Chances are that if you’re reading this, you already know that the cryptocurrency markets have changed quite a bit over the past year.
Discover iFX EXPO, Your Gateway to Asian Markets!
Market caps are way down. And the exchanges that founded themselves before or during the cryptocurrency boom are facing a challenging landscape ahead, one that will undoubtedly be marked by higher competition for an increasingly lean, mean, and more educated consumer base.
When looking at the upcoming year, what are the actual threats that cryptocurrency exchanges face? And what’s irrelevant?
One Report Claims that Only the Top 4 Cryptocurrency Exchanges Have Over 100,000 Active
In November, the Blockchain Transparency Institute (BTI) published a set of data that revealed that only four cryptocurrency exchanges had over 100,000 active users. For the purpose of the report, “active users” were defined as the average number of users that logged onto a crypto trading platform per day.
Coinbase led the pack with an average of 323,409 daily users; Binance followed with 152,000. Okex rang in at 105,000 and Huobi with 101,000. The rest of the 48 exchanges included in BTI’s report fell from 417 (Bisq) to 84,666 (Bitfinex.)
Our new rankings list is out with mobile app and API trading metrics! @binance remains at the top while @Bitstamp, @coinbase and @krakenfx move up 33, 19 and 23 spots respectively from CMC’s ranking into the Top 10. See the full list https://t.co/6kEOmoBYOw pic.twitter.com/62iWvD1swI
— Blockchain Transparency Institute (@BTI___) November 2, 2018
Still, this moment is still far in the future, and the future impact of DEXs on the market is unknown. “It’s still unclear what the impact of [decentralized] exchanges will be,” Feng said. “My base assumption is that they remain a niche product, but if someone figures out a way to structure smart-contracts safely, they may become even more used than the comparatively centralized exchanges.”
Ease-of-Use and Relevance Cannot Be Underestimated
Even if a regulatory chokehold that could threaten a cryptocurrency exchange never comes to pass in any jurisdiction, the future successes and failures of cryptocurrency exchanges could be determined by something that may appear to be incredibly simple at first glance: ease of use.
The entire cryptocurrency industry started as something that was really only accessible to a class of people we’ll call the “very tech-savvy”–some early cryptocurrency exchanges were so technical that they required their users to input lines of code.
Obviously, things have come quite a long way since then–but perhaps they haven’t come far enough for some exchanges.
Indeed, David Siemer, CEO of Wave Financial, told Finance Magnates that “low-tech, long-only exchanges with long-tail coins (i.e. 178th ranked coin on CoinMarketCap)” are the most likely to go under first. “No one is interested in buying those,” he said.
He also noted that even these kinds of exchanges were far more profitable in the past: “there was a great moment in time that exchanges were getting high listing fees, but that reality is now gone. That was the revenue model for many smaller exchanges, when in reality there were just a bunch of wash trades that the exchanges faked themselves.”
Siemer says that the exchanges he sees doing the best are those “that cater to institutional traders and offer additional sophisticated trading tools are doing well. They’re not making the same money they were making in January, but they are still doing okay.”
“Most people that are trading in crypto are only playing with the top crypto assets,” he continued. “There’s been a consolidation towards ‘safer,’ larger cap assets (i.e. BTC) – no one is betting on the long tail, so trading fees on altcoins and new token listing revenues are down.”
Bear Market Could Eventually Lead to Collapse–Recent Diar Report Claims that 2018 Trading Volumes Were Higher than Ever
While none of these threats to centralized exchanges may seem powerful enough in and of themselves to be matters of concern, it’s important to remember (and, frankly, impossible to ignore) the fact that the bear market that has plagued the cryptocurrency industry for the past year is putting quite a bit of pressure on centralized cryptocurrency exchanges.
Indeed, while a recent report by Diar said that cryptocurrency exchanges saw record high numbers of transactions in 2018, the outlook for the year ahead isn’t great. In other words, most centralized cryptocurrency exchanges haven’t faced serious existential threats yet, but the pressure is on–now more than ever.