What Are Existing Cryptocurrency Exchanges’ Options?
It was reported by CNBC that the CEO of NASDAQ said that they would consider providing trading service for cryptocurrencies if regulator approves. This is evidently a big news. Although everyone expects that regulated exchanges will enter into the cryptocurrency field sooner or later, this news is still quite shocking, especially to existing cryptocurrency exchanges or trading platforms. Existing cryptocurrency exchanges should be worried, which is well justified. NASDAQ is a 900 pounds gorilla in the cryptocurrency trading world. Once it provides trading service, lots of current trading liquidity will naturally flow to NASDAQ. The current already fierce competition among cryptocurrency exchanges will become even more brutal. Cryptocurrency exchanges in north America will be at the forefront to withstand the impact. Also, keep in mind, once NASDAQ starts provide trading service for cryptocurrencies, regulated exchanges in other parts of the world will soon follow suit. The impact to existing exchanges therefore is really a chain reaction. The cryptocurrency trading industry will quickly become concentrated. Most exchanges will disappear. Only a handful will be left.
Although the above scenario will happen, it does not mean that there no chances for existing exchanges. On the contrary, existing exchanges are still quite hopeful, if they do things the right way.
First of all, the cryptocurrency market, I believe, is still at its very early stage. There is still a large growth potential. The market is still growing, so it will have space for lots of players in the foreseeable future. Secondly, it is still going to take some time before regulators make appropriate policies for this industry. Given the unique nature and global nature of cryptos, and also the market infrastructure changes brought about by the blockchain technology, it is a very challenging job for regulators all over the world make appropriate policies that somewhat consistent with each other. So, existing cryptocurrency exchanges can still expect some good days before regulated exchanges come in. Thirdly, even if NASDAQ starts providing trading service today, its impact is still going to be limited because the current liquidity is really too small for institution investors. Cryptocurrency is still going to be a small and volatile financial products favored by individual traders.
What should existing cryptocurrency exchanges do? Expand all over the places, as some of them are doing now? So simply enjoy the good days while they last? I would like to offer my free advice. Option one, find a niche market and establish dominate position in this niche market. No matter how many players join the game or how strong they are, they can never change your position in this niche market. One such a niche is a certain fiat currency (not a mainstream one) region. Option two, try to be as compliant as possible. In addition to current normally required KYC, AML and anti terrorism financing requirements, do more work such as the separation of trading and clearing, the separation of trading and asset custodian, etc. These measures are good not just in the eyes of regulators, but also （actually more importantly） good for the company’s long term stable and sustainable development. When competitors shake out in this early and volatile market stage, a prudent player can finish nicely at the finish line. Of course, one can always combine the use of option one and option two. They are not exclusive.
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