In the last ten months, the crypto community witnessed at least 75 crypto exchanges shutting down. This may be due to one reason or another. The majority of these exchanges are no longer functional mainly due to increased volatility. Another reason is the competition in the exchange industry. This is according to reports by Cryptowisser, a cryptocurrency comparison site.
Generally, the crypto field is boasting tremendous growth. But it seems the challenges also have a severe effect on the market. From the shutdown exchanges in 2020, 31 exchanges were shut down due to voluntary reasons. The other 34 exchanges went off the grid with no explanation. NLexch, a Dutch exchange closed shop a few weeks ago. At the time the exchange explained that:
“De Nederlandsche Bank [NB: The Central Bank in the Netherlands] demanded that every cryptocurrency business should register with them. The registration is deemed to be mandatory, and businesses that fail to comply will be forced to close down operations in the country. The fees charged in the whole process are very high. The cost of providing the required level of security, support, and technology is not economically feasible on our own.”.
A few others like BitMEX and KuCoin seem to be hanging on a thread. Reportedly, over $500 million worth of BTC has been pulled from BitMEX by investors.
So, what is driving this demise?
- Competition
There are three notable categories of competitors that contribute to the closure of crypto exchanges. They include the derivative exchanges, decentralized exchanges, and non-crypto exchanges.
The decentralized exchanges boast an upper hand over the exchanges in the industry. The decentralized exchanges have servers across the globe. This makes them less accessible by hackers and runs at low or even no fees. Also, they can handle high trading volumes since they tend to be more attractive, unlike the centralized ones.
The rise of DeFi and decentralized exchanges seem to add pressure to centralized crypto exchanges’ operations.
- Growth of Derivative Exchanges
It is another category of exchanges that is boasting a considerable growth. Derivatives are instruments priced depending on the value of other assets such as bonds, stocks, and commodities. In the crypto world, derivatives get their values depending on specific cryptocurrencies’ value but mostly Bitcoin.
Derivatives are making their way up in the market gradually.
- Non-crypto alternatives have become more available.
Non-crypto alternatives are also on an upward trend. This is despite cryptocurrencies are becoming more user-friendly over time. There are no figures to show the extent to which the crypto exchanges lose to the non-crypto options. Still, it is worth noting their significant role in the exchanges’ death.
- Restriction by Authorities
The continuous increase in regulations makes it extremely hard for new exchanges to thrive in the market. These include the mandatory requirement to register with regulators and excessive charges. Some of the rules make it difficult for small exchanges to start operations. The cost, regulations on availing the requisite security, technology, and support systems have also contributed to the downfall.
- Hacking
Data breaches and hacks are now everyday occurrences. Cryptocurrency hacks are the worst since they affect many users and lead to a massive loss of funds. Though cryptocurrencies on their own are very safe, the exchanges are very prone to hackers. They have become a target area for those with ill-motives. Each successful hacking attracts enormous losses, including user data.
Cryptocurrency exchanges continually implement measures to guarantee their client’s assets and data safety. But despite this, many have fallen victim to these attacks.
- Scams
Whether you believe that crypto trading is a worthwhile investment or not, everyone will agree that the investment attracts malicious individuals to prey on investor’s greed. Many believe that investing in crypto exchanges is a way to get rich and transform your fortunes overnight. Unfortunately, unscrupulous investors take advantage of unwary investors. These scammers will take advantage of the investor’s ignorance. They offer dubious products and services. Unfortunately, no regulatory bodies are overseeing the exchange industry in most countries. Investors remain helpless when the exchanges they signed for turn out to be scams.
Most of the scams are easy to spot but can cost you a lot if you are not on the watch. If you come across a platform that promises impressive profits, think twice. That is already a red flag. Promising massive discounts on the platform is also a strategy to lure unsuspecting investors into the trap.
For your safety, always check to ensure the changes in URLs. The web addresses should begin with HTTPS, an indicator that it is encrypted. Don’t visit unsecured websites. It isn’t a good idea for anyone who’s careful about losing their hard-earned fortune. That is a sign you are just about to lose it to scammers.
