3 Ways Wall Street Is Broken (and How Crypto Is Fixing It)
The current financial status quo is highly inefficient, to put it lightly. There are many toll collectors eating into cash flows and charging high commissions for every transaction made. Wall Street is no better. Stock exchanges and brokers charge investors for their operations, but give little in return. If we go a bit further and have a look at a corporate IPO market, the number of middlemen will be even higher. In this article, we’re going to look at three ways that Wall Street and the current financial system are fundamentally broken, and how crypto solutions could provide fixes.
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1) Wall Street Unproductive in Economy
Wall Street is a profit machine for its main players, at the exclusion of everyone else.
Today, the market infrastructure is organized only for the benefit of investment banks, stocks, and futures exchanges. It ends up being the investors and traders making transactions. The growing commissions fatten and perpetuate the system. The investment banks are, in many cases, nothing more than middle men.
Economist at Columbia University and author of The End of Poverty Jeffrey Sachs, who was an adviser to Bernie Sanders during his Presidential campaign, has described in detail why Wall Street is not contributing to the economy. According to Sachs, big players turned from financing real-world projects (steel, railroads, industrial machinery, consumer products, telecommunications, etc.) to just “shaving a nanosecond from high-frequency stock market trades.”
It goes without saying, but ultra high-frequency trading doesn’t help the economy or create more opportunities for regular people.
So what is the blockchain solution to the unproductive, selfish middle-man dynamic that reigns on Wall Street? Simply put, cryptocurrencies and blockchain are very good tools for cutting out traditional funding choke points. Now perhaps even a farmer can raise funds through launching an ICO by tokenizing their business and getting a farm up and running. In other words, a democratization of the economy helps to bring the economy to everyone.
Indeed, the ability to facilitate direct trades of value with no third parties is perhaps crypto’s most revolutionary aspect . One example is Ethereum-based payment system Monetha, which makes transactions easy and less expensive for both sellers and buyers. This tool will be able to make transactions 5-times cheaper and 10,000-times faster than traditional payment systems. And this is just one of many blockchain solutions in this regard.
2: Financial Doping
The financial crash of 2008 that devastated the world’s economy was caused by big investment banks playing with synthetic CDOs. The global economy lost some $35 trillion USD in assets from that financial crisis.
Ten years later, the same people are not exploring new financial instruments, and few of them really consider how they could give customers new investment tools. Instead, they are relaunching the scheme that brought them tons of money and led to millions of people losing their savings and homes. Citigroup, for example, is conducting billion-dollar CDO sales which are made possible by a lack of accountability by the society that big banks supposedly represent.
Let’s put it this way: big banks want fast money and prefer to get it without cryptocurrency.
It is easier to use financial doping of synthetic CDOs, which have nothing behind them. This is unlike bitcoin and other top cryptos, which are built on top of a mathematically-guaranteed tech that is already changing the world and creating an explosion of economic, technical, and legal innovation, much of which is being driven by a zeitgeist to fight back against Wall Street’s more nefarious cutthroat dimensions.
3: The ‘Me First’ Mentality
Accountability is important for financial markets. It helps to protect consumers and provides long-term market growth.
However, traditional Wall Street players are not inclined to work on being more transparent. They don’t want customers to understand how their commissions and fees are calculated. Allowing them to use financial instruments that are more transparent and accountable than anything else on the market is definitely not what they want.
Here’s a good example of this. The Futures Industry Association, which represents all the big banks and other futures traders, criticized the Commodity Futures Trading Commission (CFTC) for too rapid an approval of newly born bitcoin futures, warning investors to hold off.
Another example is the infamous JPMorgan Chase CEO Jamie Dimon, who said in October 2017 that people who buy bitcoin are “stupid” and that the whole thing is a “fraud.” Shortly after, the press reported JPMorgan has begun looking into bitcoin futures investments, and the bank’s analysts see the potential to elevate cryptocurrencies to an emerging asset class.
Anyone can see what Wall Street does. They try to cover the eyes of their audience with one hand and take their money with the other. Standing up against this approach is in the very nature of cryptocurrency and blockchains. A number of new-breed fintech startups are working on embracing this mindset as a result.
For example, Messari, an open source database, is offering transparency to investors on newly-issued tokens. The Brooklyn Project by Consensys focuses on protecting customers and setting standards for tokens. Even Coinbase investigated whether any employees may have violated its insider trading rules.
Traditional leaders of the financial markets, such as big banks and stock exchanges, think only about their own profit. Wall Street does not care about the economy, investors, or real people. This is partly why there are so many inefficiencies there — a major lack of accountability and no transparency is the status quo.
Crypto Solutions for Long-Standing Problems
Wall Street has managed to become so corrupt and self-centered because they have gone mostly unchallenged for over 100 years and have had laws and regulations set up to protect themselves from competitors offering better products and services. Crypto has changed all of that, seemingly for good.
First, blockchain technology can fix traditional finance inefficiencies and cut middle men out of the investment and money transferring process, reducing costs. On the investment side of finance, the Spectre project is working on excluding brokers from the investment chain where liquidity is completely owned by ICO investors.
Another potentially useful feature is crypto-backed lenders, which can offer massive flexibility and liquidity for crypto holders. One interesting project which we’ve written about before is Celsius, an Ethereum-based P2P lending and borrowing platform that may replace the functions of big banks and futures exchanges by allowing coin holders to earn returns by lending.
all Street has a 100 year head start, but they have failed to innovate and offer customer-focused solutions. As a result, their business model is about to be obsolete if the cryptoverse has its way.
What’s your take? Is crypto the antidote to Wall Street? Let us know where you stand in the comments below.
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