How Can a Sustained Bitcoin Bear Market Harm Cryptocurrency Exchanges’ Health?
During 2017, the crypto market experienced a bull run that allowed Bitcoin, cryptocurrencies and blockchain technology to grow at very high rates. Nevertheless, the market experienced a very hard correction that drove crypto prices down. Bitcoin (BTC), for example, dropped more than 80% while other digital assets registered larger loses.
Cryptocurrency exchanges have been hurt by this bear market as well. The market becomes much more competitive and profits are not as large as at the beginning of 2018 when the market was yet close to its all-time highs.
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
However, the situation in December 2018 did not get better. Indeed it worsened. Only two crypto exchanges had 100,000 active users or more, Coinbase and Binance.
This situation is severely affecting cryptocurrency platforms. Could this bear market lead to bankruptcy in some exchanges? It might be possible to see this happening if the market does not see a clear reversal trend and the number of users continues to decline.
In this report released by BTI, Coinbase had a transaction volume per user of $371 while Bitfinex $2,841. This shows that there are different cryptocurrency exchanges depending on the needs of customers and users. Coinbase seems to be used for very small trades while Bitfinex shows that they handle investors with larger portfolios.
According to Evan Feng, the Founder and CIO of Tapestry Capital says that cryptocurrency exchanges will eventually consolidate in the future.
“The large ones will get larger while smaller ones will go out of business. It’s a natural result of these markets getting more efficient,” Feng commented.
There are several sectors of the crypto industry that are moving towards centralization of the economic activities. Something similar happened with the mining industry where just a few companies control the market.
There are also several countries that are starting to take harder regulatory measures against exchanges. The intention is to reduce risks and be sure that taxes are being paid. For example, Kraken said that they’ve received 300% more subpoenas in 2018 than in 2017. This is why the exchange said that there are several companies around the world that prefer to block US users.
This would have a deep impact on the industry in the United States. As the entry barriers are higher, the industry is expected to move into the same direction and increasing differences between new and older platforms.
Countries such as Denmark or Bulgaria are also investigating crypto users trading digital assets in various platforms. It might be possible to see countries banning users from using other exchanges abroad rather than local platforms. This is where decentralized exchanges (DEX) could be a good tool for individuals that have been affected by these regulations. DEXs do not require the user to provide private information but they tend to be less user-friendly than centralized exchanges.
Exchanges and platforms must be prepared for the future and for an extended bear market. However, this does not mean that they will be in danger or they would have to close.