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David Drake

April 10, 2019Article

Lackluster Crypto Performance, Is it a Precursor to Industry Fragility?

With the first quarter of 2019 coming to an end, a glimpse of cryptocurrency performance for the period can be termed as lackluster, to say the least. Bitcoin prices have hit their lowest point since August 2017 with a low of $3,441 in January 2019. Cryptocurrency exchanges have not been spared by poor performance during this period either.

A report by a leading cryptocurrency and blockchain Research firm, Diar, indicated that cryptocurrency exchanges registered the lowest trading volumes in January 2019 since 2017. According to the report, January had been the worst month for Binance, the world's top cryptocurrency exchange by trading volume, following a 40% drop in its Bitcoin/US Dollar market compared to December 2018.

Binance Dethroned
During this period, Binance, was dethroned as the best performing exchange by ZB, a China-based exchange. ZB recorded a total trading volume of $19.6 billion compared to Binance $17.5 billion in the month of January 2019. The 6.2% increase in ZB's trading volume raised eyebrows with some quarters alleging ‘magic volumes’ and unnatural patterns fuelled by artificial trade volumes.

The month of February 2019 recorded a marked improvement in bitcoin prices with an increase of about 10% to stand at an average of $3796. What came as a surprise was the performance of exchanges. This time around, Bithumb reported the highest trading volumes at $26.8 billion compared to Binance's $18.9 billion and ZB's $18.1 billion.

From the trends that emerged during the first quarter of this year, it is apparent that the general performance of cryptocurrency exchanges is related to volatile crypto prices. But besides the prevailing bitcoin prices, there seems to be other factors influencing the performance of crypto exchanges.

Locality Factor
An analysis of the January and February 2019 cryptocompare report showed that the location of an exchange played a role in influencing its performance. Those registered in Malta, Hong Kong and South Korea appear to be doing comparatively well.

Transaction charges is the other determining factor in the performance of exchanges. Those that offer takers fees seemed to perform better than those that employ the trans-fee mining (TFM) method, a factor that points to the nature of active governance in crypto exchanges.

The amount of bitcoin to fiat currency exchanged is another factor in the performance of an exchange where USD, Japanese Yen and Euro proved to be the most popular fiat currencies. Joseph Oreste, founder & CEO of
Qupon, observes that although the general outlook of crypto exchanges has been rather depressing in the first quarter of 2019, these are signs of market consolidation and a maturing space.

He says, “I think we have gone from the very speculative overbought 2017 highs to the oversold lows of 2019.”

Stimulate Market
According to Oreste, the crypto space needs more regulation and excitement for it to attain consolidation and maturity, as well as stimulate market performance. This, he says, can be achieved by highlighting projects that are have some consumer adoption success.

Oreste further notes that projects, such as Qupon, are good examples of how crypto assets and blockchain are working to reduce transactional fees while offering superior services on shared distributed ledger compared to centralized coupon providers.

“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,” he notes.

 Disclaimer: David Drake is on the advisory board for most of the firms mentioned or quoted in this article.

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