Economy Matter

Nine facts for your next cryptocurrency and digital trading debate

Debating about cryptocurrencies is not that difficult, but you have to know the facts to not get easily beaten by intuitive arguments.

DISCLAIMER: This post contains content that may be objectionable. It represents the personal observations of the author and is mainly purposed for competitive debate education. It should not be taken as professional advice.

With cryptocurrency and online trading being increasingly adopted by people worldwide, it’s not a surprise that we’re seeing more of these motions in our debates. Often, I’d see a team that supports this trend run an argument about accessibility, and how this unlocks a new way of getting passive income for the people previously locked out from it.

And that argument is so intuitive, it’s sometimes difficult to counter as long as the team successfully defends it. One way to not get beaten by intuitive “accessibility” arguments is knowing how the system works, so let’s have some facts ready for your next debate.

Commission-free online stock trading: what you might not know about Robinhood

Robinhood Markets, Inc. is an American financial services company known for pioneering commission-free trades of stocks, exchange-traded funds and cryptocurrencies via a mobile app. Essentially, it allows you to trade in the stock market without paying a fee per order. In many countries, similar apps have also emerged, and the case of Robinhood is one that likely applies widely.

1. Is it actually cheaper?

Let’s look at Robinhood. It makes money by selling your order flow, which may “cost” you a few cents per share.

A Securities and Exchange Commission inquiry concluded that for most orders of more than 100 shares, Robinhood customers would be better off trading at another broker-dealer. The analysis further determined that the larger the order, the more significant the price improvement losses for Robinhood customers—for orders over 500 shares, the average Robinhood customer order lost over $15 in price improvement compared to Robinhood’s competitors, with that comparative loss rising to more than $23 per order for orders over 2,000 shares.

So you might feel like it’s cheaper and you pay it less, but your returns—your gain on a net—would be bigger if you traded elsewhere.

2. Gamification, or… Gambling?

Because Robinhood gets paid per order, it doesn’t want you to put your money in some stocks and hold it there for a long time (invest). It wants you to buy and sell as much as possible (trade). So it’s not what you want to rely on to educate yourself about investment.

There are many ways it makes you engage in risky choices. It offers margins (lends you money so you want to trade). It uses rewards and confetti to give the app a casino sense. It encourages people to buy options (a type of investment that can be riskier than shares) with its UI because it earns more from there. It makes popularity-based stock recommendations that induce FOMO.

3. Flawed risk management

When GameStop’s stocks crashed, more than 50% of Robinhood’s users held their stocks. Because collateral requirements were raised, they had liquidity issues, and decided to stop allowing people to buy Gamestop. This caused the stock to crash.

What’s worse is, until the moment before they did that, they had no warnings about the volatility or riskiness of these stocks as other brokers did. 

Image from Wikimedia Commons

Digital currencies, and all the memes they take form in

The dictionary definition for “cryptocurrency” is that it’s a digital currency in which transactions are verified and records maintained by a decentralized system using cryptography, rather than by a centralized authority. They’ve been pretty hot for investors because their values rise up in greater speed than other forms of investment. However, here are the downsides:

1. Their values are unpredictable

Crypto prices are largely based on news events and demand, not based on company earnings like stocks are. This means that it’s highly volatile according to how many people buy and sell it— Bitcoin once declined 18% in an hour! While volatility may not be a bad thing at face value, it sure says that it’s difficult to correctly estimate the value of a cryptocurrency and pick the right one to buy.

At the same time it means it’s difficult for you to learn how to invest in it, because even if you research crypto companies, you’re not going to be able to predict what happens. At least not as much as you would with a company, the success of which you can determine by seeing things like how useful its product is and how many people will need it.

With the unclear utility of crypto, and how it’s never survived a crash as big as the Great Depression, it also means there’s a lot of uncertainty it can survive a crisis. What if a coin plummeted so bad that people never return to investing in it… And its value never recovers?

2. Are they liquid?

Again, cryptocurrencies lack a clarity in value, which hampers their convertibility and insurability. The majority of crypto-assets and crypto companies are either under-insured or uninsurable by today’s standards. There is no deposit insurance “floor” for this asset class, which can help broaden appeal and investor security.

Furthermore, you might have problems in withdrawing crypto. At times, the exit can be barred due to technological constraints, currency inconvertibility and few counterparties with whom to trade.

