Tibor Bedő of BrokerChooser on The 5 Things You Need To Understand In Order To Successfully Invest In Cryptocurrency

The necessity of research: At times, projects are released by the dozen, and it is highly recommended to research them before making a decision to invest. Some projects do not have tech behind them, just a name and a price tag, often involving scam.

Over the past few years, the Cryptocurrency industry has been making headlines nearly every week. Many people have gotten very wealthy investing or leading the cryptocurrency industry. At the same time, many people have lost a lot investing in the industry. In addition, more people have been scrutinizing the ecological impact of crypto mining, as well as its potential facilitation of illegal activity. What is being done and what can be done to address these concerns?

In this interview series called “5 Things You Need To Understand In Order To Successfully Invest In Cryptocurrency” we are talking to leaders in the cryptocurrency industry, as well as successful investors, who share insights from their experience about how to successfully invest in Cryptocurrency.

As a part of this series, I had the pleasure of interviewing Tibor Bedő.

Tibor Bedő is the CEO and co-founder of the international broker comparison startup BrokerChooser. With his partner, Gergely Korpos they started BrokerChooser in 2016 with the aim of creating a broker aggregator platform from scratch. BrokerChooser has since grown into a company with 45 employees, comparing not only brokers but crypto exchanges, robo-advisors and digital banks while generating seven-figure annual revenues in 2020 (€).

Thank you so much for doing this with us! Before we dig in, our readers would like to get to know you a bit. Can you tell us a little about your backstory and how you grew up?

I had a great childhood surrounded by friends and family growing up in Hungary, Central Europe. I finished my studies at one of the business universities in Budapest. During my 20s, I went backpacking to some of the most remote corners of the world. First alone, then with my wife. Thanks to these trips, places like Vanuatu and Indonesia will always remain close to my heart.

Is there a particular book, film, or podcast that made a significant impact on you? Can you share a story or explain why it resonated with you so much?

“Thinking, Fast and Slow” by Daniel Kahneman and “The 7 Habits of Highly Effective People” by Stephen R. Covey have both inspired me. Kahneman explores the two sides of our thinking and how these are in constant collision, yet in perfect balance.

Covey’s book is more about perception. I remember this story about the author’s son, recounted early in the book. His parents lived in constant stress. They thought their son was an under-average student, with low social skills. It took Covey time to realize that there was no problem with their son at all. The parents were simply projecting their own perceptions onto their son. They wanted him to be like them in high school. They decided to let their son do his thing, without heavy interference. As a result, their son became a grade A student with honors and a prominent member of the school’s society.

Is there a particular story that inspired you to pursue your particular career path? We’d love to hear it.

I studied investment analysis as my major, so I was close to the buzz early on. I had the chance to work close to the financial field that collapsed in 2008. That was quite interesting to experience up close.

As for pursuing a career within the brokerage industry, that is a much simpler story. With Gergely, we simply wanted to find the best broker for our investing needs. We couldn’t find any good comparisons online, so we decided to build our own, in an Excel spreadsheet. We received feedback from our friends that the comparison sheet was extremely helpful for a much bigger audience than we had anticipated. They advised us that we should expand on this. So we did.

Can you share a story about the funniest mistake you made when you were first starting? Can you tell us what lesson you learned from that?

There was a time when we were evaluating some aspects of a broker. We decided to give low scores for these aspects, resulting in a massive wave of questions, critique and remarks from the broker. It seemed we lost the business relationship with them, but sticking to our methodology and what we experienced on the platform was of higher importance.

In the end they turned out to be our most important partners and we have had a great relationship with them ever since. Later, they worked to improve the contested aspects of their business. I think the lesson here is that with a proper methodology and reasoning, feedback is just as important to everyone whether it is good or “bad”. To this day, there are stories of brokers changing their business just because we gave feedback after a review.

None of us are able to achieve success without some help along the way. Is there a particular person who you are grateful towards who helped get you to where you are? Can you share a story about that?

Yes, my wife, my family and Gergely. We’ve been through some tough times. When we started BrokerChooser, we left our previous jobs to pursue the idea of a broker comparison site. We didn’t monetize the project for a year, and our reserves went low — we only had money to continue for 4 months at most. If our friends and families hadn’t trusted and helped us, we wouldn’t be here today.

Are you working on any exciting new projects now? How do you think that will help people?

We are working together with journalists at top media outlets like the Financial Times and The New York Times. Apart from our main mission to help people invest, it is inspiring that the team can also focus on reacting to and evaluating market developments as they happen. Just 2 years ago we did not have the capacity to do this. And now, we can dedicate time to explaining what traders, brokers and the industry can expect after events like the GameStop craze or the Robinhood IPO.

