The Dark Underbelly of Cryptocurrency Markets

Investor, beware

Photo by Good Free Photos on Unsplash

In this post, I’ll investigate the key drivers of the unrelenting cryptocurrency/crypto asset markets, and explain why they aren’t likely to go away soon. In particular, I will focus on the incentives that cause ranking sites to uncritically include junk exchange volume in their data.

The major stakeholders in this market are exchanges (naturally), altcoin/cryptocurrency/fork issuers, and coin rankings sites, which mutually work together to extract value from one group: retail investors. Unwitting investors juice the whole operation with infusions of capital. While none of this is particularly groundbreaking, I felt that it was worth exposing these relationships so that investors might understand the nature of the game they’re playing.

The below graphic summarizes the essence of the relationships between the four groups.

‘Value’ denotes financial flows or simple utility. Eg, investors gain value in the form of information from rankings sites

This might be a bit difficult to parse, so I’ll explain each group in turn.

Exchanges

You have two broad sorts of exchanges in this industry: the fiat onramps, and the altcoin casinos (I’ll leave aside p2p exchanges or…