The Dark Underbelly of Cryptocurrency Markets

Investor, beware

Nic Carter
9 min readSep 3, 2018


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.


You have two broad sorts of exchanges in this industry: the fiat onramps, and the altcoin casinos (I’ll leave aside p2p exchanges or DEXes for now). The fiat onramps tend to be regulated, comply with KYC/AML, may even surveil trading, and generally behave like full-reserve banks. Coinbase and Gemini are the archetypes. This piece is not about those exchanges — they generally play by the rules and are in the midst of a pivot towards regulator friendliness.

The other exchanges, the ones I’m writing about here, are the altcoin casinos. They tend to be un- or lightly regulated, domiciled in exotic places like the BVI or the Seychelles or Malta, and may hop around from jurisdiction to jurisdiction to avoid the watchful eyes of regulators. Binance is the archetype. They tend to have a devil-may-care attitude toward compliance, KYC/AML, wash trading, and reporting. They may not even deal in fiat at all — traders typically have to use BTC and ETH to get access to the rest of the casino.

Actually using these exchanges is often quite difficult. The great unmentionable in the…



Nic Carter

Partner, Castle Island Ventures. Cofounder,