Imagine a world where you could buy stocks, bonds, derivatives, cryptocurrencies or even pieces of art, all on one exchange, 24 hours a day, seven days a week, from anywhere in the world.
On this exchange, trades occur directly between two investors instead of through a complex latticework of brokers, clearinghouses and other middlemen and gatekeepers. They settle, or close, almost instantly, instead of taking up to two days. The system is cheaper, more transparent and ostensibly more open. It is also potentially more volatile and risky for investors; profits can turn into losses in the wink of an eye at any time of the day or night.
Entrepreneurs have for years dreamed of using blockchain technology, the concepts and software underpinning bitcoin, to enable digital trading of virtually any asset. Today the idea seems less far-fetched than ever.
When trading of videogame retailer GameStop Corp. exploded earlier this year, it illustrated just how fragile today’s markets can be. It also showed that a new generation of stock traders operates much like crypto traders: Flash mobs of retail traders gathering on social media and targeting an asset for a mass-buy has been a hallmark of cryptocurrency trading for years.
The current capital markets aren’t built for that kind of trading, but a number of pilot programs and other experiments are investigating how to create digitized markets that can keep up with changing times. “We’re seeing a tectonic shift start to happen,” says Jeffrey Schumacher, the founder of New Asset Exchange, a Manhattan Beach, Calif.-based startup that aims to help companies create and sell digital securities.