By Thomas Perfumo, Kraken Head of Strategy
As crypto’s influence grows, it is clear TradFi must adapt as 24/7 trading becomes a global and generational expectation.
Born for this: The crypto advantage
Cryptocurrencies revolutionize trading by allowing transactions to occur anytime, anywhere. This democratizes access, enabling a global community of investors to engage in trading whenever they choose.
Born in the digital age, crypto’s inception takes full advantage of all the power and efficiency a widely distributed internet has to offer. Crypto doesn’t have to worry about the deeply embedded difficulties in upgrading outdated, semi-analog systems because those systems simply never mattered to crypto in the first place.
Cryptocurrencies, unshackled by time zones and traditional market constraints, are redefining trading. They leverage technology to offer seamless, round-the-clock access and provide a stark contrast to the limitations faced by traditional systems.
The most legacy of legacy systems: TradFi’s disadvantage
Traditional markets, such as stock exchanges, have historically operated within set hours and are often closed altogether on weekends and holidays. This limited access is increasingly seen as a disadvantage in a world where digital assets never stop trading.
The New York Stock Exchange (NYSE) was founded in 1792. The U.S. president was George Washington. The French Revolution was in full swing. Over 230 years of law, power structures and relationships come to bear any time a significant change in its operations are considered.
Still, the NYSE is exploring the possibility of 24/7 trading for equities, recognizing the growing demand for continuous market access. The world’s largest and most liquid stock market offers equities that are largely owned by global traders and investors. Many have to conduct their workdays in the middle of the night to accommodate the NYSE’s current 6.5-hour window of regular trading from 9:30 a.m.-4:00 p.m. ET. Of course, only Monday through Friday, and not even then on U.S. federal holidays.
Traditional financial institutions, rooted in centuries-old practices, are struggling to adapt to the demands of continuous trading. The NYSE’s tentative steps towards 24/7 operations highlight the growing pressure to evolve.
Philosophical and functional challenges in transitioning
The transition to 24/7 trading poses significant challenges for TradFi, including resistance from its gatekeepers. High-friction, limited-hour, slow-settlement transactions maximize the power of intermediaries — like exchanges, brokers and clearinghouses — which each have their own interests. Few are served by the faster, nonstop, instant settlement standards of crypto. A web of TradFi intermediaries and participants would have to agree to work together to make 24/7 trading successful.
Such technical and motivational complexities are high hurdles for the adoption of nonstop trading hours. The TradFi system is built on principles that inherently create friction, such as circuit breakers in equity markets or changes to “market norms,” such as benchmarks — as reflected in the slow transition from LIBOR to SOFR.
Making changes in an integrated system that is over 100 years old poses systemic challenges. Even the above shift, from one benchmark number to another, threatened global functional integrity, per the New York Fed: “The pervasive use of LIBOR across all market segments made the transition particularly complex, since the disruption or cessation of LIBOR posed significant risks to financial stability overall.”
Transitioning 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 enacting this shift any time soon.
A legacy system’s self-interested inertia
Another reason TradFi has relied on mechanisms that introduce friction at the expense of clients is that they help to slow down market activity, making it easier for intermediaries to protect their interests during times of market stress.
For example, banks historically slowed down physical services during runs to prevent panic withdrawals. But the rapid bank failures witnessed in recent years, triggered by digital withdrawals, highlight the challenges of adapting legacy systems to the digital age.
But a new generation of traders has never known anything other than a digital world of instant accessibility, even while on the move. As the overall market’s expectations and demands change, TradFi will have to adapt to meet the moment.
TradFi’s reliance on friction-inducing mechanisms reflect a self-preserving inertia. In making a change, TradFi standard bearers will have to show allegiance to end clients above the intermediaries who have always taken their cut. The “toll taker” will resist a change in structure particularly because their very existence is on the line. Crypto was built by the people to serve the people; it doesn’t face the same existential questions.
TradFi’s arduous road ahead
The 24/7 trading revolution has begun. The future of finance will belong to those who can embrace this new reality. Traditional markets must rise to the challenge or risk being further eclipsed by the relentless innovations of the crypto world – including directly competitive products like 24/7-trading tokenized stocks.
TradFi’s futures competitiveness will depend on its ability to integrate blockchain technology and continuous trading. The path forward will require swapping out entrenched systems and attitudes for new technologies that can offer the same level of accessibility and efficiency that cryptocurrency already provides.
These materials are for general information purposes only and are not investment advice or a recommendation or solicitation to buy, sell, stake or hold any cryptoasset or to engage in any specific trading strategy. Kraken does not and will not work to increase or decrease the price of any particular cryptoasset it makes available. Some crypto products and markets are regulated and others are unregulated; regardless, Kraken may or may not be required to be registered or otherwise authorised to provide specific 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 cryptoasset markets can lead to loss of funds. Tax may be payable on any return and/or on any increase in the value of your cryptoassets and you should seek independent advice on your taxation position. Geographic restrictions may apply. See Legal Disclosures for each jurisdiction here.
