Crypto exchanges have access to more
capital and clout than ever before, which helps them meet consumer
needs. But what about decentralization?
As the
blockchain industry matures, the line between cryptocurrency
exchanges and traditional corporations begins to blur. Once a
collection of marketplaces on the fringes of finance, many
cryptocurrency exchanges are now connected with major players in
the private and public sectors from financial firms and major banks
to government regulators, which has transformed their role in the
crypto community and the very nature of the blockchain
ecosystem.
Cryptocurrency exchanges now have access to more
capital, clout, and influence than ever before, and this could help
them meet consumer needs in this rapidly changing market. However,
what many are calling the corporatization of crypto may come at the
cost of the decentralization, privacy, and independence that has
made cryptocurrency and blockchain-based investments so attractive
in the first place.
In part
one of this two-part series, we take a look at how exchanges in the
West are integrating with the established financial world, before
turning in part two to examine how differently things are evolving
in Asia.
The Biggest Players in North
America
Trends in
crypto corporatization vary by region because of the different
regulatory environments across the globe. In Asia, large
cryptocurrency exchanges tend to expand their operations through
ICOs and native token launches, while in Europe and the U.S a more
familiar corporate strategy is employed. Unlike their Asian
counterparts, Western companies tend to expand through venture
capital, licensing, and conglomeration.
Coinbase Inc.
Coinbase,
the largest cryptocurrency exchange in the United States, has come
a long way from its humble beginnings in 2012. The San
Francisco-based giant rose to prominence on the back of its
user-friendly mobile app that made cryptocurrency trading
accessible to millions who may have otherwise never bothered to
learn about it on a traditional desktop format. In the time since
its inception, Coinbase has received several multi-million-dollar
funding rounds and earned a total valuation of over $1
billion.
Coinbase's recent acquisition of Keystone
Capital gives clues about the firm's expansion
strategy.
Keystone
Capital is a FINRA registered broker-dealer that enables investors
to trade traditional securities and what its website terms “digital
securities”. Coinbase purchased Keystone as part of a plan to
develop a platform for trading tokenized crypto-securities that
will inevitably fall under U.S regulation.
Coinbase
also purchased Venote Marketplace, a broker-dealer, and Digital
Wealth LLC, a financial planning and investment management firm.
These acquisitions suggest Coinbase is looking to expand into
mainstream finance.
Gemini Trust Company
Gemini is
a digital asset exchange founded by the Winklevoss twins, two
well-known venture capitalists who are deeply involved in several
blockchain projects. As a New York Trust company regulated by the
state's Department of Financial Services, Gemini operates under a
much greater level of oversight than its competitors, and it has
lacked many of the growing pains experienced by the other
firms.
The
Winklevoss twins are orienting towards derivative-based
cryptocurrency investments, and they have secured a patent for a
cryptocurrency exchange-traded product (ETP). While the SEC
recently rejected their application for an ETF license for a second
time, they have managed to win advocates such as Hester Peirce at
the SEC.
The Gemini
exchange is also making moves, recently adding Zcash to its roster
along with its original offerings of Ether and Bitcoin. Gemini's
addition of Zcash came just months after PornHub, an adult
entertainment giant, announced support for the privacy-focused
token on its platform. This is an example of how the growing
interconnectedness of firms in the cryptoverse can make all of them
better able to suit their customer's needs.
Poloniex
Poloniex,
a US-based crypto exchange with trading volume of over $70 million
daily, is an example of a different type of conglomeration in the
industry. Unlike crypto firms that expanded by acquiring others,
Poloniex itself was acquired. The buyer is Circle Financial, a
startup called backed by the Goldman Sachs Group.
Although
the details of the privately-held Circle Financial Ltd, are murky,
Goldman is a well-known player in the financial services industry
and this acquisition is a step toward expanding its presence in the
cryptocurrency niche. Goldman previously announced a small foray
into Bitcoin-based derivatives, and it is backing Circle Financial
in its attempts to make a cryptocurrency pegged to the U.S
dollar.
Bittrex
Bittrex is
an American cryptocurrency exchange structured in a way that isn't
regulated under US securities law, (since no tokens listed on the
exchange are considered securities), giving it more freedom than
other American exchanges. Unlike many U.S exchanges, Bittrex
supports a vast number of obscure cryptocurrencies. It has also
entered into several partnerships, including a collaboration with
Invest.com to launch a new trading platform for the European
market.
The Influence of Regulation: East
Vs. West
Regulation
is one of the most important forces in crypto, and it determines
the trajectory of corporatization in the industry. Unlike some of
their Asian counterparts, Western cryptocurrency firms are often
heavily restricted from many forms of blockchain-based
financing.
The
regulatory climate disincentivizes Western companies from launching
their own native tokens or ICO fundraisers. Instead of diving into
the regulatory grey area of altcoin development, exchanges tend to
orient themselves towards institutional investors and
securitization.
The trend
of securitization is strongest in the U.S where the development and
wide adoption of Bitcoin-based derivatives by the CBOE and CME
demonstrates a clear precedent for success in this niche of the
market.
Conclusion
As the
cryptocurrency industry matures, the traditional role of the
cryptocurrency exchange has expanded to include a variety of
functions and unprecedented influence over the market.
In North
America, exchanges like Coinbase, Bittrex, and Gemini have grown to
become multi-million-dollar powerhouses serving both regular retail
investors and powerful mainstream institutions. They expand through
strategic acquisitions, developing securitized investment vehicles
to adapt to strict regulation.
The forces
of corporatization, conglomeration, and regulation are sure to help
push crypto further into the mainstream. As time goes on, expect to
see this burgeoning industry start to resemble traditional
finance.
by
William A. Ebbs
Ripple (COIN:XRPEUR)
Historical Stock Chart
From May 2024 to Jun 2024
Ripple (COIN:XRPEUR)
Historical Stock Chart
From Jun 2023 to Jun 2024