Ok super. Thank you for all that. Let’s now shift to the main focus of our interview. The cryptocurrency industry seems extremely dynamic right now. What are the 3 things in particular that most excite you about the industry? If you can, please share a story or example for each.

Overall, I think the top 3 most exciting aspects of the crypto world are regulation, volatility, and how dynamic and new the industry still is.

1. One of the most particular features of this industry is undoubtedly regulation — or rather the complete lack of it. It is an exciting — and at the same time frightening — fact that the industry as a whole runs fully under the radar of international financial regulation standards. Despite this, the industry is growing exponentially, with the biggest exchanges boasting a user base of 10–20 million investors.
2. When it comes to crypto trading, one aspect that we must stress is the outstanding level of risk due to extreme volatility, and the fact that it is extremely hard to determine the value of certain projects. We can only speculate on the price. Speculating on something that is so volatile is not for beginners, still many venture into crypto investments without any sort of risk management. This raises a number of questions, including whether the most famous coins are bubble-like and what will happen — in a financial sense — when all BTC is mined. We don’t know the answers yet.
3. On the positive side, in addition to large-cap coins and tokens, there are thousands — if not tens of thousands — of other projects, with each focusing on a niche business issue or providing infrastructure, etc. These could potentially shine in the future once the industry is more consolidated. They are equally exciting parts of the crypto world and we are in the early days of this whole paradigm shift.

What are the 3 things that concern you about the industry? Can you explain? What can be done to address those concerns?

First, it is extremely easy for newcomers to join this highly complex industry and most concerns come from this low entry gap. There is no insurance on crypto exchanges, therefore you can lose all your investments. The high volatility, coupled with the leverage and the entry gap increases the risk profile of the industry (with e.g.: Bitcoin CFDs). An additional factor that is cause for worry is that the number of margin calls is bound to skyrocket if there is no stricter regulation for leveraged crypto products.

Second, without hindsight, newcomers can enter high leverage positions with a fast “rags-to-riches” mentality leading to losses and an overall alienation from the industry.

And third, concerns include the lack of insurance and regulation. When it comes to crypto trading, it is not known where client assets are held — or by whom — or with whom a client enters into a contractual relationship when opening an account.

What are the “myths” that you would like to dispel about cryptocurrency? Can you explain what you mean?

The biggest myth is that investing in top coins will lead to instant gains and unprecedented amounts of profit. This comes from the fact that the price is interchanged with value.

This is further boosted by the anchoring-effect on the crypto market. You catch the first information you see on the chart and your decision making is influenced by a reference point. Beginners most of the time determine the previous maximum price as a reference point and they compare it to the current price, interpreting it as a discount if the current price is lower. They forget that the maximum price is not the crypto’s value, only its price.

How do you think cryptocurrency has the potential to help society in the future?

The blockchain technology can help for example in automated contracts, where the buyer and the seller do not have to meet in person. Trading processes will be quicker and more efficient. Relatively anonymous transactions can also prove useful. The resistance to inflation should be mentioned, because the supply is limited and known. Also, in the unfortunate event of a crisis — such as a war or natural disaster — where the financial system can’t function properly, crypto coins can function as a means of saving assets for the short term.

A broader aspect of the whole blockchain technology is that it heralds the era of “Internet of Value”. This will bring a change similar to the mass adoption of the internet that completely altered the way information and communication became accessible globally. The Internet of Value will enable the instant exchange of any asset holding value, not only in financial terms, but literally anything: intellectual property, art, music, etc. Anything can be digitized with documented and unalterable ownership. We can witness the first stages of this change for example through the emerging popularity of NFTs (Non-fungible tokens) and DeFi exchanges. Such an accessible ecosystem of storing and exchanging values will bring lots of benefits for society globally.

Recently, more people have been scrutinizing the ecological impact of crypto mining. From your perspective, can you explain to our readers why the cryptocurrency industry is creating an environmental challenge?

When you use a roomful of hardware to mine crypto, it has a massive energy demand. The massive electricity usage of crypto mining and its toll on the environment is becoming a generally accepted view. Some of these problems can be solved with regulations such as those introduced by China, however crypto miners could easily move to the US with their equipment to continue their business. Luckily, more modern projects are offering alternative, green ways, moving from classic GPU mining to the proof-of-stake model, which requires miners to leverage their existing assets as a means to verify transactions and mint new tokens on the blockchain.

From your perspective what can be done to address or correct these concerns?

