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In this article we discuss how crypto trading has changed over the time with help of new technologies entering the scene. Read on to learn more.
Technological innovations are the root of most modern developments. For example, blockchain technology has influenced and improved almost every industry, including the financial sector, creating new opportunities for casual traders to gain exposure to a previously restricted market due to the high entry price.
Now, cryptocurrencies offer equal access to a broader array of investors, creating a new economic paradigm driven by peer-to-peer interactions on the blockchain. There is, however, a difference between how traditional finance and decentralized protocols work. While both markets have benefited from technological innovations, crypto has gained more momentum in recent years.
But what caused the high influx of people? Higher financial returns due to volatility are the main reasons why users jumped ship. However, with a better technological trading framework, traders can take advantage of crypto’s main drawback – and improve their portfolio.
In light of new technologies that are being developed and onboarded by traders, this article helps explain how crypto traders can benefit from emerging digital innovations.
The Habit Of Relying On Technologies
Science fiction has always made the right predictions. Innovations offer limitless possibilities, regardless of their applicability. For example, we can now communicate with everyone worldwide or have 24/7 access to new financial markets. But the balance goes both ways.
As human beings, our habits are derived from our daily routines. However, when adding automation or A.I. into the mix, the notion of work fundamentally changes because we can do more in less time, and such is the case with trading. While traders use the same fundamentals when trading, they now have access to new tools that make their experience much easier.
Our habits have been positively disrupted to a certain extent. New technologies don’t appear just for the sake of it. Humans develop them in order to alleviate some of the existing pain points we experience. In trading, for example, they rely on fundamental values to improve a trader’s profit margins.
With the popularity of crypto markets surging and new protocols being embraced by institutions, new technologies such as automation change the trading experience. In the 24/7 market, traders can detach from active trading and allow a system to do the trading for them. It might sound simple, but each new tech must be mastered to be valuable.
How Did Crypto Trading Change?
By default, blockchain and cryptocurrencies are synonymous with innovation. However, in 2021 blockchain adoption increased by 888%, denoting demand for new digitized products that challenged the “old-ways”.
Now, cryptocurrencies are no longer seen as speculative assets, at least not those with real-world applicability. The blockchain space is continuously evolving into a broader ecosystem, one focusing on the primary industry it initially aimed to disrupt. To answer how technology is redefining crypto trading, we have to explore the growth of the DeFi sector in order to emphasize how new standards are replacing the old ones.
DeFi
DeFi emerged as one of the most advanced blockchain applications, challenging the world of finance by asserting itself as one of the highest-grossing sectors in the blockchain space. 2020 was the summer of DeFi, with protocols such as AAVE or Compound unlocking new ways for users to interact with financial instruments without relying on intermediaries. Through DeFi protocols built on top of blockchain technology, users could lend, borrow and transact cryptocurrencies through user-generated liquidity pools.
The total value locked (TVL) of all DeFi protocols amounts to $237 billion. By contrast, the TVL in December 2020 was only $23 billion. That said, with DeFi and P2P-enabled transactions, crypto trading has entered a new stage because it creates a free and uncensored market for users to transact freely without relying on large financial institutions to mediate and ensure liquidity.
DeFi 2.0 is the next step of decentralized finance. Protocols will offer traders and crypto users a more seamless integration of financial tools, allowing them to place stop-loss or option calls on decentralized exchanges.
Artificial Intelligence
Artificial intelligence is the disruptive innovation that has changed how crypto traders use data sets to improve their trading performance. Before, traders had to spend ages selecting, analyzing, and identifying patterns. Now, artificial intelligence can be programmed to produce complete outlooks of large chunks of data, offering traders multiple ways to trade.
A.I. is thus a crypto trader’s sidekick or trustee because it can use existing data to make predictions and patterns using price history, social listening, or any other indicator. Crypto is a socially linked asset, and every bit of information offers traders an edge in their trading strategy. For example, traders can decide using Twitter listening to identify a pattern between the number of token mentions during a time frame and a token’s price volatility. However, data reliability and the sample size impact every computation’s success. To that end, A.I. has redefined how crypto traders make decisions using extra data sources.
Automation & Bots
The ongoing state of the crypto market is a blessing and a curse. Why is it a curse? It’s simply because the human brain cannot operate around the clock, and, without rest, a trader’s results will significantly decline. However, the continuity of the market has its benefits because it creates countless possibilities for traders to generate revenue due to volatility spikes.
Thankfully, automation has developed into an easily accessible trading product. Crypto traders can automate trading by creating algorithms for opening and closing trade positions based on specific parameters. Thus, bots have grown to become a preferred trading tool for most traders because they allow for trading continuity 24/7.
Crypto markets are characterized by volatility, affecting a trader’s decision-making and thought process because it creates fear, uncertainty, and doubt. In response, bots remove human emotions from the equation, relying instead on a trader’s understanding of market indicators or other input.
But is it advantageous? We already discussed that automation makes crypto trading more straightforward, given that it relies only on data input. However, trade automation also helps users maintain their discipline when it comes to asset management by preventing impulsive trades. Additionally, crypto traders can benefit by interacting with multiple assets simultaneously and preventing any mechanical failures from manual trading.
Platforms such as Robinhood, which are recasting crypto into a mainstream asset class by making it more accessible to every user, also implement trading automation. However, several market offerings allow users to select premade bots or create bots from scratch while connecting to exchange APIs. For example, using Binance API, you can create a bot for trading cryptocurrency on this exchange.
StableCoins
Stablecoins are the crypto innovation that helps connect traditional and crypto markets through at least one commonality – pairings. Before stablecoins were introduced, each trade had a BTC pairing, making trading a bit more confusing as users had to refer to the value of tokens in decimals or satoshis.
USDT or Tether was launched in 2014 and differed from most cryptocurrencies. While crypto is volatile, stablecoins have no volatility because they are pegged to $1. Thus, stablecoins provide an opportunity for traders to interact with a less volatile asset that is secured by the same blockchain technology they are trading.
Moreover, stablecoins also offer additional financial incentives for traders simply because transfers incur minimum fees, allowing traders to keep their profits in an asset with a similar value to a dollar and transferring them between wallets, bypassing banking crypto regulations.
Has Technology Redefined Crypto Trading?
The digitization of trading and crypto trading has brought about several advantages for different types of traders. However, the chaotic state of the crypto market demands new features to be on-boarded by traders in order to navigate the industry’s rapid development.
Technology is not redefining crypto trading. Instead, crypto trading is pushing the boundaries of innovation to increase the effectiveness of every trader. However, being a crypto trader is not an easy task. Due to Bitcoin’s high volatility index, markets can dump more violently than regular financial markets.
Thus, technology has developed to safeguard traders’ investment and alleviate most variance in trading. In addition, technology is changing how traders approach crypto trading, as new protocols that redefine traditional finance will become the new trading standard for crypto traders. In short, technology benefits every trader because it minimizes the workload while increasing the possibility of generating a higher ROI.
