Let the Markets Decide: Why Crypto Exchanges Became Hubs for Growth in 2017 and 2018
23 June, 2018 | 5 MIN
META: Marketplaces are evolving, and the building of new exchanges is driving the evolution of the crypto space, both in outreach and in applied technology.
Think back a few years ago. Crypto exchanges were rudimentary, a necessary evil, even downright risky. The best thing one could hope for was to learn to maneuver around Poloniex well enough, and pray that exchanges like HitBTC and YoBit did not go down in flames. Frequent outages, lost wallets, lost coins and a generally bad user experience — all of these had to be braved in order to buy or exchange crypto assets.
Alongside the best-visited exchanges, there existed a retinue of small-scale markets with a shady reputation. Regional exchanges with a handful of coins, or colourful marketplaces with the most exotic assets, rose and fell across the landscape with their own enticing offers and risks. Some, like TradeSatoshi and Cryptopia are still around. They are upping their game, repairing leaks and mitigating risks, competing for position in the crypto space. Exchanges with regular trading fees, are now sitting on valuable assets. The longer the ecosystem survives and thrives, the more these exchanges turn into institutions, communication hubs, and trendsetters in the world of crypto.
And yet despite the obvious explosion of interest and awareness of the crypto asset proposition, the vast majority of our planet’s inhabitants are yet to seek exposure. Which simply means that the potential market for new exchanges that get their ecosystem model right, is massive indeed.
Here at Dacxi we think there’s a need for a new category of exchange called a “community exchange” that will address the unique needs of this dormant, untapped market. A community exchange is a new kind of exchange that provides the knowledge and support that the next wave of mainstream buyers need to get involved in crypto.
A community exchange is simple to use and comes with a dedicated community platform that provides new investors with the knowledge, tools, discussion and learning resources they need to engage with crypto assets in a safe and responsible way. We think this model has the potential to change everything.
Assets, Assets Everywhere
But it all starts with assets. One of the chief reasons for the success of exchanges was that, starting in 2016 and accelerating in 2017, the crypto market moved away from Bitcoin, towards an ever-increasing array of projects. Ethereum was one of the first and biggest ICOs and it quickly became the leader of the pack.
The Ethereum token was quickly added to exchanges, but it would not be the last. Many new assets followed, and the 2017 bull market made possible the tantalising prospect of the elusive and quite incredible 100X gains. Old and forgotten coins were made shiny again, all thanks to exchange services that enabled rivers of new liquidity to flow into the market. The small portfolio of 2017 Coinbase coins — Bitcoin, Ethereum and Litecoin spiked to significant heights, quickly followed by the rest of the market.
ICOs followed soon after, creating a whole new economy based on tokens, with different use cases. These offered diversification against Bitcoin, which now became a central coin for settlements, or more accurately the reserve currency for the crypto space. ICO assets needed an exchange to show their true potential, and to fully make use of the hype and high expectations. Suddenly, there was even more appetite for trading.
But in September 2017, crypto markets came crashing down, sending Bitcoin reeling from above $6,000 to as low as $3,000 within hours. The reason was the Chinese ban on local ICOs. Later, China moved its heft again, charging directly against exchanges, based on the country’s capital control laws. Chinese trading turned out to be one of the best supporters for the prices of crypto, and temporarily, the market was deprived of its liquidity.
Was this the end? Not even close. Exchanges like OKEx and Huobi are still faring as well as ever, participating in an ever expanding array of coins, tokens and relatively successful Bitcoin hard forks. In fact, the ban in China caused those exchanges to become even more resilient. They increased their volumes by moving on to other countries in the Asia Pacific region. Korea became a hotbed of activity and exchanges found workarounds that kept the trades flowing, despite the loss of direct Chinese Yuan trades.
The loss, or rather the transfer of trading from China, saw exchanges fare even better. Korea became a hotbed of activity. Japan, with its stance of acceptance for Bitcoin, was even more welcoming, allowing for the creation of brand-new exchanges, with a revamped legal framework that allowed cash trading. Since then, Japanese exchanges remain something of an island.
Exchanges — Both Regional and Global
In theory, crypto enthusiasts can trade anywhere and from anywhere. A quiet evolution came to exchanges, as yet another example of how strict regulations can in fact make the markets grow, and create smart workarounds. Because accepting cash came with too many regulations, crypto only exchanges appeared, becoming borderless hubs.
