I get asked often, who out there do you think can disrupt the new-age online brokers or even exchanges?
Me: I don’t think it will be another stock brokerage firm or a new stock exchange. It will most likely be an outsider, maybe Crypto. Here is why👇 1/6
In broking or exchange business, both on pricing and product, there is not much left to disrupt. Unless of course, someone figures a way to pay people money for trading (-ve brokerage😉not allowed by regulation) or figures a way to help all customers make money (😬very tough) 2/6
Brokers & exchanges depend on a small group of active traders, ~1million traders for revenue. If they start trading something else, that will disrupt everything. Btw, active traders also provide liquidity, reduce impact cost & risk, & help better price discovery. 3/6
Traders want high leverage, volatility, & markets to be open longer. Crypto😬kind of scores over stocks on these. Of course, trading crypto is a lot riskier & there is no fundamental information for price movements. But greed usually gets the better of most people with time. 4/6
Crypto is what has recently disrupted brokers & exchanges in the US. The AUM of Coinbase is $180 billion, and the crypto AUM of Robinhood Crypto is ~$11.5bil. Many incumbents couldn’t react quickly, fearing regulatory lash back and mostly missed the bus. 5/6
While Crypto is still small in India, we’re in a similar situation as the US, a few years back. The regulatory fear doesn’t allow regulated platforms to offer Crypto. Eventually, if the status quo on regulations continues, traders can move away & disrupt the broking industry 6/6