Objective:
Understand traditional and crypto markets.

Outcome:
Recognise unique trading opportunities in crypto markets.

Introduction

In Module 1, we explored the foundational principles of economics, from the concept of value to the evolution of money and the decentralised nature of cryptocurrencies. These insights laid the groundwork for understanding why Bitcoin and Ethereum have reshaped financial systems. Now, in Module 2, we shift our focus to market dynamics and how the crypto ecosystem operates differently from traditional markets.

This first lesson dives into the mechanics of markets, comparing traditional financial systems to the unique characteristics of crypto markets. By the end of this lesson, you’ll understand why crypto operates 24/7 and how this constant activity creates both opportunities and challenges for investors.

Understanding Traditional Markets

Traditional financial markets, such as stock exchanges, operate within fixed trading hours. For instance, the New York Stock Exchange (NYSE) is open from 9:30 AM to 4:00 PM Eastern Time on weekdays and closes on weekends and public holidays. These structured hours allow for centralised control, regulatory oversight, and downtime for settlement processes.

However, these restrictions often limit flexibility. For example, major news outside trading hours can lead to significant price gaps when the market reopens, leaving traders unable to react in real time. This limitation is particularly frustrating for retail investors who lack access to after-hours trading options.

A tall building with a flag on top of it
Photo by István Szitás / Unsplash

The 24/7 Nature of Crypto Markets

Cryptocurrencies operate on decentralised networks that never close. Bitcoin, Ethereum, and other digital assets are traded globally at any time, regardless of weekends or holidays. This round-the-clock activity stems from the decentralised blockchain infrastructure that underpins these assets. Transactions are processed continuously by miners or validators, eliminating the need for centralised oversight.

Key Benefits of 24/7 Trading

  1. Flexibility for Investors: Investors can trade whenever it suits them, whether they’re in New York, London, or Tokyo. This accessibility attracts a diverse global audience.
  2. Immediate Reaction to News: Crypto markets allow traders to respond instantly to breaking news or events, such as regulatory announcements or technological upgrades.
  3. Continuous Price Discovery: Unlike traditional markets, where prices are static outside trading hours, crypto markets constantly reflect real-time supply and demand dynamics.

Challenges of 24/7 Trading

  1. Volatility: The absence of downtime means that significant price swings can occur at any time, often driven by low liquidity during off-peak hours.
  2. Burnout for Traders: The relentless pace can lead to decision fatigue, particularly for active traders who attempt to monitor markets continuously.
  3. Security Risks: The constant activity creates more opportunities for cyberattacks on exchanges or wallets.

Real-World Example: Weekend Activity in Crypto Markets

Unlike traditional markets, where weekends are quiet, crypto often sees significant activity during these periods. For instance, retail investors tend to trade more on weekends when they have free time, sometimes creating unique price movements. A notable example occurred during a Bitcoin price surge on a Saturday in 2021, attributed to retail-driven buying frenzy.

This constant availability can also amplify reactions to major announcements. When Tesla announced its Bitcoin purchase in 2021, the price surged immediately—on a Sunday—highlighting the importance of crypto’s 24/7 nature.

black and white nike logo
Photo by Michael Förtsch / Unsplash

Comparing Traditional and Crypto Markets

  1. Centralisation vs Decentralisation: Traditional markets rely on centralised institutions, while crypto operates on decentralised blockchains. This difference explains the rigidity of trading hours in traditional markets versus the flexibility of crypto.
  2. Liquidity Cycles: Traditional markets experience predictable liquidity during trading hours. Crypto markets, however, see liquidity fluctuate based on global time zones, with peak activity often aligning with major economic hubs like the US, Europe, and Asia.
  3. Trading Tools: Traditional investors rely on tools like pre-market and after-hours trading, but these are limited and often inaccessible to retail traders. In contrast, crypto’s 24/7 market ensures equal access for all participants.

Conclusion

In this lesson, we examined how crypto’s 24/7 trading model sets it apart from traditional markets, providing both opportunities and challenges for investors. This round-the-clock activity reflects the decentralised and global nature of cryptocurrencies, empowering traders while demanding constant vigilance. In the next lesson, we’ll explore fixed-income opportunities in the crypto space, comparing traditional bonds with DeFi staking mechanisms.