2018 was not an easy year for all the participants of the cryptocurrency market, but it was the worst, perhaps, for the cryptocurrency exchanges. The main profits of the exchanges are commissions from trading operations and fees for listing. With a stagnating market full of low-quality projects and total sad mood, only the strongest participants will survive.
Today we will talk about the trends of the exchange market and the important factors that should be considered to stay afloat.
Tougher competition in the market
The first and, perhaps, the key trend can be considered more cruel competition between crypto exchanges. All the exchanges, without any exception, are trying to maintain trading volumes and to cover most of the market.
Because of reports about closures and bankruptcies of small exchanges (English Cubits, Ukrainian Liqui), Japanese giants began to buy cracked trading cryptocurrency platforms to enter the crypto market. For example, Coincheck was acquired by the ex-director of Goldman Sachs and Monex CEO Oki Matsumoto for just $34 million. Japanese exchange Zaif, with no ability to cover $60 million in losses from a hack, made a deal with research company Fisco from Tokyo, which bought a controlling stake in the exchange for 44 million.
The active localization of exchanges is perhaps due to the bigger competition.
- Huobi launches the Huobi Russia, however, the exchange does not plan to add the Russian ruble.
- EXMO has entered the Turkish market, and has added the Turkish lira, language and technical support, and plans to open a physical office there.
- Binance is going to conquer Malta, South Korea, Liechtenstein, and Singapore.
- KuCoin plans an expansion to all Spanish-speaking countries in Latin America.
- Gemini is going to Asia.
- Coinbase has already started working in Europe.
ETF for BTC
Although absolutely everyone is fed up hearing forecasts about the access to futures, this will probably become the most important event in the industry.
The market is waiting for the launch of Bakkt, as never before, because Bakkt will open access to physically-backed futures. It is expected to attract institutional players to the market and to have a significant impact on the entire market. The site will not support margin trading, and all transactions will be fully secured with assets.
Bakkt will be processed by the operator of the New York Stock Exchange (NYSE), Intercontinental Exchange (ICE), in partnership with Microsoft, Starbucks, and BCG.
There are also other enthusiasts in this area. A number of large firms from Wall Street are going to launch an exchange: ErisX, it will provide access to futures with a physical supply of not only Bitcoin, like Bakkt, but also other cryptocurrencies such as Ethereum, Bitcoin Cash, and Litecoin.
Stricter rules for government control and inspections
Despite the fact that de-anonymization, personification, and regulation completely contradict the main ideas of cryptocurrency, the fourth trend will be the toughening of state controls and verification terms on exchanges.
Let’s take the Russian market. Perhaps the main exciting event was the criminal case against Dmitry Vasilyev, the general director of the WEX cryptocurrency exchange.
In Korea, only seven out of 38 cryptocurrency exchanges were reviewed by the government, and the leaders of the Komid exchange received prison sentences for falsifying $45 million in trading volumes.
Vlad Nistor, director general of the Romanian crypto exchange CoinFlux, was detained at the request of the US Department of Justice on charges of fraud, cybercrime, money laundering, and extortion.
All exchanges relate to regulation in different ways:
Kraken said that control by the authorities restrains the development of cryptocurrency business.
CEX and OKEx have introduced mandatory verification to comply with the “Fifth Anti-Money Laundering Directive” of the European Union (EU), the laws “Know Your Customer” and “Anti-Money Laundering” (KYC / AML).
The most active traders are now required to pass verification on Localbitcoins, and the owner of legacy accounts must undergo a KYC procedure on Poloniex.
Some exchanges are trying to “change the conditions dramatically.”
For example, the decentralized IDEX exchange suddenly admitted that it is not decentralized, and introduced compulsory verification for users, complying with regulations that block users from Syria, Crimea, Washington, and Cuba. The exchange references a statement by a member of the Commodity Futures Trading Commission (CFTC), Brian Quintens, that states that developers can be held accountable for illegal operations performed by third parties using their written smart contracts.
Asset insurance and security enhancement
Security holes in exchanges and wallets gave hackers the opportunity to steal $854 million during 2018 (if we only take into account 10 major hacks reliably identified.
That is why the next trend is offering insurance for users’ assets and attracting the best market specialists in order to maximize security for the assets.
Gibraltar Blockchain Exchange (GBX) and Gemini have insured assets on their online and offline wallets.
Coinbase has confirmed recent movement of crypto assets worth $5 billion to an updated repository.
Binance made a partnership with CertiK, the company offering security services for various blockchains.
An interesting metric is the amount of interest stock exchanges have in initial public offerings (IPOs). A few years earlier, market participants criticized IPOs as an outdated and overly complicated way of attracting investments.
The EXMO cryptocurrency exchange decided to launch a kind of reverse IPO. Canadian public company GoverMedia Plus Canada Corp. received exclusive rights to negotiate the purchase of the exchange for 180 days. If the deal takes place, the new entity will continue to conduct business under the EXMO brand name and will be quoted on the Canadian Stock Exchange (CSE).
Blockchain Exchange Alliance (BXA), which controls BTHMB Holdings and Bithumb, a cryptographic exchange operator, as well as the American public company Blockchain Industries (BCII), operating on the over-the-counter market, signed an agreement of intent for a reverse merger.
And lastly, Kraken exchange is reportedly considering the possibility of a $4 billion private placement of securities.