The rates of cryptocurrencies are inexorably falling and maintaining bearish trends. But despite this, cryptocurrency exchanges, even little-known startups, continue to earn and, in some cases, show an increase in trading volumes. How do crypto platforms manage to expand against the background of the low cost of Bitcoin compared to December 2017, and what do popular exchanges do to attract new users?
Coinbase with a New Listing Agreement
Coinbase, a well-known U.S. cryptocurrency exchange, revised its listing policy for new cryptocurrency assets and offered the project creators a tool with which they can submit appropriate applications for the inclusion of coins in the list of assets to be traded.
The new system will allow anyone to apply for a listing of their own cryptocurrency through an online form. After entering the necessary information, Coinbase will evaluate the digital asset and its suitability within the framework of the exchange requirements. The coins that meet the criteria will be able to enter the list of assets.
Listing, according to the new rules, will be carried out within the framework of American jurisdiction. Therefore, foreign assets may not be supported on Coinbase, and as a result, some coins will not be available to clients of the Californian stock exchange to trade in countries with an incomprehensible legal status of cryptocurrencies.
Previously, there was no official mechanism for requesting a listing, and some organizations, as reported in a document on the website of the exchange, lobbied Coinbase to support their assets. Thus, a change in the functioning of the exchanger will allow cryptocurrency developers more opportunities to get into the coveted list of coins that are presented on Coinbase.
“We're now actively reaching out to asset developers with this. Satoshi and Vitalik [Buterin] were not Coinbase customers. But all future and current asset creators and developers are. So it's like we're becoming a two-sided marketplace,” said the technical director Balaji Srinivasan for a Coindesk article.
A fee will be charged for submitting the application, but so far, Srinivasan has not specified its size. According to the technical director, the price "will not be prohibitive." Money verification is necessary to prevent spam, and the listing fee will cover the cost of due diligence. "We do not want that to be a burden that deters people from listing new assets with us."
In addition to regulatory and technical requirements from the exchange itself, the main criterion for Coinbase when selecting a particular cryptocurrency will be demand and its popularity in the market.
“We want to make sure that our customers are there," Srinivasan said. The three big questions are "First, is it legally compliant? Second, is it technically secure and innovative? Third, do our customers want it?” explained Srinivasan.
Adaptation under the legal regulations of countries by some American lawyers was categorically perceived and ridiculed. Experts believe that large brands that want to develop and expand around the world themselves adapt to the jurisdiction of individual countries. “If you're Ford or you're Apple or you're Google and you want to sell your stuff worldwide, you actually do worldwide compliance,” said Stephen Palley, a partner in a law firm that specializes in cryptocurrency issues.
Implementing the proposed policy will add a level of complexity to making Coinbase operations, as the company will have to make sure that customers do not trade assets that their local regulators do not allow, summarizes Palley in the comments for Coindesk.
Cryptocurrency exchanges have already encountered problems in preventing access to their sites in the U.S. states where they do not have a business license.
“While geoblocking may help prevent crypto companies from inadvertently becoming subject to certain rules and regulators, even that precaution may not be enough,” says judicial partner in Jenner & Block LLP, Justin Steffen.
In addition, it is not clear, for example, whether a user’s move from California to China or Iran will affect the assets, where restrictive policies are being applied to cryptocurrencies. If the answer to this question is positive, the client may lose access to the assets that he acquired on Coinbase.
Unknown Exchanges in the Lead
If the Californian Coinbase exchange has already won the trust of users and has become one of the popular exchanges, the BitForex trading platform, which opened in June 2018, unexpectedly broke into the top exchanges in terms of trading volume.
BitForex (located in Singapore, registered in Seychelles) had no popularity among users until August and was no different from questionable scam exchanges. But a couple of months ago, everything changed, and the little-known exchange got into the top of the news as BitForex bypassed the most popular Binance exchange in trading volume and became a leader with a figure of $14 billion. According to CoinMarketCap, trading in the pair of BTCUSDT alone reached $8 billion, exceeding by eight times the volume of the largest Binance, Huobi, or OKEx exchnages.
Then, the increase in trading occurred through the use of the trans-fee mining model, which is similar to the reward for the activity the crypto exchange pays the trader for making transactions. The platform began to reach a volume of $5 billion, this value corresponds to the turnover on the London Stock Exchange.
After achieving incredible results for a little-known exchanger, BitForex released their token. The project began to resemble an ICO and began to use bots to receive coins. Many market participants suspect that the fast-growing young exchanges operate on a bloated scheme, offering incentives for increasing volumes and not controlling the behavior of traders on the platform.
“If an exchange doesn’t get revenue from transaction fees and solely profits from the price of its token. how would it survive without manipulating the token price? Are you sure you want to play against a price manipulator? The same price manipulator who controls the trading platform?” asks Binance CEO Changpeng Zhao of his users.
BitForex trading volume, according to CoinMarketCap, is not the largest among 219 platforms. The traffic on its website is a small fraction compared to most peers. The transaction fee business model helps exchanges quickly gain volume by “pumping.” This technique is prohibited on regulated exchanges and is considered market manipulation. Most traders are targeting exchange tokens, and after being issued, they are moved to other, more proven sites. The result is that the same asset is re-bought and sold, and these imaginary transactions inflate activity in the market.
BitForex, like the other exchanges (DOBI Trade, FCoin, CoinSuper, and CoinBene) which use this business strategy of transaction fees, are not regulated in the legal field, which means that their manipulations of the market are legal. Therefore, the only thing that experts of Crypto Bloomberg advise is to check the structure of cryptocurrency exchanges before trading. Otherwise, users will enrich the owners of the platform because of their carelessness and unwillingness to study the work of the exchange.