Insights #1 The State of Crypto Exchanges

The cryptocurrency exchange ecosystem has been thrown into disarray. Detailed reports published in 2019 from Bitwise Asset Management and CoVenture Capital make strong cases that the vast majority of the reported volume is artificially generated through practices such as wash trading, proprietary trading teams, and transaction fee mining models.

The research indicates that as little as ten of the exchanges are likely to be reporting accurate volume figures. These exchanges include many of the market leaders that have built a considerable reputation such as Binance, Coinbase, and Bitstamp.

This is not the only issue facing exchanges. Streamlined processes for listing tokens were established by several exchanges including Binance, Coinbase, and Bittrex. Coinbase, which once had one of the most scrutinous processes for listing, has listed multiple new digital assets to its exchange Coinbase Pro over the past two financial quarters. Whether such actions put these exchanges at an increased risk of action from regulators remains to be seen.

Many of these tokens have questionable legal standings and exchanges providing a market for such digital assets may hold them accountable to any future stances established by regulators.

Another interesting development in the exchange ecosystem is the matter of centralized exchanges versus decentralized ones. The largest exchange by average daily trading volume, Binance, has launched a decentralized exchange. But will it fail to pick up any significant volume like all current decentralized exchanges operating? Or will it be the first significant decentralized exchange and catalyze a move by other major exchanges to put more resources into their own decentralized exchanges?

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