Issues cryptocurrency exchanges face
History teaches us that all new inventions are accompanied by chaos and uncertainty. Cryptocurrencies were no exception. The cryptosphere was and continues to be a highly dynamic space. Each day brings a new change and nothing’s set in stone.
The lack of stability and regulations count among the chief reasons the adoption of cryptocurrencies takes so long. When a person new to this world finally decides to take the plunge and try their luck on an exchange, their first steps may already be laden with issues.
Choosing the trading platform is often a difficult task in and of itself. There are hundreds of available exchanges, some fraudulent, some just very poorly maintained. And if you do manage to find a reliable one, your troubles are still far from over.
Banks vs. cryptocurrencies
Recently, discussions about depositing funds to exchanges started spreading like a wildfire. That’s because some banks began to cancel transactions to and from these sites on the basis of anti-money laundering (AML) laws and other regulations. Clients of UniCredit Bank, for example, had their SEPA transfers canceled several times, solely because those transfers were to cryptocurrency trading platforms. Payments by card worked fine, although the fees were significantly higher.
Air Bank also restricted its clients’ payments in the same way. It did not refer to money laundering regulations but cited its correspondent bank Raiffeisen Bank International, which allegedly decided to block all payments related to cryptocurrencies. After a public backlash, Air Bank advised customers to use cards as well.
Today’s exchanges also have a tendency to disadvantage the individual. When people who’ve never traded before start, they usually lack the information necessary to trade successfully. Information is also closely linked with the available time. While experienced traders and corporations have the resources and time to constantly monitor the market and react to any fluctuations, new traders generally don’t. This often results in situations where a few individuals get richer at the expense of the rest of the market, especially those new and/or uninformed investors.
One of the greatest problems cryptocurrencies face is low liquidity, resulting in the well-known price spikes.
As with all markets, liquidity in the cryptocurrency market indicates its health and stability. Simply put, it denotes how easily can an asset be converted into fiat or another cryptocurrency. If a currency has low liquidity, traders have to wait longer to realize transactions and the spread between ask and bid prices grows wider. Alternatively, the asset’s price may rise, which also increases the marginal cost of the entire transaction. Last but not least, liquidity issues are discouraging established investment companies from entering the market, and it is the presence of these entities that could significantly contribute to the further adoption of cryptocurrencies in the world.
An increase in liquidity of a cryptocurrency can occur in several ways. One way is to expand upon its features. The more popular a cryptocurrency is, the greater its liquidity. The introduction of clear rules and regulations to protect users can also help. Reliability attracts more investors and consequently increases liquidity.
As already mentioned, the cryptosphere is a young and dynamically evolving environment. Therefore, it is quite logical that regulators in many countries are not ready for it. Even the biggest fish in the pond have recently faced problems caused by the current laws which are unclear, imperfect, and often outdated.
Most of these regulations were written at a time when cryptocurrencies did not exist, resulting in many a headache in the present day. One example is Binance, one of the largest cryptocurrency exchanges. Just the past year, it has been involved in several conflicts with regulators from different countries.
In Britain, for example, it did not comply with anti-money laundering rules, in Germany it faced problems for selling tokens without the necessary prospectus and the Japanese regulator issued a statement that the company’s presence in Japan was illegal.
These legal repercussions exchanges face unless they comply with the necessary regulations are no laughing matter. The different attitudes of states and their regulators present a pressing problem for most institutions in the industry and are the reason we need to start working on unified and, above all, meaningful rules that will give the entire cryptosphere clear direction and gain the trust of the general public and, at the same time, allow all entities to function. In the end, everyone will benefit.