but that flies in the face of the obvious advantage of marketing these exciting new instruments. Crypto is currently the buzz and brokers would be ill advised to ignore it.
The adoption of electronic currencies is an inevitability. With the increasing global involvement of business taking place online, nobody can doubt whether cryptocurrency is here to stay. Brokers must adapt to the new trading vehicle and enter the world surrounding blockchain. There is simply nothing to lose and everything to gain.
One potential way that brokers could increase revenue is by upping their commission levels. Currently, brokers are offering the crypto product commission free, which makes little sense. Another marketing strategy could be to offer cryptos other than Bitcoin. There are literally hundreds of coins on offer and expanding the market will increase liquidity and enhance market growth. With the recent opening of crypto futures contracts, the market is maturing and providing investors with further ways to reduce risk while holding onto long market positions. Brokers must also encourage their crypto customers to follow intelligent risk management rules, which can protect their open market exposure.
Cryptocurrencies, like blockchain technology, is the future and it’s here to stay. By embracing the technology and adopting new trading strategies, brokers can build their client base while assisting their customers to withstand dramatic market fluctuations. The symbiotic partnership of broker and trader is the ideal relationship to define, enhance, and expand the cryptocurrency business of the future.