Thanks to its high volatility and price momentum, cryptocurrency is an increasingly popular asset class amongst retail day traders. CFDs that track price changes in major tokens make cryptos even more accessible for investors without the steep learning curve that traditionally accompanies cryptocurrencies.
Fewer Obstacles Attract Investors to Products That Mirror Cryptos 1-to-1
Over the last year, the resurgent popularity of cryptocurrencies, which has closely tracked the appreciation in major coins, has managed to drive more awareness and engagement than the previous adoption wave, demonstrating cryptos staying power. Besides drawing enormous attention to the space, more consumers than ever before are using cryptocurrencies as a means of transacting.
For eager traders, cryptocurrencies’ opportunity is evident due to their volatile characteristics and rapid price swings. Unlike traditional asset classes like stocks, bonds, foreign exchange, or commodities, cryptocurrencies often make double-digit percent-based movements intraday, making them an exceptional tool for speculators and day traders attempting to capitalize on sharp market swings.
Still, just like engineering a car requires mechanical savvy, climbing aboard the blockchain train demands a serious learning curve. Between setting up wallets, learning the difference between private keys and public addresses, and the process of sending or receiving cryptos, the volume of reading that these processes entail are considerable.
Many companies are rising to the occasion to make cryptocurrency more accessible through the streamlined use of these products. Popular companies like PayPal now offer customers in select locations the opportunity to buy, sell, hold, and transact in cryptocurrencies with eligible merchants. In other areas, brokerages like Robinhood now offer the capability to buy and sell crypto within accounts.
The beauty of these developments is that cryptocurrencies have never been more available and straightforward. Yet, there are drawbacks. Investors can buy, sell, and hold, but ultimately they have no other utility. In effect, these holdings represent mere IOUs. Because individuals who hold these cryptos in their accounts don’t hold the private keys, the hardcore Bitcoin community will be quick to note that these investors don’t have ownership over actual coins.
Although both Robinhood and PayPal have promised to expand the supported services gradually, they remain mere announcements that haven’t fully materialized. Accordingly, CFDs present a far better alternative for those traders that wish to gain exposure to the asset class without the fuss of learning how wallets and other blockchain infrastructure works.
CFDs: Answering The Calls for Lower Infrastructure Demands
Contracts for difference, or CFDs for short, are a derivative product that effectively tracks the price changes of an underlying asset. They became popular among retail brokerages and even institutional clients seeking a frictionless way to trade more traditional assets like stocks and bonds without geographical restrictions. Now, the same model has been applied to cryptocurrencies.
Because CFDs eschew the infrastructure to offer cryptocurrencies relative to centralized exchanges like Coinbase that must provide hot and cold wallet infrastructure alongside robust cybersecurity measures, they have become increasingly popular instruments among online brokerages. Nearly any brokerage platform that already offers CFDs can rapidly add cryptocurrencies in the same form, improving the value proposition for existing clients.
For clients, the advantages are very evident. Besides the easy on and off-ramp for their fiat currencies, the ability to settle trades in cash instantaneously poses excellent value for short-term traders capitalizing on volatility. Moreover, more online brokerages like easyMarkets accept cryptocurrency as a method for depositing and withdrawing funds, or even denominating trading account values, just like any fiat currency.
While those who Hodl may be better suited to centralized or decentralized crypto exchanges, an online brokerage can deliver these products, often with modest leverage and extremely low transaction fees, to an existing client base seeking access to these novel offerings. When Ethereum gas fees and centralized exchange fees are so substantial, this translates to real value for traders seeking to enter and exit the market quickly.
Best of all, these activities can take place in a highly compliant environment, making it essential to select a regulated online brokerage to handle these trades. Even if traders don’t directly own the underlying crypto, a trusted exchange issuing CFDs can provide a seamless experience that translates to real value for customers seeking these products.
Although the crypto traditionalists will be quick to jump on the custody issue, the reality of an ecosystem that doesn’t demand a steep learning curve represents a compelling value proposition that attracts more attention to cryptocurrencies, ensuring their long-term longevity and staying power.
What do you think about crypto CFDs? Let us know what you think about this subject in the comments section below.
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