The cryptocurrency market and its ecosystem have noted tremendous growth over the past few years. Increased adoption rates and the fact that there is more regulatory clarity around digital assets today have further helped crypto’s growth. Bitcoin, today, represents a robust store of value and a hedge that can diversify traditional investment portfolios. However, as crypto grows, the role of cryptocurrency exchanges cannot be overlooked.
On the latest episode of the Flippening podcast, Jesse Powell, CEO of Kraken, elaborated on the ever-evolving crypto-exchange landscape and the possibility that exchanges are going to see increasing consolidation. He highlighted that the said consolidation and the fact that crypto-markets have reached a certain level of maturity may, in turn, imply that exchanges are likely to have similar feature sets. Powell said,
“I think you’ll see basically everyone kind of converging on a very similar feature set. And then maybe competition comes down to execution and the interface, maybe even just marketing and brand.”
While this is true for most markets and industries, it also leads to the question of whether or not crypto is a mature market. When compared to traditional financial institutions, exchanges offering services pertaining to digital assets continue to be a relatively recent phenomenon. Consolidation in terms of scaling and similar feature sets across exchanges are likely to impact users negatively as competition between exchanges goes down.
According to Glassnode, in the past 6 months, there has been a steady increase in Bitcoin withdrawals from crypto-exchanges, a sign that not only reflects on prevailing market sentiment, but what users think of exchanges as well. However, he pointed out that movement between exchanges in crypto continues to be a fairly inexpensive act and many users tend to do that depending on their needs.
“But with crypto, the switching cost is super low. So, I don’t think that the retail consumer – they’re not deep into crypto, they just wanted to buy some Bitcoin and hold onto it.”
Powell went on to claim that with regard to competition between exchanges, there continues to be a significant advantage for exchanges that are the first to list new coins that are out in the market.
Interestingly, with Bitcoin continuing to battle the $9300 level with its price stuck in a sideways movement for quite a while, BTC’s derivatives market has taken a hit. According to market data provided by Skew, across exchanges in the past 3-months, there has been a drastic dip in BTC Futures daily volumes, a development that may imply difficult times for exchanges.