Sergey Zhdanov, СEO of EXMO:
We are waiting for the market consolidation.
The continuing decline in the cryptocurrency market affects the whole entire industry. But several important events during 2019 will take place, which is supposed to drastically change the situation.
We asked a few questions about the prospects of the new sector and the influence of the bear trend on the exchanges to the CEO of the EXMO cryptocurrency platform,
There is a common opinion among the crypto enthusiasts, that among all market participants exchanges have the most protected position. They charge users a commission for Trading, Depositing/Withdrawing funds, and projects pay listing fees in order to be added on the exchange. Exchanges can do whatever they want to, for example, go start the technical maintenance when they consider it necessary or introduce some new strict rules, change commissions or terms of the operations. If it is as good as it seems, and how does the fall of the cryptocurrency market affect your business?
In fact, this opinion is far from reality. Every exchange incurs large costs, like any complex mechanism, such as: renting an office or several one, paying for software, servers, giving salaries to the staff of the exchange, especially developers, who are highly valued and paid for in the crypto industry.
First of all, the success of a centralized exchange depends on the Trades volume, so, with a decrease in the crypto trades amount, the site’s earnings becomes lower. The market becomes more complex, the exchanges have to adapt, compete, including reducing the various commissions, which we do.
Why do we charge a commission for listing? In fact, this fee compensates the costs required to add an asset to the exchange. We are forced to announce technical works and interrupt the normal exchange’s work mode for a couple of hours, because, unlike the stock exchanges, we work around the clock.
Of course, we notify users in advance, asking them to cancel orders.
We have a very long queue of projects who are waiting for listing, so if we’d wanted to make money momentarily, we would add all the projects at the same time. In fact, before adding an asset, a hard selection is carried out, the asset’s developers team is studied about, and all the possible vulnerabilities in the code are being checked.
Just imagine a situation where an attacker can withdraw coins from the stock exchange, while we still have obligations to our customers. So listing is a big responsibility and serious work.
In addition, due to the falling market, trading platforms have to spend much more assets on marketing in general and marketing strategies in order to attract customers even in such situations. As a rule, simply attracting a user is not enough:
Trades do not happen immediately and can even not to happen with user at least ones.
- During the existence of the exchange, have you been able to identify patterns in users behavior? How do they act during this long bear phase?
Let’s divide users into three logical categories to answer this question. The first category includes inexperienced traders, or “hamsters”, their behavior changed the most. Usually, their trades were based on the intuition, they were making decisions without any calculations. Now they are just waiting, the balances of their accounts are growing, but they have stopped making trades.
We carefully analyze the activity of our clients and we have noticed, that despite the lack of trading activity, traders continue to log into their accounts, keep chatting on the exchange chat, ask each other questions and share personal exchange experiences.
The second and third categories include institutional investors and traders, who use algorithmic trading. This part of the exchange auditory almost hadn’t changed their strategies, of course, as a percentage, the return on investment decreased, but in general, this category continues to earn both in a falling and a growing market. Their trades are hedged on several platforms, arbitration is included in the arsenal of tools, etc.
- Let’s discuss another common opinion, which tells that centralized trading platforms are an intermediate link on the way to the widespread use of DEX. This is explained by the fact that decentralized exchanges are fully safe because they do not store users funds, they are transparent and provide global coverage.
In my opinion, one type of exchange does not compete with another; there are objective advantages and disadvantages for both of them. As you know, in the USA the market for outsourcing services is highly developed, and this is not accidental. Narrow specialization allows to maximize business processes, minimize costs, and improve service quality. From this point of view, centralized exchanges, with never stopped development, have a great future ahead.
If the site provides quality service, good fees conditions and methods of Depositing and Withdrawing funds, and it is convenient for customers, then they will use this service. For example, there are several different methods of Depositing and Withdrawing funds on our exchange, including 6 Fiat currencies, which are available not on every exchange.
If we talk about the safety of users’ funds, then centralized exchanges invest significant amounts into the security system, reducing all the possible risks. In general, DEX and centralized trading platforms will operate in parallel, without the prospect of ousting one of them from the market. The industry is developing, which means that each niche is filled with its own players.
- Now a lot is being said that the launch of Bakkt will give a powerful impetus to the development of the market. Tell us how the entry of institutional investors into the market can contribute to the “maturing” of the industry — the adoption of cryptocurrencies, and the reduction of volatility.
I am convinced that regulation will unambiguously stimulate the market. The launch of Bakkt’s adjustable crypto platforms for institutional investors may cause even more interest in digital currencies than in December 2017-January 2018.
The project, launched with the support of ICE in partnership with Microsoft and Starbucks, will bring liquidity to the industry, tools of classical markets, including Trading in futures and options. For example, the BlackRock portfolio is estimated at billions of dollars, for them the purchase of cryptocurrencies for hundreds of millions is not the biggest investment, while for the crypto market it is a tangible one.
I believe that initially, the demand of the institutionalists will entail a sharp increase in the rate, then for some time, the price will get stabilized. For most funds, digital currencies are long-term investments, in fact, they diversify their portfolio.
- How do you think, which events will have the greatest impact on the market in 2019?
I think that the stage of consolidation has already come, small players will leave crypto space, the profitability of various areas will decrease significantly. The hype about crypto is finished, and in the future, we will have a qualitative development of the market, technology, and services. Most likely there will be major players who have prepared the infrastructure for the long-term work.
The exchanges will start exploring new markets, for example, this year our EXMO team plans to open a representative office
in Turkey, expanding its geographic coverage. Thus, our offices will work in Moscow, Kiev, London, Barcelona and soon in Istanbul.
With the introduction of regulation, the market will enter a new phase of its development. Of course, much will depend on the financial policy and approach, but if governments succeed in reducing the risks associated with cryptocurrency, the market will begin to rapidly increase.
Thank you for reading. In Crypto We Trust.