Crypto Exchanges Are Dying, But They Won’t Fade Away
Intelligent Investing Clem Chambers Contributor
(Photo by Yu Chun Christopher Wong/S3studio) Getty Images
When I last looked there were 350 cryptocurrency exchanges and there were probably a lot more after I last counted them. During the crypto bubble they were popping up everywhere.
Now they are dying away.
Hardly a week goes by without another exchange pulling the plug. Recently it was CoinExchange.io.
The reason is not too complicated; many of the flashy coin projects that spewed into the crypto space in 2016 are dead and have no reason to trade or for that matter to exist at all. The exchanges have little business to sustain the cost of staying open.
The world doesn’t need another bitcoin. Well it probably does, but it doesn’t need another 2,000. There are lots of cryptocurrencies out there but when you strip the Ethereum tokens out of that universe, there are left perhaps 30 cryptocurrencies of a scale that would be considered listable were they a stock. At most, there are 150 relevant distributed cryptocurrencies.
This does not make for an ecosystem with more exchanges than there are listed coins.
The regulatory walls are also closing in on these upstart exchanges. It is obvious to anyone but a fool that it doesn’t take much to get a cryptocurrency exchange owner busted at a U.S. airport for breaking all sorts of nasty local U.S. laws. Local rules in many countries are also no cakewalk. Many of the closing exchanges are simply too afraid to continue trading under ever-increasing regulatory pressure, meaning there will be an ongoing shrinkage in the exchange space for a fairly long time to come.
Today In: Money
Happily, cryptocurrency exchanges are not going away. There are already enough big exchanges to deal with the needs of the “industry” for a long time to come.
The same goes for altcoins.
Coins that do the job of bitcoin must have a limited appeal. There is room for a few dozen doing the job of bitcoin, in the same way as there is room for the yen, dollar, yuan and euro but not so much for the like of the reis, ruble and rupee, and less so for any of the other hundred or more “fiat” that are mainly local currencies.
What cryptocurrencies need is a “use case.” The world is full of para-currencies, stores are full of gift cards for a start. The trick is that those instruments have a use case. The points do something specific or rather enable something specific to be done. That something means those currencies can and will circulate.
Many online games have para-currencies and that’s fine by all, as long as there is no easy way to swap then for money. That is when government gets nervous, because that is when private currency provides end runs around all sorts of laws.
The modern world is full of systems that track points that equal money, but the breakthrough thing about the “crypto” element added to this established way of doing things is that the overhead of all that bookkeeping and the need to trust the central party with your “store of wealth” disappears.
Tokens that suddenly become worthless is a tale that goes far back into time. IOUs get debased and shredded as far back as recorded history. Money, even physical money like gold and silver, are never stable in value. Gold and silver have, for example, gone from a ratio of value of 5 to 1 in the ancient world, to the current 60 to 1 in the modern period. Silver is now much easier to produce than gold and is a common byproduct. As such it has repriced.
Up to now the use cases of money were powerful, a store of wealth, a unit of account and a means of exchange, but apart from a few niche applications, like jewelry, decoration and votive offerings, that’s all there is.
Crypto can be more.
If you go down to the river Thames in London at low tide you may find lead tokens from pubs doing business in the 17th-18th Century. This was “beer money” that pubs would issue to break up an official coin whose value was multiple flagons of ale, not the single pint the customer wanted to buy there and then.
This money traveled up and down the river banks because other pubs would accept it as a valued currency because they could run it up the road to the issuing pub and cash it out in official coinage.
It was purely a failure of government that meant the tokens were necessary. In general, people prefer to trust official sources for their money. It is only when there is not enough money around or the money in circulation is inferior or degraded in some way, that people will put their trust in alternative assets rather than sock away the official currency of their society.
This might be a good argument for why cryptocurrency does not have a future, because governments can create their own cryptocurrencies and make the current private sector ones unnecessary.
They could, but they won’t because when you look at what government does, they always eventually run off with all the society’s money one way or another and the crypto element in cryptocurrency makes that probability, impossible.
It is not without reason that the countries that manipulate their money the most are the ones where crypto is most frowned upon and conversely it is to be expected that the countries with the best run economies are the most laid back about the private sector sneaking onto their financial turf.
As such, bitcoin and the mineable decentralized altcoins will always have a place, if only, like gold coins, as a way of hedging the owner from disaster and privation.
As coins with new use cases appear so will the benefits of blockchain technology grow.
–– Clem Chambers is the CEO of private investors website ADVFN.com and author of Be Rich, The Game in Wall Street and Trading Cryptocurrencies: A Beginner’s Guide.
In November 2018, Chambers won Journalist of the Year in the Business Market Commentary category in the State Street U.K. Institutional Press Awards. https://www.forbes.com/sites/investor/2019/11/19/crypto-exchanges-are-dying-but-they-wont-fade-away/#27f1b0d52c3d