This phenomenon has caused some exchanges, such as Binance, to have diversified communities with a large presence of US-based traders, who are completely free to make their bets, without border restrictions and capital controls.
Curiously, the limiting factor of cross-border trading has helped exchanges succeed, by creating a native ecosystem that expands beyond the borders of the country where they are based. And here comes the most important element of exchanges — the spontaneous building of communities. Advice, hype, any crypto topic and technicality finds yet another platform for discussion.
Dacxi aims to take this spontaneous process to the next level, by combining trading and community building in its upcoming exchange ecosystem. We’re so confident in this emergent new model, that we have already pushed each platform live. We’re now in full beta release and learning the lessons that only the live market can teach you. This allows us to move quickly as we incrementally improve each platform before the full scale launch that will see us pursue our ultimate goal of onboarding the next wave of mainstream buyers into crypto.
Slowly, customer support is getting better. Dacxi is all about community, discussion and education. An uneducated crypto ‘newbie’ is vulnerable and in crypto, even more so. We’re only too aware of just how steep the crypto learning curve is for new buyers. We’re here to make that steep curve a more gentle incline.
Liquidity is Key
Exchanges are all about trading — any trading. Some services allow for a direct entry to fiat positions. But trading between tokens is also exciting, and potentially lucrative. The idea that crypto assets in themselves are valuable, and the goal of increasing one’s Bitcoin holdings, instead of more dollars, has helped boost crypto-only exchanges.
If you spend some time with crypto coins, you are bound to hear the question “When Binance?” Well, about a year since Binance was an ICO, its model proved the right recipe — high security, high quality of assets, community outreach. Binance itself aims not to be so central to the ecosystem. Luckily, its model is being applied as a new standard for exchanges arises. Dacxi will be one of the platforms with all the elements to become a sought-after exchange: intuitive trading, an active community and a native token to boost liquidity.
Binance currently ranks the highest, with $1.16 billion equivalent in 24 hour volumes.
There are other names emerging in 2017 and 2018, showing similarly robust trading, aided by Asian and especially Korean speculation. While Japanese exchanges remain isolated and removed from the wider community, the Korean markets keep boosting the visibility of new and older digital coins, tokens, and other assets. OKEx comes second, with $1.13 billion daily volumes. Huobi, and Huobi Pro serve more than $600 million in daily trades.
But there are small scale exceptions like KuCoin, which still handles relatively small volumes of $30 million in 24 hours. But KuCoin has done a lot to popularise up and coming tokens, and inadvertently lines up with Binance as one of the most actively social exchanges. Trading competitions and giveaways also help boost the visibility of those markets.
Becoming a Part of the Ecosystem
One of the reasons for the success of exchanges is that the latest batch of exchanges was built with a view to helping the crypto ecosystem grow, going the extra mile and offering much more than a trading platform.
In 2017, the biggest challenge for exchanges was the first contentious hard fork, which created Bitcoin Cash. Other forks followed, making exchanges work and think, to make the new assets available to their users. Whether they wanted it or not, exchanges had to adapt and grow. Then came airdrops, prominent projects, and the need to switch between assets when projects like TRON moved from the Ethereum network to their own blockchain. Exchanges were instrumental in that.
True, there were mistakes caused by too much enthusiasm, but they also became lessons. Binance overhyped coins like Centra, and later SkyCoin, causing great losses as the projects were compromised. The listing of Bytecoin created immense enthusiasm and then wiped out the funds of over-eager buyers.
But this time, exchanges learned and adapted. Very few gave up and acted dishonestly, thus showing that they took their business seriously. Instead of making a disappearing act, like Mt. Gox, those exchanges owned up to their mistakes and tried to fix them.
Trading, it seems, has evolved. After a boom in November and December, when the daily size of the crypto market sometimes exceeded $40 billion, the volumes have come down. But now, the ecosystem of exchanges has grown, and there are more opportunities to trade with skill and foresight, even though the time of easy, unexpected gains is probably gone for good. Centralized exchanges will be here to stay — with all the entailing challenges, but they have certainly evolved with the warp speed of the crypto universe.
We have watched all of the above with interest. We have waited, biding our time. But now our time is coming and Dacxi prepares to enter the market.