The Smart New Tools Powering The Crypto Trading Boom

Even considering the current market correction, many investors are turning to blockchain and cryptocurrency. New projects already raised $9.2 billion in 2022, an almost 5% increase from the booming year before. New digital currencies and platforms are emerging at a pace that can feel impossible to keep up with. Those who can develop an understanding of how this space is changing quickly may be in a prime position to take advantage.

It’s no surprise that new projects are emerging to help quantify the market as both the number of crypto investors and their collective wealth increases. As the industry grows, investors need more sophisticated tools to encourage them to enter this highly volatile, yet very profitable market. A lack of accurate data and numerous scams have previously made big investors hesitant to enter the market, but a number of companies are hoping to change this with cutting-edge data analytics and smart contracts to vet these coins and attempt to prevent scams.

Information Overload Slows Crypto Adoption

Most people are familiar with the names Bitcoin, Ethereum, and DogeCoin (especially if you’re on this site!), and maybe a few other relatively well-traded coins like XRP or Tether. But scroll down a list of crypto prices and names pop up like Qtum and Holo which are much lower traded coins that may be used for highly specific applications. You may be familiar with or even use these currencies, but odds are you’ve never heard of the vast majority of them.

It’s estimated that over 18,000 unique cryptocurrencies exist as of March 2022. For comparison, the NYSE lists just over 2,500 publicly traded companies. With Web3 developers eager to produce exciting new applications, this number of DeFi coins should only continue to rapidly grow, especially as development becomes easier.

All of this is a lot to take in, and even more to navigate. Naturally, these coins are subject to a lot of volatility, particularly the smaller market cap coins, but even the top ten have taken a beating recently. Taking advantage of this market, in terms of financial investment, requires being able to parse through the information overload.

Retail Investors Drive Trends In Crypto

One of the largest differences between Defi markets and the traditional stock market is the makeup of its participants. The majority of those invested in crypto are individual investors, otherwise known as ‘retail’ traders. Many online crypto exchanges have popped up in recent years to bring new investors into trading. Generally, more retail traders mean more volatility in the market, as individuals are acting for themselves, and might be okay with greater risk (especially in the ever-shifting world of crypto).

What’s missing compared to the NYSE or Nasdaq are the large-scale institutional investors, the hedge funds, and venture capital firms aptly nicknamed the ‘whales’. In the stock market, these wealth managers have access to billions of dollars they can invest, and with that financial power they become what’s known as ‘market makers’. Whether in a boom or a bearish decline, it’s these institutional investors that together set the temperature of the stock market.

So with access to all that capital, why are the market makers not diversifying into the world of decentralized finance? The main reason seems to be related to risk aversion. Because these firms are responsible for managing the money of so many clients, they often make their large investments in a relatively safe manner. While some hedge funds may be more tolerant of risky investments, and every investor is still held at the whims of the whole market, these institutions need to play it rather safe to keep clients satisfied with their returns.

The sometimes unfortunate reality of the crypto market is that it’s exactly the opposite of playing it safe. For every innovative new coin that gains widespread use, several more come crashing down for good. And there are countless examples of massive crypto scams in recent years, most commonly pump and dump schemes where the rug is pulled out from under excited investors and millions of dollars can vanish in an instant.

Those who believe in the power of and technology behind decentralized finance may see these risks as a side effect to be navigated in an emerging market. Institutional investors aren’t quite there yet. A lot of that hesitancy also has to do with a lack of understanding that comes from the novelty and complexity of decentralized finance. But that may be changing sooner than you think.

Establishing Industry Self-Regulation

The market makers have likely already arrived in crypto. That’s part of the reason Bitcoin seems to follow the general trends of the stock market much closer than it did three or four years ago. The anonymity of decentralized finance makes it impossible to tell who has invested where, but hedge funds and the like will often have to disclose their positions to clients. Rough estimates have pegged institutional investors as responsible for almost half of all crypto trades by the end of 2021, up from just 8% at the start of 2020.

Part of the reason institutions are diving in is thanks to a number of platforms that increase transparency and gather accessible data. Startups like FLUIDEFI have prioritized presenting portfolios with easily digestible data analytics, showing inventors emerging trends and crypto-assets that previously may have been hard to understand. These companies provide resilient DeFi analytics and execution platforms for professional traders, including portfolio modeling and tracking and trading signals across chains, allowing clients to maximize ROI and allocate capital efficiently.

A Changing Market

So what does this mean for the crypto market as a whole? No one can say for certain, though changes are inevitable. There are those out there that might see this as the beginning of the end for truly decentralized finance, with the investment banks and hedge funds they sought to escape crashing the party anyways. Yet there are others who might welcome the institutions to not only educate and bring in new investors to crypto but also provide some much-needed stability in a market that can sometimes feel like the wild west. Whatever the case may be, institutional investment in crypto is likely here to stay, with whales hoping to inject their vast capital into a less volatile environment.