New Trends and Challenges for Crypto Trading
It was a difficult year for the cryptocurrency market. The huge decrease in Bitcoin’s price prompted investors to be more cautious about selling.
Now, we can see that there are different scenarios for crypto traders, each of whom has his/her own approach to the process. Many traders consider it a good idea to buy cryptocurrency just as it is entering the exchanges and the price is as low as possible. Of course, this method does not work with all projects; here, the investor has to decide for him/herself which cryptocurrency to buy.
Let’s discover the trends that are revolutionizing crypto trading, in 2018 and beyond.
Security tokens have a value from external, tradable assets. These tokens are subject to federal securities and regulations.
According to U.S. legislation, security tokens must follow the Regulation D, Regulation A+, and Regulation S.
At the end of April 2018, in Congress, hearings were held on the development of blockchain technology in the United States and the world, during which a revolutionary statement was made. For the first time, an official representative of the main financial regulator of the United States and one of the main financial regulators of the world announced only positive perspectives in the development of blockchain technology. Therefore, ICO projects that take place globally also have a positive impact on the development of alternative business practices.
It is important to note the opinion of the SEC regarding the status of the token as a security. Previously, it was simply impossible to hold an ICO without selling securities, which meant that it fell under the legislation of the security market.
In addition, for the first time, it was said that not all tokens produced during the ICO are securities since investors can acquire them not only as investments but also to fulfill certain functions in blockchain systems.
This event was perceived by market participants in an extremely positive manner since they realized it was possible to invest in ICOs with the trustworthy attitude of a regulator toward the process. It is highly probable that this news was one of the triggers for the growth of capitalization in the cryptocurrency market during the second half of April.
Thus, the risk of a sharp increase in volatility on the crypto market begins to decline, contributing to the growth of long-term demand for crypto tools during periods of correction in traditional markets.
Many experts predict that STOs (Security Token Offerings) will be massively popularized in 2019 since they could make an investment on the blockchain safer and more transparent. STOs will become the “new ICOs,” replacing traditional investment methods by providing broader protection to investors.
Thanks to STOs, it is now possible to get investment returns much faster, and also qualify for fixed or non-fixed profit (depending on the company’s revenue) as well as non-property rights. For example, investors who have invested their money in the framework of an STO can participate in the decision-making process of the company.
Currently, many countries are adopting a legislative base for cryptocurrency market regulation in order to promote this sector and increase the number of crypto-mining enterprises. Authorities in South Korea, Japan, and the United States have reduced electric bills for mining companies. However, in China and Russia, the attitude toward mining remains neutral.
Over the past 15 months, China has banned virtually all cryptocurrency-related activities, including trading, crypto events, and over-the-exchange investments. Nevertheless, two options for using cryptocurrency are still available: transaction processing and the mining of digital assets.
At the beginning of April, market capitalization was approximately $250 billion, and by the beginning of May, it was up to $450 billion. As for daily trading volume, at the beginning of April, it was approximately $10 billion, and by the beginning of May, it had risen to more than $26 billion.
Let’s discover the main factors that are attractive to participants in the cryptocurrency market from an investment point of view.
It should be noted that in such a highly volatile industry as cryptocurrency and blockchain, changes occur very quickly. For example, the number of funds attracted during the ICOs in 2017 was about $6 billion. In the first quarter of 2018 alone, this number had reached more than $2.5 billion.
The cryptocurrency market, like any other market, is now being tested for quality. Scam ICOs are one of today’s biggest problems for investors, as they can lose a lot of money when they become trapped in the nets of scammers.
Investors expect a return when making an investment in an ICO. This can be compared to a traditional company’s Initial Public Offering (IPO). An ICO differs from an IPO in that the coin has no value until people start seeing value in it and believe it is worth investing in.
Observe the number of ICOs that were launched every month in 2017–18:
On the other hand, the number of qualitative projects (the goal of which was more than just quick enrichment through investment and short-term, speculative profit) and the number of professional investors increased, as well.
The gradual stabilization of the most valuable cryptocurrency rates, the development of mining infrastructure as a professional activity (cloud mining, mining farms, mining hotels), and the practical use of the blockchain in various areas, from government procurement to educational and personal spheres: all of these trends clearly indicate the changing approach to cryptocurrency in recent months.
It is logical that the degree of market volatility began to decline gradually, as market participants who wanted to make money by simply buying cryptocurrencies abandoned the market. It is obvious that the majority of market participants who offer infrastructure for the effective functioning of the crypto market are becoming interested in increasing its stability and predictability. For this reason, some companies have already announced plans to work on the creation of cryptocurrency tools for market participants that have already been successfully used in traditional financial markets for a long time.
As a result, large investors, for whom the above-mentioned tools are being created, will work much more actively in a less volatile market, and the number of small investors will decrease.
As we all know, cryptocurrencies are currently unstable. Their value is unpredictable and can change twice a month, preventing their widespread use as a method of payment. One of the main disadvantages of cryptocurrencies, therefore, is high volatility.
The cryptocurrency USDT is a coin that is pegged to the value of the dollar, and, because of this, is fairly stable. But the security of each token that depends on dollar value cannot be guaranteed. Moreover, the very fact of being tied to fiat currency denies the basic principle of cryptocurrency: decentralization.
A solution to the problem of volatility has been repeatedly sought. One promising solution is stable coins. Some users believe that stable coins are an important breakthrough in the cryptocurrency market, but for many, they remain an inconvenient payment method.
Stable coins seek to change the situation of price instability and become the first decentralized cryptocurrency with price and value stability. If someone buys 100 stable coins for $100, then in two years, they will still be worth $100, regardless of what happens to the U.S. dollar.
Stable coins (Havven, for example) operate on the super-security principle, which means that one cryptocurrency is reinforced by another of higher value. Stable coins are highly liquid and do not depend on financial institutions. However, they can lose their value in the context of long-term fundamental adjustment.
Stable coins have a promising future in terms of crypto lending, as they provide the exchange of tokens at a stable rate. They minimize price volatility, keeping only minor fluctuations, which makes getting a cryptocurrency loan easier and safer. Moreover, stable coins are predicted to become even more stable in 2019.
One thing is certain: if all of the above trends continue to develop and are adopted by a wide audience, they will have a cumulative effect, bringing about what investors are so eager for: more stability for cryptocurrencies. Stability means trust, which leads to price stabilization — something all investors are trying to achieve.
After the turbulence of 2018, everyone is wondering what to expect from 2019. No one knows what will happen in the future. This market is still too new and unexplored, which does not allow us to analyze what is happening with the help of standard economic tools.