Credit: ShutterstockInvesting and gambling are very similar. Both involve money changing hands via intermediaries, are unpredictable and have allowed entire industries to flourish by convincing people they can beat the system. Those similarities make Bloomberg's report Friday that E*Trade plans to branch out from traditional investing by allowing its users to trade Bitcoin and Ethereum seem like a natural progression for the company.
E*Trade wouldn't be the first company to offer cryptocurrency trading, but it would be one of the largest and signal broader acceptance for the practice among traditional finance companies. Trades usually take place on various exchanges that also let people trade their digital hoard for various real-world currencies (or whichever description of actual money makes you feel the most comfortable, cryptocurrency enthusiasts).
Yet, these exchanges have suffered from a few problems in the past. The most infamous example is Mt. Gox, which was repeatedly hacked and spectacularly mismanaged to the point that 850,000 bitcoins worth roughly $460 million vanished over the course of several years-long hacks. Another exchange, Quadriga, cost investors $185 million worth of cryptocurrency when its founder died without sharing critical passwords with anyone.
Most recently, the New York State Attorney General (NYAG) filed suit against Bitfinex and Tether for lying about continuing to operate in the state, which they were kicked out of after they struggled to return people's funds following what the NYAG said was an undisclosed theft of some $850 million in cryptocurrency. The for April 24. Bitfinex responded to the suit by assuring shareholders that its funds weren't lost; they were seized by regulators. Yay!
Not all exchanges have these problems, of course, but these failures have affected how the general public views cryptocurrency trading. E*Trade might be able to change that, especially as other financial companies like Robinhood get into the crypto-trading business as well. Still, would they be able to change the fact that cryptocurrency prices are often unstable with frequent booms and busts with causes that are hard to identify?
No, but maybe that doesn't really matter. Pretty much anyone claiming to understand the stock market is either chasing a commission or deluding themselves just as much as the gambler who swears they've figured out how to win every game of roulette without cheating. Even the most successful investors make mistakes--the difference is that they were betting on a given company's success rather than hoping the price of Bitcoin will start rising again.
Bloomberg reported that E*Trade plans to enter the cryptocurrency market soon but hasn't made any official statements. Cryptocurrency trading will reportedly start with Bitcoin and Ethereum, and other cryptocurrencies might be added in the future. We suspect that will depend on how the company's audience responds to the new offering and whether or not a new "coin" attracts the same attention as Bitcoin and Ethereum.