When I started in the financial services industry in the mid-1990's, online trading as we know it today did not exist.
At this time, all trades were executed by the traditional “call your broker” method. When a customer needed to make a trade, their broker would call their floor representatives who would negotiate through an open-outcry method on the floor of the stock exchange, shouting and hand signaling to execute the order. This process was inefficient and there was a good chance of price slippage on trades, but it got the job done. By 1999, my company joined forces with E*Trade — a new player in the brokerage space who was streamlining online investing and disrupting the traditional brokerage model.
At E*Trade, I became part of a team tasked with creating a state of the art product that convinced the world to not only trust us with their investments, but also online trading as a whole. It was a tough sell but with lots of hard work and some blind trust from early adopters, E*Trade and our competitors were able to obtain customers and assure them that online trading was the future, and a better future at that. Not only did existing customers convert but millions of new investors entered the market for the first time. The birth of online trading in the 1990s caused the percent of individuals trading stocks to increase to 20% from just 5% during the previous decade.
Over the past 30+ years, digital technology has affected everything. Media, retail, communications, finance and nearly every other sector has been pushed to evolve their business models and invest in new technology or risk becoming irrelevant. One of the rare commodities that was left unscathed from the digital revolution was money. Sure, banks have adopted online banking, digital transfers, mobile banking, and more, but money itself has been issued as a piece of paper in the United States since around 1690. Even technologies such as Paypal, Venmo, and Zelle simply act as a digital layer on top of an analog (paper) system. That is until now, of course.
One of the rare commodities that was left unscathed from the digital revolution was money
Enter, the Blockchain
The blockchain has allowed money and assets to be truly digitized in the form of cryptocurrencies and (as I like to call them) crypto assets. I'm confident that cryptocurrencies will revolutionize the finance industry similarly to how the internet first revolutionized investing — and I'm not alone. A recent study by PWC found that 50% of large FinTech companies and 19% of large financial institutions identified the blockchain as the most relevant emerging technology to invest in within the next 12 months. Further, 77% of them expect to adopt blockchain as part of a production system or process by 2020.
At its peak in 2017, the total market cap for all crypto assets was above $800 billion. Even after the crypto-craze that was December 2017, Bitcoin alone still averaged $10B in global daily trading volume in Q1 of 2018. For the sake of comparison and context, that is 2x the average trading volume of Alphabet Inc's (GOOGL), one of Wall Street's most traded stocks.
While these numbers are impressive, the current crypto trading market leaves much to be desired for the average investor and not everyone is sold on the future of cryptocurrencies. 2017 brought increased visibility to cryptocurrency and subsequently introduced bad actors. ICO Schemes, wallet hacks, poor customer service and transaction delays are just a few of the major issues plaguing the space. Not to mention of the dozens of exchanges selling cryptocurrencies or crypto assets, a considerable price variance exists at a retail level. Investors seeking the best price for Bitcoin, Ethereum, or the like are forced to scour multiple outlets, toggle dozens of trading pair options, and risk transacting with an unsafe party.
The current crypto asset market's shortcomings have soured the reputation of the space and exposed its immaturities.
Execution, Execution, Execution
I believe that in order for crypto to scale to meet the needs of every investor, it needs a broker. A broker's purpose is non-negotiable — execute the best price as quickly as possible. FINRA defines best execution as “a significant investor protection requirement that essentially obligates a broker-dealer to exercise reasonable care to execute a customer's order in a way to obtain the most advantageous terms for the customer.”
Simply put, best execution helps an investor navigate the entire market to maximize:
- Price — the order takes into account the NBBO (National Best Bid and Offer) for the purchase or sales of the asset
- Liquidity — the order could be routed to multiple exchanges or sources to help satisfy NBBO
- Speed — the order is executed as quickly as possible
I'd argue that best execution in the crypto asset market must take into account one additional characteristic:
- Reliability — given the fast growth and non-standardization of exchanges, the order is routed to a reputable and safe exchange or market-maker
Throughout the evolution of investing, the concept of best execution and customer service has remained the top priority, regardless of the device or trading platform — and crypto should be no different. Crypto may be unlike anything we've ever known, but that doesn't mean we can't borrow proven knowledge and best practices from the traditional market. Representing the needs of the everyday investor is crucial to the growth and maturity of this exciting asset class. If the crypto industry rallies behind this, the opportunities will be endless.
As I work with my team to build Voyager, the first real crypto asset broker, we're tackling these challenges in our mission to give everyone a safe and trusted access point to this exciting new frontier. We believe this is just the beginning of the crypto asset revolution. It's not too late. In fact, now is the time.
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