What Is an Intermediary/Middleman?
An intermediary or middleman refers to financial institutions such as crypto exchanges, investment banks, financial advisors, credit unions, mutual funds, and investment trusts.
Using a financial intermediary offers several advantages to consumers, including increased liquidity and enhanced security.
Intermediaries’ Cost Advantages
One of the significant benefits of utilizing an intermediary is the potential for lower costs.
However, it is important to note that many platforms may add a margin to generate profits.
Exchanges can often achieve economies of scale, leading to lower transaction fees.
Additionally, selling cryptocurrencies quickly without experiencing price slippage can be more straightforward.
Intermediaries’ Drawbacks
However, there can be downsides to relying on intermediaries.
In some cases, investors may hold their digital assets in a wallet provided by the platform, which exposes them to the risk of losing their funds in the event of a cyberattack targeting the exchange.
Decentralized exchanges and peer-to-peer alternatives can offer increased anonymity and, at times, reduced fees.
Centralized Exchange Risks
Another concern is the possibility of outages.
Some centralized exchanges have suspended withdrawals abruptly due to police investigations, leaving investors unable to access their funds.
Certain platforms have also gained a negative reputation for going offline during significant price movements of cryptocurrencies like Bitcoin.
Safeguarding Trust
It is crucial for traders to conduct their own research before engaging with a middleman and to select platforms with strong user reviews and a solid reputation built over years of experience.
This is especially important considering that less reputable companies may inflate trading volumes to appear larger than they actually are.