3. A risk of scams

The popularity of cryptocurrency has also definitely attracted scammers. The reason this is lucrative is because crypto transactions are irreversible. Once a transaction has been approved, it cannot be deleted from the blockchain — even if it wasn’t submitted by the actual owner of the Bitcoin. So fraud is actually still common.

In fact, Cryptoasset risk manager Elliptic notes that decentralized finance users and investors have suffered losses of $10.5 billion as of November 2021 due to theft and fraud, up sevenfold from $1.5 billion in 2020.

Hackers have done things like pose as Elon Musk on Twitter to scam people on buying coins, lure them to put money into fraudulent decentralized finance platforms, and sell fake NFTs. Recently, a quickly rising Squid Game Coin (made by a scammer) had already taken millions when people realised they couldn’t sell their holdings. It just disappeared with everyone’s money. People are doing it either for the meme or for the gains, but they all realise it’s not so cool when they get scammed.

Image from ComplyAdvantage

Arguments supporting these financial instruments

Aside from the intuitive “accessibility” argument, here are three others you can run if you’re on the side in favor of these financial instruments.

1. Competition

Companies will always compete with each other and innovate. They’re always racing to cover all their shortcomings, because the one with the most consumers is the one that is most able to fulfill the consumers’ interest.

With online trading, companies present different features. Webull offers a series of trading courses and a trading simulator or demo trading account with real-time data and advanced charting capabilities. Fidelity helps you do free research from whatever news source you’d like to make better decisions.

With cryptocurrency, you have multiple companies with different systems. For example, Bitcoin limits its supply to 21 million tokens, and that scarcity drives up its value. Ethereum offers not just a currency, but real-world applications in its platform that has sustainable value. Cardano is known as the most eco-friendly major cryptocurrency.

2. Education

Apart from the in-app education you can have with the courses and research previously mentioned, there has been a surge of social media accounts that try to educate people on the matter of these instruments. Coin Bureau on YouTube has 1.75M subscribers. Andreas Antonopoulos, a crypto educator on Twitter, is followed by over 600K people.

This means that education to avoid fatal mistakes on investing is more available now than ever, and people will be able to learn how to invest safely.

3. Regulation

Countries are aware of the double-edged sword these trends bring, and many have passed measures to ensure everything is safe. In 2017, Japan passed a Virtual Currency Act where the government issues a list of approved virtual currencies. In Canada, crypto trading platforms and dealers in the country must register with state regulators. The UK banned crypto derivatives trading, which is a type of investment tied to crypto considered dangerous for its liquidity risks.

So, it’s definitely possible for governments to monitor various financial platforms and enforce rules for them.

There you have it! With some more insight to how the systems of online trading platforms and cryptocurrency work, you’ll be able to run more sophisticated arguments. If your opponent doesn’t have the spec knowledge in this area, they’ll have a harder time taking down your points.

What I want to remind you is don’t forget to use comparatives and weighing whenever you can! Depending on the debate, there are various other things you can point to for even more depth. Facts are not everything, remember to just debate based on usual debating frameworks to keep points standing.

  • This House regrets the rise in the use of easily accessible online platforms for trading stocks, cryptocurrency, and other financial instruments (e.g., Robinhood, Etoro, etc.)
  • This House regrets the rise of digital currencies
  • This House supports India’s decision to ban cryptocurrency
  • This House believes that the practice of meme investing brings more harm than good
  • This House celebrates the gamification of trading and investing activities
    Context: Gamification of trading and investing activity incorporate the creation of “challenges”, “competitions”, and “rewards” surrounding the said activities. The process involves setting goals, tracking progress, and hitting milestones to unlock some kind of reward, which may range from cash incentives and redeemable points, to ‘exclusive’ features or privileges. Gamified trading and investing platform often employ PLB-points, leaderboards, and badges model to motivate users.
  • This House believes that Robinhood should abandon the ‘payment for order flow’ practice and charge direct trade commissions instead Context: Robinhood is a broker house made available to anyone with a bank account and an electronic device. They utilize the PFOF system. PFOF (Payment for Order Flow) is a system at which a brokerage firm (i.e. Robinhood) redirects individual investors’ stock purchases to a third party for execution. These third parties, not Robinhood, has the power to execute investor orders. In exchange, Robinhood receives compensation from those third parties. Direct Trade Commissions are when individual investors directly pay the brokerage firm a commission for executing a trade/stock purchase.

Further reading

The information in this article is a compilation of several sources, which are listed below. We recommend you read them for further understanding of the topic.

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