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Cryptocurrency on Stock Exchanges: Global review

“Money is the power which is often reserved for the few. With cryptocurrencies and digital assets, money is now technology.”

– Matthew Roszak, Ted Talk San Franсisco.

The current crypto/stock correlation is little. But can we call it a correlation? Does it bring more harm or good to the traditional exchange and cryptocurrency markets? With an emerging tokenized economy, where digital assets are blending with conventional trading tools, it’s important to understand the casualties and consequences of such processes. 

Correlation between crypto and stocks

The difference in the nature of two phenomena explains such an insignificant correlation between crypto and traditional market. The entire cryptocurrency infrastructure still exists, relying only on itself. The price of a bitcoin theoretically was not tied to economic indicators of the real sector. It was a separate closed market in itself. The only thing that was similar was the law of supply/demand, and, obviously, all its derivatives. A subtle link between the two worlds was the trading tool BTC/USD (including a stablecoin). Such “self-sufficient” nature, on the one hand, indicates that the cryptocurrency market was moving more or less independently, but, on the other hand, it became the subject of manipulation by speculators.

If assuming that such correlation of cryptocurrency prices and assets with the classical market is high, then it will clearly indicate their interdependence. From this perspective, the cryptocurrency market will subordinate to all the movement laws of a traditional market. That means it will lose its self-sufficient character and “romance,” which have been torturing the hearts of crypto enthusiasts for a decade.

On the other hand, it will mean the maturity of a cryptocurrency market that is involved in a full lifecycle of global economic processes. In its turn, it will bring stability to crypto, decrease the volatility, and strengthen the value of assets from the investors’ point of view.

Benefits of crypto trading for a traditional exchange

An increase in trading volumes of crypto assets attracts institutional investors to the cryptocurrency market. This will lead to price stabilization and reduction of volatility due to the accumulation of crypto assets in investment portfolios of large market players. Attracting new players to the exchange market through additional trading tools will definitely enhance the visibility of trading exchanges.

Indeed, in 2017, when the price of a bitcoin has increased almost fivefold (from $1,000 to $20,000), new players came in to trade. However, the trading processes with bitcoin are very similar to the ones that have been practiced in the traditional market. Traders call it “algorithmic trading.” The only difference is that bitcoin trading is much noisier because of the mechanics of the transaction, but not necessarily because of demand/supply trends.

At the core of such digital assets, a new tokenized economy is emerging that brings more trustworthiness, transparency, and accountability to the market, which would definitely attract a lot of players. And such disruption of a new market is already transforming the whole ecosystem of finances and stock exchanges.

Two worlds collide: stock exchanges welcome crypto

Intercontinental Stock Exchange (ICE). In January 2018 Intercontinental Stock Exchange launched the Cryptocurrency Data Feed that aims to share essential information about digital currency. ICE has also increased the number of supporting cryptocurrencies from a variety of data sources and exchange markets around the globe. In February ICE noted the launch of its own cryptocurrency platform, which already attracted some high profile investors like Microsoft and Starbucks.

Jamaica Stock Exchange. In April 2019 JSE announced its partnership with the Canadian financial technology company Blockstation to launch first of its kind live trading of digital assets, giving its full lifecycle and transforming ecosystem into a tokenized economy. Some of the main goals of such partnership include bringing more safety in crypto trading within financial community, more inclusivity for non-accredited investors, and more efficiency on managing assets. 

Nasdaq. In January 2019 it was known that Nasdaq was working with seven major cryptocurrency exchanges. Unlike the New York Stock Exchange, Nasdaq is more focused on investing in blockchain startups and companies to provide them with technology through matching or surveillance to help their clients grow their marketplace.

New York Stock Exchange. On August 2018 NYSE launched the exchange platform Bakkt that currently supports the management of people’s cryptocurrencies. Such investment has made a substantial impact on making bitcoin to be the most liquid digital asset. Some of the investors of the platform are ICE, Starbucks, Microsoft, and BCG. Such growing corporate interest clearly indicates the value of investments in digital assets. 

London Stock Exchange. In May 2019 one of the oldest stock exchanges in the world, a 300-year-old LSE, announced its consideration of implementing blockchain technology on the platform. And in fact, London’s market has acquired a company that is issuing “the world’s first automated cryptocurrency-denominated bond.”  

Stock exchange of Thailand. On the way to becoming a global stock exchange, in January 2019 SET said that it was planning to enter a digital asset exchange and incorporate robo-trading in the emerging market. Stock Exchange of Thailand is developing AI and ML techniques to embed into the platform of digital asset exchange.

Boerse Stuttgart Group. On January 2019 Germany’s stock exchange launched a crypto trading app that would improve the accessibility for investors to manage their cryptocurrencies and build free-of-charge trading. In this way, Boerse Stuttgart Group is expanding the European involvement in the global market of crypto trading.

SIX Swiss Exchange. In March 2019, SIX Swiss launched a new exchange trade product (ETP), Etherum, on the market. It will have approximately acquire a market share of 16.7%. It is also currently working on blockchain integration in the platform that will be launched in late 2019. 

The potential to transform systems and leapfrog infrastructure can enable solutions that previously weren’t thought to be possible. Cryptocurrency and stock markets have a huge potential of blending, some of the successful practices have already been established by the largest stock exchanges. Many of the challenges in the financial inclusion area align with the strengths of blockchain, giving this sector the potential for widespread reach. It definitely brings more accountability and diversity of crypto portfolios for investors and traders, expanding the financial ecosystem.

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Viktor Kochetov

Viktor Kochetov

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Kyrrex.com

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This post is from a series of posts in the group:

Fintech

Fintech discussions and conversations around the development of fintech.


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