As the stock market is seeing the demise of the broker, the crypto market is seeing its revival.
Unlike the stock market, the crypto market is fragmented and filled with challenges around security and lack of regulation. There’s always new developments and while information is easily accessible, it might not be the most relevant.
This was a problem Karl Thompson faced in the crypto markets in 2017.
“There was a whole world of no regulation, very grey, very untrusting and I just didn’t feel comfortable doing this and I’ve been in the finance industry for 20 years, I own a stockbroker,” said Thompson, co-founder of UK crypto broker GlobalBlock. “I was thinking if I’m finding it hard to buy this coin and I’m an experienced financial professional, then surely 92% of the population are going to find it just as hard and there must be a better way to do this.”
That’s when Thompson teamed up with his childhood friend David Thomas to launch GlobalBlock.
“We felt well there’s got to be a little gap here for actually a phone broker to help people get into the market and trade the market,” Thomas said.
Four years later, GlobalBlock offers over 80 assets to clients and aims to become a one-stop shop for crypto trading for wealthy individuals in the UK.
The only asset the firm doesn’t offer is privacy coins, which afford total anonymity by obscuring both their origin and destination in a transaction. The most widely traded is Monero, which has a market capitalization of around $4.5 billion.
The rationale for excluding privacy coins is the company has tried to operate as a fully regulated entity from day one, with careful scrutiny of the legitimacy of its clients’ funds. It is also temporarily registered as a crypto-asset business with the Financial Conduct Authority, the UK securities regulator.
Even with a stricter process in place than most competing services, the firm has seen revenues and trading volumes surge alongside crypto prices.
Trading volume has surged almost 200% so far this year, compared with the same period last year and has already surpassed last year’s revenues too, with $2,400,000 year-to-date, according to unaudited files.
Most clients either employ a traditional buy-and-hold strategy, or use day-trading strategies to make quick gains.
More proprietary traders are coming into the market after recognizing they can leverage traditional strategies in the crypto markets and see much larger returns, Thompson said.
But with more players entering each day, are there still trading opportunities?
The team at GlobalBlock thinks so, particularly with the alt-coins and tokens associated with blockchain technologies.
“Until such time as the world continues to get more comfortable with crypto, till the regulation gets better, which inevitably and ultimately it is on a year by year basis, you will still see volatility that presents opportunities,” Thomas said. “But I do feel that over time, volatility will come in.”
Volatility is actually good for the business from a crypto broker standpoint, as it drives an emotional investing response and the scope for clients to net bigger profits is greater. The recent price swings in the crypto markets hasn’t worried the founders.
The worst thing a brokerage can have is a flat market, Thomas said, because no one wants to sell or buy, given the limited room to make a profit on modest price fluctuations.
Bitcoin vs ether
Two of the leading cryptocurrencies, bitcoin and ether, have experienced significant volatility in recent weeks. Both have lost around 40% in value in the last month alone.
Thomas suspects ether, the native currency of the ethereum network, will ultimately shoot up in price over the longer term, as it’s undervalued relative to bitcoin.
What’s currently holding ethereum back is the high gas fees, Thomas said. Gas fees are the price miners have to pay to complete a transaction and they can fluctuate depending on network demand. However, once the ethereum network is upgraded to version 2, this should help lower the fees and move the project forward, he added.
With many people still continuing to build projects on the ethereum network, Thomas is positive on the outlook.
“I think if you look at ethereum, I think the future is really bright, I think that it is very, very cheap, where it is now over a five-year period,” Thomas said.
“They’re out there being the ‘ethereum killers’ and they’re both amazing projects,” Thomas said.
But just because ether starts to rise, it doesn’t necessarily mean bitcoin disappears. It will continue to have an inherent standing at the top of most crypto-enthusiasts’ lists, Thomas said.
“What’s far more likely is that we will have another wave upwards and I think you will see bitcoin push up towards the high $10,000s towards $100,000, let’s say, but then I think it will find a place there for a period of time,” Thomas said.
As a brokerage firm, they try to take a more measured and realistic approach to bitcoin pricing based on their experience operating in traditional markets.
“You’re going to see these lags and surges accordingly … I don’t think the markets are about to die a death, and I think we will see it start to move back,” Thomas said.
Breaking into crypto
If investors want to get into crypto and know very little about the space, Thomas recommends first looking at bitcoin as it helps investors get a feel for the blockchain by understanding how bitcoin works, from security to wallets. Then investors can move to more sophisticated products.
“I definitely advocate a ‘walk before you run’ situation,” Thomas said.
In terms of Thomas’s own crypto strategy, he keeps around 70% to 80% of his assets in the main coins, such as bitcoin and ether and allocates around 20% to 30% to so-called alt-coins – an umbrella term that refers to the tokens other than bitcoin and ether.
“Now obviously, the more esoteric you go, the greater the gains you can get, but equally, the more you’ve got to monitor them,” Thomas said. “And as much as I’d love to, I just don’t have the time for monitoring anything at the moment.”