Time was, anyone who wanted to invest in the stock market used a broker. That broker provided investment advice and handled all trades. The reason, of course, was that brokers did the research and had access to information that the average individual investor did not have.
All of this changed as technology provided individuals access to the same information that the “big boys” have always had. Now, individual investors go through discount brokerages for specific trades. They still engage in institutional investing, though, through their 401K’s and through investments in large funds and such products as annuities.
Enter cryptocurrency and its backbone blockchain technology. At first, digital currencies were viewed by institutional investors as an “exotic fad” – one to be avoided. They have sat up and taken notice, however, as Bitcoin and Ethereum climbed in value and, during 2018, seemed to reach an equilibrium that is more stable. Now, institutional investors, such as Goldman Sachs, are developing cryptocurrency investment products. This trend will infuse much more capital into the digital currency markets, as well as provide greater “legitimacy” and transparency.
It is not just the growth of digital currencies that is disrupting traditional financial and investment industries. The technology itself is changing the entire face of investing altogether. And here’s how:
1. Trading Cost Can Decrease
A recent report by Oliver Wyman, an international financial services consulting firm, has estimated that IT and operations costs in capital markets is close to $100-$150 billion a year, as well as an additional $100 billion in post-trade and securities servicing fees. These fees are passed on to customers in the form of such things as front-end loads and yearly administrative costs. Blockchain technology, with its transparent and immutable recording and storage of investment transactions, holds the promise of greatly reducing these costs by capitalizing on public blockchains.