Written by Thomas Perfumo, Head of Strategy at Kraken
As the influence of cryptocurrencies grows and 24/7 trading becomes a generational expectation globally, it is clear that TradFi must adapt.
Born for this purpose: Advantages of Cryptocurrency
Cryptocurrency has revolutionized trading by allowing transactions to take place anytime, anywhere. This democratizes access, allowing the global investor community to engage in trading whenever they want.
Born in the digital age, cryptocurrencies take full advantage of all the power and efficiency offered by the widely distributed Internet. Cryptocurrencies don’t have to worry about the deeply inherent difficulties of upgrading older, semi-analog systems. Because these systems were never important to cryptocurrency in the first place.
Unbound by time zones and traditional market constraints, cryptocurrencies are redefining trading. It leverages technology to provide seamless access 24 hours a day and provides a stark contrast to the limitations faced by traditional systems.
Disadvantages of TradFi, the most legacy of legacy systems
Traditional markets, such as stock exchanges, have historically operated within set hours and are often closed entirely on weekends and public holidays. This limited access is increasingly seen as a disadvantage in a world where digital assets never stop being traded.
The New York Stock Exchange (NYSE) was founded in 1792. The President of the United States was George Washington. The French Revolution was in full swing. Over 230 years of laws, power structures and relationships are subject to significant operational changes each time.
Nonetheless, the NYSE is exploring the possibility of 24/7 stock trading in recognition of the growing demand for continuous market access. The world’s largest and most liquid stock market offers stocks primarily owned by traders and investors around the world. Many must work in the middle of the night to accommodate the NYSE’s current 6.5-hour regular trading window from 9:30 a.m. to 4 p.m. ET. Of course, this is only available Monday through Friday and does not cover US federal holidays.
Traditional financial institutions, rooted in centuries-old practices, are struggling to adapt to ongoing transaction demands. The NYSE’s tentative steps toward 24/7 operation highlight the growing pressure to evolve.
Philosophical and functional challenges of transition
The shift to 24/7 trading poses serious challenges for TradFi, including resistance from gatekeepers. High-friction, time-limited, and slow-settlement transactions maximize the power of intermediaries such as exchanges, brokers, and clearing houses, each with their own interests. Few people are offered the faster, non-stop, instant payment standards of cryptocurrencies. TradFi’s web of intermediaries and participants must agree to work together to make trades successful 24/7.
These technical and motivational complexities are a major obstacle to the adoption of non-stop trading hours. The TradFi system is built on principles that inherently create friction, such as changes to “market norms” such as circuit breakers or benchmarks in the stock market, as reflected in the slow transition from LIBOR to SOFR.
Changing an integrated system that is over 100 years old creates systemic problems. According to the New York Fed, even the above changes from one benchmark figure to another threatened global functional integrity. “The widespread use of LIBOR across all market sectors makes the transition particularly complex. “Overall financial stability.”
The transition to 24/7 trading is fraught with philosophical and operational challenges for TradFi. The entrenched interests of intermediaries and the complexity of legacy systems pose significant obstacles to implementing these changes anytime soon.
The selfish inertia of legacy systems
Another reason TradFi has resorted to a mechanism that creates friction at the expense of its customers is that it helps slow down market activity, making it easier for intermediaries to protect their interests in times of market stress.
For example, banks have historically slowed physical services during execution to prevent panic withdrawals. However, the rapid rate of bank failures witnessed in recent years due to digital withdrawals highlight the challenge of adapting existing systems to the digital age.
But the new generation of traders has known nothing more than a digital world that is instantly accessible on the go. As the expectations and needs of the overall market change, TradFi must adapt to the moment.
TradFi’s reliance on friction-induced mechanisms reflects its self-preserving inertia. When making changes, TradFi standard holders must show loyalty to the end customer rather than to the intermediaries who have always done their part. “Rate collectors” will especially resist structural change because their very existence is at stake. Cryptocurrencies were created by people to serve people. You don’t face the same existential questions.
TradFi’s Bumpy Road
The 24/7 trading revolution has begun. The future of finance will belong to those who can embrace this new reality. Traditional markets face the risk of being further overshadowed or challenged by constant innovation in the cryptocurrency world, including directly competing products such as tokenized stocks traded 24/7.
TradFi’s future competitiveness depends on its ability to integrate blockchain technology and continuous transactions. Moving forward requires replacing entrenched systems and attitudes with new technologies that can provide the same level of accessibility and efficiency that cryptocurrencies already provide.
These materials are provided for general information purposes only and are not investment advice or a recommendation or solicitation to buy, sell, stake or hold any cryptocurrency or to engage in any particular trading strategy. Kraken does not and will not seek to increase or decrease the price of any particular cryptocurrency it offers. Some cryptocurrency products and markets are regulated, while others are not. Nonetheless, Kraken may or may not be required to register or obtain approval to offer certain products and services in each market, and you may not be protected by government compensation and/or regulatory protection schemes. The unpredictable nature of the cryptocurrency market may result in loss of funds. Taxes may be payable on the appreciation and/or reporting of your cryptocurrency assets and you should seek independent advice on your tax position. Geographic restrictions may apply. Please see the legal disclosures for each jurisdiction here.