The overlap between crypto markets and traditional finance is something that many didn’t expect to see as the former began as a reaction against things that were perceived to be wrong with the latter. However, things have changed since then, and the crypto ecosystem is now increasingly adopted into the mainstream, with institutional investors and large exchanges and banks ready to take their first steps into these environments. The regulatory frameworks have become clearer and easier to predict as well, but that doesn’t mean that the volatility and price fluctuations typically associated with the crypto world are now a thing of the past.
Investors must still look into the latest estimations regarding the values of Bitcoin and Ethereum, as well as those of other altcoins and tokens, if they want to make sure that their portfolios are robust and diverse. More traders than ever have started looking into the latest crypto news today as a result, and many are willing to learn more about all kinds of cryptocurrencies and decentralized assets as well. However, many investors are worried that if the two ecosystems are to interact, it will bring widespread destabilization to the ecosystem. On the one hand, there’s the crypto world, which traders worry will lose its decentralized nature and freedom, while the TradFi environment could end up suffering as a result of the volatility.
But those who are optimistic about the two financial worlds joining forces believe that there’s no reason to worry.
The overview
Bringing cryptocurrencies to the mainstream may sound antithetical to some people. After all, it can seem that the fundamental nature of the assets is to have them operate as alternative assets that are only available to the select few who are familiar with their intrinsic technology and processes. However, the marketplace has become far more democratic over the last few years, while the average investor started to see the potential of digital coins as well.
Bringing crypto into the mainstream is tied to significant financial advantages as well, something that could potentially sway even more financial enterprises and convince them to give the blockchain a chance. After all, it only makes sense that these enterprises will only want to join the market after seeing the real use cases, transaction flows, and volumes crypto and the blockchain can bring to the mix.
Decentralized projects are expected to become even more popular and create more financial opportunities over the next few months and years, even having the chance to displace some of their centralized peers. The entire industry is expected to be more pragmatic, though.
The benefits
So, what are the actual benefits of blending these two financial environments that appear to be starkly different from one another? Faster and cheaper international payments would be one of the primary changes since the crypto world is borderless and never hindered by geographical distances or time zone differences. Increased portfolio diversification is also expected, a good thing because the portfolios that are diverse and complex are able to withstand price changes and devaluations much more efficiently. It's all about the classic concept of not putting all of your eggs in one basket, or you are setting yourself up for failure.
Apart from that, the blockchain enables 24/7 transaction processing and eliminates the reliance on intermediaries, providing innovative and fully programmable financial products through the means of DeFi. Stablecoins, which are increasingly popular as well, can also be used for lower-cost cross-border payments and remittances. Digital assets have the ability to enable banking-like services such as transfers and savings to the unbanked and underbanked populations as well, driving financial inclusion.
Cryptocurrencies in general and stablecoins in particular have also been recognized as a reliable tool when it comes to payments, especially to offer a hedge against inflation.
The future
Decentralized networks will most likely become much more economically relevant in the upcoming years, as crypto is increasingly included and integrated into the mainstream as well. For this to happen, the networks must become the ones propelling a new business model forward. While centralized environments such as exchanges and banks can optimize and lower their fees slightly, radically reducing margins is more or less antithetical to their fundamental ethos. These institutions extract economic rents by controlling the transaction flows of payments, custody, settlements, and trades, meaning that there’s pretty much no incentive for them to disrupt themselves.
Decentralization is cheaper and far more neutral, with programmable alternatives that make crypto applications more successful than any centralized solution. However, in order to be successful, the viable decentralized projects need to be separated from the ones that are stagnant. Permissionless access is essential because it can expand the markets while eliminating the intermediation layers, decreasing the fees. New products can be built faster and for less than in closed systems.
The decentralized environments need to be able to focus on their economic reasons as well. Decentralized platforms will only become successful if they can actually bring something new to the standard economic systems and activities. Pure technical novelty will no longer be enough. Competition is expected to become much more serious as a result, with centralized incumbents benefiting from the network effects.
Decentralized networks will weaken those conditions, though, and once the rails are permissionless, it is the smaller teams that will compete for the users, liquidity, risk management, tools, and analytics. Having more choices available is a good thing for the users as well as for the ecosystem itself. According to this scenario, the presence of decentralization will lead to even more decentralization in return, so that once the flow is no longer captive, it gets harder for new chokepoints to appear. This way, the system becomes more competitive not just because it’s fair but because its inherent structure is fundamentally resistant to monopoly.
The bottom line
The crypto world is still evolving and expanding, and it makes sense that investors will be wondering about what the future holds now that TradFi is set to become part of the picture as well. The most important thing you should do as a trader is have a reliable strategy that prioritizes your unique goals. That will always be valuable regardless of the changes and market conditions.
