“If a man has a gun, he may rob a bank. If he has a bank, he can rob the whole world.”
The public’s trust in trusted third-party fund custodians is declining rapidly, and with the deterioration of macroeconomic conditions, they do not seem to have repaired such a relationship. Digital assets may not be the solution to these problems, but the continuous development and maturity of technology provide people with another option that they did not have before. Although Facebook’s “Libra” continues to be hit by the government and the banking sector, China will soon launch its own digital token (DCEP), which is much earlier than many people initially expected.
Banks have not disappeared, but it is certain that digital assets have not. As a metaphor, the Pandora’s box is usually used for negative situations – but this time it may be a rare positive. Bitcoin has opened the door to how the world can use digital assets to achieve great changes. Now it can’t go back. So, let’s continue to explore this unknown field.
Market manipulation and cryptocurrency exchange
In September, the cryptocurrency market fell by more than 20% in one hour.
In October, the cryptocurrency market rose by more than 40% in a single day.
Most participants in this field will confidently tell their relatives and friends that the price of bitcoin will be significantly higher than the current price one year from today. However, it is much more difficult to determine accurate short-term prices for such volatile and unpredictable assets. We may think that important news is often not the case, while events that we think are not important sometimes have a significant impact.
Price volatility is not a bad thing in itself, because most sophisticated investors have learned how to manage risk in a variety of environments. However, as more and more people enter the market and existing investors become more and more smart, part of the root cause of this volatility becomes clearer – exchanges.
Most cryptocurrency exchanges are unregulated and most are not registered in the United States. In fact, many cryptocurrency exchanges now choose not to accept users in the United States, rather than to follow certain rules that are often vaguely understood. Even those exchanges that are willing to comply with us regulations are still waiting to find out what they intend to do because of the ambiguities surrounding the regulation of encrypted assets.
Last week, something bad happened to the crypto exchange:
• on Thursday afternoon, the third largest “legitimate” bitcoin spot exchange, coinbase pro, went down for 75 minutes.
• at the same time (possibly as a result), deribit, the exchange of bitcoin and Ethereum, experienced the failure of its flagship BTC permanent swap contract, resulting in a 15% drop in the price of the contract. This caused a loss of US $1.3 million to users, and deribit immediately repaid the cost.
• on Friday, bitmex, one of the largest cryptocurrency derivatives exchanges, accidentally announced the email addresses of tens of thousands of their users.
Surprisingly, these events have little impact on prices or users. This may be because market participants are used to such events. It may also be that the market is becoming more and more mature, and now it is enough to diversify to withstand such market attacks. In any case, this confirms the clear needs of those who choose to comply, even if it takes many years. At that time, no one can say what the market will be like. We may see that decentralized exchanges eventually gain market share and more users, which completely eliminates the need for centralized intermediaries. Alternatively, we may see regulated exchanges such as bakkt and CME becoming more dominant. We may even see today’s financiers enter this market because they already know how to deal with the regulatory environment. However, the key point at hand is that most trading volume and manipulation take place on unregulated exchanges. These risks can be mitigated through appropriate planning and due diligence – but they clearly will not disappear.
On the bright side, since most unicorns in the cryptocurrency field come from exchanges, cryptoexchanges have always been very profitable. They are also the most innovative creators of the value of digital assets other than bitcoin, because many exchanges have issued some tokens similar to stocks (such as BNB, KCs, FTT, flex, HT). Finally, despite the obvious defects in operation so far, cryptocurrency derivatives may have an incredible long-term positive impact, because companies that want to use bitcoin and other digital assets can now do so confidently because they can hedge and cope with price fluctuations.
Despite these shortcomings, the exchange clearly creates value for stock investors, token holders and native cryptocurrency companies.
Responsible editor: CT