The Gaps Between Equity and Cryptocurrency Trading Platforms.

Introduction.

This article is the first in a series of pieces by the Beaxy leadership team. These pieces will reflect thoughts on the industry, fintech, and business broadly. We hope you enjoy!

The first crypto exchange opened up nearly ten years ago. After all that time, there is still a major gap in overall user experience between the best crypto exchanges and standard equities trading software. The difference in quality between crypto and legacy exchanges stems from either a lack of resources or a general unwillingness to devote resources towards being innovative. The primary areas where crypto exchanges need to improve include features, security, and customer service.

I’ll offer my perspective on these three key segments and what crypto exchanges can do to provide a better experience for their customers.

Features.

There are some features essential to trading that still remain absent from most crypto exchanges. These include advanced order types, realized gain and loss on roundtrips, and tax documents. Every crypto exchange offers market and limit orders. Some offer limit and market stop orders. Few exchanges go any further than that.

The biggest gap here is a lack of advanced orders where the trader can do things such as take both sides of a trade, entered in one order. Most professional equities traders wouldn’t even consider using an exchange that doesn’t allow them to enter their target sell and stop loss simultaneously. Every trader is aware of the emotional rollercoaster ride that is trading. Having only one end of your trade on an order leaves the trader susceptible to their emotions and whims in the event that a trade goes away from their target price.

This is a serious problem for retail traders and a great opportunity for exchanges. Exchanges should enable the ability to enter an order like the following: Buy bitcoin at $7200 or less. If purchased, sell at the first instance of greater than $7800 or less than $6800. Imagine that, you put an order in and never have to look at the trade again.

Realized gain and loss metrics are the most important data points that traders need to keep track of to analyze their success or failure in a given period of time. Can this all be calculated manually? Yes. But it’s a pain, especially for high frequency traders. Crypto exchanges should display the profit and loss in both bitcoin and fiat currencies on all closed positions. This simple feature can be found on every legacy trading platform and is one way for a crypto exchange to stand out against competitors and increase their share of the market.

Another feature found on every legacy exchange are tax ready reports. At the end of the year, a stock brokerage will send you a report with all of your realized gains or losses. This allows you or your CPA to accurately determine your tax liability in a matter of seconds. Not only do exchanges not provide these essential reports but due to the nature of crypto, the realized gain or loss on a trade is significantly more difficult to calculate. There is a greater need for these reports among cryptocurrency traders. It’s likely that your tax accountant is unprepared to sift through hundreds of unfamiliar transactions while trying to keep track of bitcoin amounts and its relative fiat price on each day a trade was executed. It can cost hundreds to thousands of dollars to have an accountant determine your tax liability from crypto trades. This would not be the case if accurate tax reports were produced by the exchange.

On the flip side, this is another huge opportunity for the first exchange that can provide these reports.

Security.

There are two aspects of exchange security to consider. Account security and the security of funds deposited. The customer is largely responsible for the security of their account and the exchange is entirely responsible for the security of funds. You can’t fault cryptocurrency exchanges when customers don’t take the proper measures to protect their account. That being said, exchanges should make an effort to educate their customers on account security.

The gap between crypto and legacy exchanges in this regard is recourse. If your crypto exchange account is hacked and funds are withdrawn, you are likely never getting it back. On a legacy exchange, however, funds can only be moved to a bank account. There’s a reason you’ve never heard of someone’s TD Ameritrade account being hacked and funds disappearing. Even if your account is hacked and funds are removed there will be a very clear trace of where your money has gone.

While crypto exchanges are unable to unilaterally roll back transactions on blockchains they can and have in some cases enabled traders to whitelist addresses. This allows the trader to preemptively determine the only places where funds can go outside of the exchange. If the exchange you’re using doesn’t have whitelisted addresses you should consider switching to one that does.

There are also services such as Chainalysis, that many folks in the crypto space have adopted, that allow the user (or exchange) to trace digital asset history from the very beginning, and know whether or not the funds have been tainted in any way.

Customer Service.

Anyone who has ever used a crypto exchange likely has at least a few customer support horror stories. Difficulty contacting the exchange or raising a support ticket. Delayed response times. No response at all. Utter disregard for users trying to locate their funds.

These issues are caused by understaffed support teams and become especially prevalent in periods when crypto trading volume skyrockets. The high rate of change in the number of people trading crypto month to month is a challenge most exchanges do not properly prepare themselves for.

Crypto exchanges need to be more adaptive to the active users they have at any given time. It’s reasonable to expect that when prices go parabolic and volumes multiply, an exchange can have 20–100x their average users. This means 20–100x as many support tickets. Exchanges shouldn’t be expected to keep a large support staff when volumes are low but they should be keeping an eye on volume and effectively preparing for a spike.

Having a streamlined training process for new staff is essential. It’s also wise to engage a set of customer support staff contracted to be sidelined most of the year and active when volumes increase.

The important thing is that when the time comes you have the requisite staff ready to handle more support tickets. Focusing attention and resources on providing satisfactory customer support will greatly improve the brand reputation and customer retention of any exchange.

Conclusion.

The overarching theme here is that crypto exchanges still have a lot left to implement before they will be a viable place for the masses to try their hand at trading digital assets.

Exchanges need to step away from the culture of building a customer base through gimmicks and realize that there is a much higher ROI out there for an exchange that builds their base by innovating and adding simple features that both protect their client’s funds and enhance their ability to trade effectively.

Our new direction forward seeks to prioritize the above items and bridge the gap between legacy market offerings and those found in crypto.

Nick Murphy, Co-President, Beaxy Exchange.

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