By David Drake
The market capitalization of $600 billion that cryptocurrencies began with in 2018 shrunk significantly to $138 billion by the end of the year. Crypto exchanges have subsequently recorded an all-time low in trading volume at the start of 2019.
Some of the most prolific exchanges like Binance, OKEx, Gemini, and Coinbase experienced huge drops in trading volumes, according to a report by crypto research firm, Diar. The overall decline, however, was not just limited to these four firms, all exchanges witnessed a decline regardless of their performance scale.
Severity of Decline
Binance, the crypto exchange based in Malta and one of the world’s largest crypto hubs suffered a huge blow in January 2019 when the price of bitcoin fell by 40 percent.
In November 2018, the US based-exchange, Coinbase appeared to be bouncing back from its downward trend in November 2018 when its trading volume capped $2 billion. But since then, hope dimmed as its trading volume exchange dropped by half in January 2019. This is effectively the lowest volume the exchange has traded since May of 2017 despite optimistic predictions.
But Changpeng Zhao, CEO of Binance remained optimistic about the exchange’s performance throughout the ‘crypto winter’. Though trading volumes dropped to a tenth of what it started with in 2018, the company was still trading above what it had traded two years before, according to Zhao.
One of the reasons for declining trading volumes in virtual exchanges is the fact that the crypto market lacked institutional investors to provide the necessary stability. Often, the market capitalization is hinged on bitcoin’s performance. With the digital coin falling below the $4,000 mark, several deep-pocketed investors pulled the plug.
Since the market is sensitive to actions by big players, hefty withdrawals that happened in a relatively short period of time affected the overall market cap.
“I think we have gone from the very speculative overbought 2017 highs to the oversold lows of 2019,” notes Joseph Oreste, CEO and founder of Qupon. This might be true despite over-the-top predictions coming into 2019 that crypto market cap would return to its 2017 glory days.
The issue of regulation has plagued the development of this asset class since its inception. Several countries around the world have found ways to include digital assets in their financial infrastructure, while others have simply been watching the hamsters turn the wheel.
“During the consolidation, we also need to see more regulation in the space and some excitement from projects that are actually having some consumer adoption success. I think that is what is missing right now. If regulation around the new effort for security tokens takes off and we start to see trading exchanges for these securities combined with some success stories from some of the existing projects then that will be very positive for the crypto space,” added Oreste.
For many onlookers, though its 10 years since cryptocurrencies entered the financial scene, there has been little to show for it. Projects have shown little to no successes, which has prevented new entrants hence the need for more innovations.
“Here at Qupon, we are building a global platform where merchants can advertise discounts on goods and services as digital assets on blockchain technology. Utilizing a shared distributed ledger, we can offer merchants dramatically lower fees than centralized coupon provider platforms today. Projects that attract consumers to crypto are going to be a key driver in future growth of distributed technology. Where the consumers go, investing dollars are not far behind,” notes Oreste.
But beyond regulation, institutional investors and real products, cryptocurrency exchanges are contending with the challenge of artificial volumes. Recently, Crypto Integrity released a report showing that in February 2019, up to 88% of trading volumes were inflated illegally. In my view, this is an internal issue that crypto exchanges should be able to address through active governance.
Bitcoin’s price has improved over the last few weeks from a selling price of $3,860 at the first week of March to $4,021, at the time of writing. Even so, it is yet to be seen whether its value will climb to the $20,000 mark as predicted by market bulls, or become a less talked about event as the year goes on.
Disclaimer: David Drake is on the advisory board for most of the firms mentioned or quoted in this article.