Regulation and market movements will eventually solve this issue, as new projects offer a completely different approach to mining, focusing on green solutions. Hopefully, after the consolidation of the industry, this will be a new standard. Even larger “legacy” platforms like Ethereum are seeking to transition from their current proof-of-work consensus mechanism to proof-of-stake in the near future.

These two mechanisms are ways to verify transactions on the blockchain. Proof-of-work — established by Bitcoin — uses mining, while proof-of-stake uses staking to provide transactions. Hence I believe this ecological aspect will be solved with the technical advancement of blockchain technology.

Recently, more people have been scrutinizing cryptocurrency’s impact on illegal activity. From your perspective, can you explain to our readers why cryptocurrency, more than fiat currency, is seen as an attractive choice for criminals?

Due to the industry being in an early stage, it is an expected — but also unfortunate — outcome that the first use-cases are often part of illegal activities. Given that many crypto projects are aimed at being as anonymous as possible and without a middle-man during a transaction, these can be attractive for criminal activities. However, the biggest crypto projects with massive market caps are just as transparent — if not more — than transactions within regular financial institutions. While I would like to stress that the system still needs some time to mature and consolidate, I’m convinced that issues involving illegal activities are likely to pose less of a problem in the near future.

From your perspective what can be done to address or correct these concerns?

It is hard to find a single solution for such issues because of their complexity. Most probably, as the industry progresses, there will be means to tackle these problems. In the meantime, we can only hope that projects with a single core value of providing anonymous transfers will become more and more marginal due to the lack of market cap and interest. We already see a trend that anonymity tokens are running into roadblocks in the form of delistings or not getting listed on mainstream exchanges.

Ok, fantastic. Here is the main question of our interview. What are “The 5 Things You Need To Understand In Order To Successfully Invest In Cryptocurrency?” (Please share a story or example for each.)

In my opinion the top 5 issues an investor needs to understand in order to successfully invest in cryptos are the following:

1. Lack of regulations: The crypto industry as a whole is characterized by a massive lack of regulation and financial standards. Sometimes, it is unclear or unknown whom you are entering in a contract with from the exchange’s side or where your assets are held. In addition, there is no investor protection, and legally, the exchange can shut down making your assets unavailable.
2. Trading related concerns: There are massive, record drawdowns in the biggest coins translating to losses up to 80–90%. Risks have a massive impact on a trader’s psychology, hence cryptos are not suited for beginners. CFDs and coins are highly volatile and prices move (almost) in a random manner.
3. Product selection and risks: Cryptos come in many shapes and sizes — ETNs, CFDs, futures, options and so on — which may prove greatly confusing for beginners. It is super important to research what type of product you’d like to invest in to evade unwanted risk.
4. Volatility: The most famous coins like BTC and ETH trade with massive volatility, meaning sudden and steep price changes in any direction. Without proper risk management, novice investors can easily lose their positions overnight due to a sudden downturn in prices.
5. The necessity of research: At times, projects are released by the dozen, and it is highly recommended to research them before making a decision to invest. Some projects do not have tech behind them, just a name and a price tag, often involving scam.

What are the most common mistakes you have seen people make when they enter the industry? What can be done to avoid that?

In the case of most investors, risk management is totally missing; novice investors seem to want to jump in in the hope of attaining massive gains in the shortest time frame possible. Most often, they invest the majority of their savings as capital with limited knowledge about the exchange they are using.

Also, there are heavy drawdowns in — for example BTC’s USD price, that are especially complex to handle within the crypto markets.

Do you have a particular type of cryptocurrency that you are excited about? We’d love to hear why.

There isn’t a particular project that I am following at the moment. However, I’m really happy how cryptocurrencies seem to be part of a greater trend of democratizing finance, along with retail brokerages, digital banks, and robos. Investing has never been so inclusive — I hope this trend will progress further.

If I have to choose one, Ethereum has great tech behind the project, and the availability of sending tokens or alternative “assets” in a transaction (that can be described as certificates or commands) is exciting.

You are a person of great influence. If you could inspire a movement that would bring the most amount of good to the greatest amount of people, what would that be? You never know what your idea can trigger. :-)

It’s hard to think of one, probable one. Wall Street is still really exclusive. It’d be great if investing in general would be more accessible to anyone in the world.

We are very blessed that very prominent leaders read this column. Is there a person in the world, or in the US with whom you would like to have a private breakfast or lunch, and why? He or she might just see this if we tag them :-)

Honestly, it’d be great to have lunch with Thomas Péterffy, founder of Interactive Brokers. He was most active when online trading brokerages were just an idea to further develop. He built his company around online trading and now they are one of the biggest. I’m sure he has some good stories about the wild west of retail investing.

Thank you so much for these excellent stories and insights. We wish you continued success and good health!