Crypto exchanges saw their revenue slump at the beginning of 2018, after the Bitcoin price surge and the ICO boom. Bitcoin prices kept sliding in 2018 after the bubble burst but recovered in 2019 by rising by more than 90% over the year, outperforming by far all asset classes. Investors kept eyeing VC opportunities in the crypto market and incumbent players managed to improve and expand their product and service offerings through in-house developments, partnerships, and acquisitions. Crypto exchanges have been preparing for 2020, the year that was supposed to be promising and decisive for the crypto sphere before the coronavirus market meltdown, with greater involvement of central banks, banks and disruptive actors such as Facebook.
Crypto exchanges are competing by adding to their portfolio value-added services for their customers. The last two quarters witnessed a rising interest in custodial services from crypto exchanges. The increasing levels of compliance and security call for better insurance policies. Bitfinex was hit in February 2020 by distributed denial-of-service (DDoS) attacks that sent the service offline for several hours and reminded us that hackers are actively looking for breaches.
A new event that further compromised Bitfinex’s reputation after polish prosecutors claim in October 2019 that Molina Lee and Bitfinex laundered illegal proceeds through the country. A few months earlier, Bitstamp decided to step up its security by partnering with BitGo for custodial services in October 2019, one of the oldest custodians in the market with a proven track record in cold storage technologies. Bitstamp’s assets are now secured on 100% cold storage technology in bank-grade Class III vaults and protected by BitGo’s $100 million (USD) insurance policy. Bitstamp also improved its services by partnering the same month with cryptocurrency-friendly Silvergate Bank to pilot Bitcoin (BTC) leveraged trading.
Coinbase Custody officially launched internationally in January 2020 and now offers its institutional-grade crypto asset storage to clients through Europe and beyond via a regional base of operations in Dublin, Ireland. Along with this tendency, another trend is the geographical shift of investments and deals, increasingly moving from the US towards Asia. As stated by CBinsights, in 2015, 51% of transactions were for US-based companies while only 2% went to China-based companies. In 2019, the US’ share of deals fell to 31% and China’s rose to 22%.
In November 2019, Binance acquired WazirX, an Indian cryptocurrency exchange for an undisclosed amount. Kraken OTC also sought new trading partners in the world, particularly in Asia and made its move by acquiring Circle Trade in December 2019. Kraken decided to deepen its overall presence in the region by purchasing the next month Bit Trade, Australia’s longest-running crypto service provider. The San Francisco-based exchange didn’t stop its bold decisions there and unveiled a plan on March 2020 to expand Indian operations as crypto-ban lifts.
On the VC side, crypto exchanges have been quite active, especially in fostering the Dapp adoption. Coinbase invested in November 2019 in a $25 million (USD) funding round for Libra member Bison Trails, a blockchain infrastructure solutions company that optimizes block production for over 20 protocols like Tezos and Livepeer. The crypto exchange also invested a month later in the blockchain developer of tools and infrastructure Alchemy through a $15M Series A funding round to fuel global push. Binance even went further by acquiring a few weeks earlier DappReview, a leading provider of data analytics, user insights and Dapp information for over 3,900 dapps.
Amidst COVID-19 market turmoil, Bitfinex delisted nearly 50 trading pairs to improve liquidity and trading experience. As of now, cryptocurrencies did not act as a store of value and remain a very speculative asset. Whether the crypto sphere will be insulated from central banks' decisions and the global economic slowdown or not is still unknown, but this crisis will surely be a key stress-test for the industry.