Beginners in the crypto space have always speculated the difference between cryptocurrencies and fiat currencies; traditional investment instruments like Forex and stocks and how decentralized crypto markets work. It’s true that the majority of cryptocurrencies are more volatile compared to other assets. In this article we’ll explore the basic differences between crypto and fiat.
High Volatility and Higher Returns
Most crypto exchanges like Bitmex have been accused of insider trading before. This implies that exchange insiders have an unfair advantage over outsiders who don’t have access to critical information like market movements, sell-offs and calls.
In an unregulated market it can seriously hamper and discourage outsiders from trading on the exchange. While stocks and bonds are a regulated market, crypto insiders are using their trading tools and know-how to take advantage of a more volatile crypto market. We all know that insider trading is a federal offense that is punishable with jail time, repatriation of any profits made, severe fines, and the loss of one’s respect and reputation.
In the case of cryptocurrencies, regulations have not yet caught up to the fast-paced adoption and most altcoin founders and exchanges have opened a window of opportunity for crypto traders to take advantage of the volatility.
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Top exchanges ensure security of user funds
During the recent major security breach on Binance, $41 M worth of digital assets were stolen and eventually returned to traders from the SAFU fund of the exchange. In the case of stocks, there is a often a fixed insurance agreement that states if the brokerage firm that handles your stock trading goes out of business, there will be a guaranteed reimbursement equivalent to the insured amount.
Cryptocurrency is still the wild west when it comes to investment. There are generally no standard regulations and no insurance protection, however, Binance’s forward thinking did protect their investors with the development of the SAFU fund and because of the blockchain ledger, the entire investment was returned – not just the limited insurance amount.
From a legal standpoint, cryptocurrencies are not legal tender which makes them the equivalent of a collectible. This means cryptocurrency investors need to stay vigilant about the transparency and integrity of crypto exchanges. Like Binance, there are exchanges who have their investors and traders in mind when it comes to built-in protections.
Backed by technology and not fiat currencies
All publicly traded stocks are backed by assets that generate revenue. Cryptocurrency tokens are backed by technology and not assets or fiat currency. Despite that, cryptocurrencies have a considerable market cap. Why? Because many people are putting their trust in mathematical protocols and algorithms instead of the leanings of a centralized system.
Permanent loss of funds
In case of traditional investments there is a possibility of complete loss of funds in case of a theft. You rely more on the integrity and security of the entity which has your funds.
In cryptocurrency, users are more in control. They have private keys which are virtually impossible to hack. The private user is also responsible for their actions, which can be tracked on the blockchain explorer of the DEX or cryptocurrency they directly transfer. Those private keys are literally the keys to the crypto kingdom and should be highly protected.
Higher Volatility and higher returns
With stocks, traders get guaranteed returns while with cryptocurrencies there is often high volatility. With high volatility is the opportunity for higher returns. There is no legal cap over the revenue that users can generate through their crypto assets.
While stock trading in almost all developed countries is regulated by strict investor protection laws and regulated by financial watchdogs, cryptocurrencies have considerably less governing laws and authorities. Depending on how you look at it, crypto has greater opportunities to earn significantly more, but the trade off is regulated protections and trust in your own ability to make smart market decisions.
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