As the crypto market matures and the major crypto exchange platforms accumulate considerable cash, brokerage firms – including those specializing in hedge funds – are ready to enter the market, paving the way for the next phase of growth in the sector. This is in essence what explains Changpeng Zhao, unavoidable boss of the Bitcoin and crypto exchange Binance in the context of an interview for the newspaper Cytia.M.
The importance of stock brokers
In the context of traditional financial markets, brokerage companies have long provided essential services to clients. Either it’s about investment brokers offering a full range of practical advice and planning services, or retail brokersBrokerage firms, solely engaged in executing buy and sell orders, allow investors and traders, large and small, to access the stock market.
So today, most investors and traders use the services of online brokers like IG, Saxo Markets or Hargreaves Lansdown, while institutional investors are turning to premium brokers like Goldman sachs or JPMorgan Chase. In total, brokerage firms manage trillions and trillions of assets and millions of active accounts.
Brokerage firms therefore play a leading role in the traditional financial world by serving as the main interface connecting buyers and sellers.
However, if brokerage firms maintain a dominant position in today’s traditional markets, they have barely appeared on the cryptocurrency market yet.
The era of crypto exchanges
The rapid growth of the crypto market has been largely possible through exchanges, where buyers and sellers naturally converge to buy and sell crypto currencies directly between them. Most crypto investors and traders trade their currencies on these platforms, while relatively few traditional brokerage firms offer their customers any way to buy crypto assets.
There are currently hundreds of exchanges competing in the crypto market, and their numbers echo that of brokerage firms in traditional markets. However, it is reasonable to anticipate that by self-regulation the trading ecosystem will lead to a gradual reduction in this number. Crypto exchanges capable of attracting large numbers of buyers and sellers will simultaneously increase their cash pool, which will encourage even more buyers and sellers to join their platform. Greater liquidity will in turn imply that more orders can be quickly correlated to the best available prices. These powerful network effects will push for greater centralization in the crypto market.
Today, the dispersal of liquidity in the digital asset trading centers poses problems for market participants who wish to limit the impact on the market when they execute large orders.
The increase in the number of “Flash crash” can in particular be attributed to this fragmentation, partly due to the absence of solid brokerage offers and the inability of operators to guard against price errors. Cash transactions at leverage and the shared bitcoin transfer between platforms, which are available today, could have partially alleviated this pressure. However, premium brokerage services aim to remedy the inefficiencies of the capital market and improve the lack of synergy between the different platforms.
As the market continues to consolidate, increased and intensified demand and liquidity have significantly whetted the appetite of crypto investors. For example, since 2018, the crypto derivatives market has grown exponentially, which has demonstrated the increased interest of institutional operators, as well as the maturity of popular crypto-assets like Bitcoin. These developments reflect the traditional financial world, where derivatives trading has enjoyed lasting popularity as a benchmark financial product.
The role of the broker in crypto-adoption
The rapid expansion of crypto derivatives has attracted interest from institutional investors, while the increasing adoption of crypto has led to greater convergence between traditional and crypto financial players.
Digital assets such as Bitcoin are therefore increasingly accepted by some of the largest players in the traditional financial sector. It’s pretty obvious that in recent years, the crypto markets have started to look more and more like traditional markets.
Focus on premium brokerage: The prime prime brokerage, which has existed in traditional markets since the 1980s, has long offered a “one stop shop” for investors. It is only now that it is fully mature in the digital asset market. As the crypto infrastructure begins to build up quickly and large exchanges are finally able to offer true trading depth coupled with sufficient liquidity to attract traditional traders, brokerage firms – including prime brokerage therefore – are preparing to enter the market, paving the way for the next phase of growth in the sector.
Crypto brokers are able to access multiple exchanges, thereby ensuring maximum liquidity for their clients. More importantly, they are better able to take on the essential “one-stop-shop” role that institutional investors are looking for, advanced trading tools detailed data analytics that maximize trading performance. My society, Binance, a global blockchain multinational that includes one of the major digital asset exchanges, is already anticipating this change in the crypto market.
Build an open platform for brokers
With the pool of funds forming, brokers entering the crypto ecosystem are well positioned to offer competitive trading services to attract traditional retail and institutional investors, and to bring crypto and traditional financial markets a little closer.
By offering sophisticated trading services to traditional investors, crypto-brokers will be able to support the professional development of the crypto market, while benefiting from the security and expertise of established platforms, as well as from their operational decline. and their overall liquidity. In return, the influx of capital from crypto-brokers will further contribute to the liquidity of the exchanges.
Over the past year, the digital asset exchange Binance launched its own brokerage program. In order to put the size and scope of the demand in context, we have identified and integrated more than 200 crypto-brokers who offer competitive trading services.
Brokerage services are uniquely positioned to help our industry close some of the gaps between the traditional and crypto financial markets and drive continued growth in digital assets. Since the launch of our brokerage program, our partners have represented an increasing share of the total volume of transactions on our platform, recording recently a quarterly increase of 300%. Even at this early stage, there is a clear and growing demand for brokerage services.
As more and more crypto brokers enter the market, the organic partnership between brokers and exchanges will generate its own network effects, increase institutional money flows and advance the crypto market by providing what could represent the essential impetus for the next phase of crypto-adoption.
Nice to meet you, it’s Hellmouth! Editor-in-Chief of Cryptocurrencies, the crypto media you are honoring to survey right now (well done, you have taste).
Crypto-enthusiast of the second hour, nothing is more important to me than supporting the global adoption and democratization of the treasures that the blockchain offers us.
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