As institutional and retail investor demand for cryptocurrencies continues to surge, exchanges worldwide are looking to broaden the scope of delivery for their services while maintaining regulatory compliance in each of their countries of operation.
At the same time, governments and regional financial institutions work to establish regulatory frameworks with varying degrees of stringency and success.
To remain competitive in the space, major exchanges look to expand to overseas markets, and in some cases, relocating their operations to countries whose legislations are more welcoming towards this nascent asset class. Following on from our previous introduction to the cryptocurrency exchanges landscape in ASEAN, we’ll now explore that in EMEA and the Americas.
In the States, Coinbase continue their lead amongst US-based exchanges in daily trading volume, and is widely cited by users as the gateway for investors to obtain their first cryptocurrencies. Its consumer demand increased 40x in 2017, and the company experienced a 295% increase in trading volume in November and December. This surge came with a growing number of customer complaints filed with the SEC as its resources and technical infrastructure struggle to keep up with demand. In early 2018, the exchange met with the US office of Comptroller of the Currency (OCC) to begin inquiries for acquiring a banking license. Coinbase has also be whitelisted to post ads on Facebook, which will result in wider outreach for the platform and cryptocurrencies worldwide.
The crypto-exchange industry has also attracted Wall Street executives and other major players in traditional finance. Gemini exchange, founded by the Winklevoss twins, recently hired ex-NYSE CIO Robert Cornish as its CTO. The New York-based company currently accepts customers in 48 US States and 6 overseas countries. It is currently seeking regulatory approval in Hawaii and Arizona as well as other jurisdictions around the world.
In August 2017, the Canadian Securities Administrators (CSA) wanted to make clear that though a platform may call itself an exchange, it does not mean that it is complying with applicable securities regulations as there are currently no crypto-asset trading platforms recognized as an exchange. Therefore investors should not expect to receive the same protections that are built into the securities regulatory framework applicable to exchanges or dealers.
CoinSmart is the latest cryptocurrency exchange to have launched with the hopes to address the barriers that Canadian crypto-novices face when trying to enter the space. They will offer the “GetSmart Hub” with content to help users of all levels of expertise to get assistance. The exchange also plans to create tools to help users determine their taxable income and capital gains.
Latin & South America
South American populations are ripe to benefit from alternative banking and payments systems with its high inflation rates, remittance activity, and sheer numbers of those who are still “unbanked” or financially underserved. Yet authorities in multiple countries such as Chile and Colombia has cracked down on cryptocurrency exchanges seemingly without a robust roadmap for regulatory frameworks.
Earlier this year Buda.com, which holds ~80000 accounts across South America suffered from bans in Chile and Colombia. The Chilean exchange, along with two other cryptocurrency platforms, filed a suit to confront the decision and won the case later in April when Chile’s anti-monopoly court ordered 2 major banks to reopen its accounts.
BitINKA is a Peruvian exchange and remittance platform which currently allows citizens of 12 Latin American countries to trade cryptocurrencies, providing trading pairs with 9 different fiat currencies from Europe and the Americas. The exchange has begun its partnership with DASH to expand its footprint in the remittance market into South America, leveraging Dash’s low transaction fees, InstantSend functionality, and secure transactions.
Foxbit is currently the largest exchange in Brazil with over 400000 registered users and 40%+ market share. Together with their 3 main competitors, over 1.4 million accounts have been opened in the past two years. This speaks volumes when we consider the fact that only ~600000 stock brokerage accounts have been opened, indicating that Brazilians are more interested in cryptocurrencies than traditional securities.
Brazil represents a huge potential market with a population of 210 million. With a large percentage of this still uncaptured, Chinese exchange Huobi with its $600M+ daily trading volume looks to enter the space and has already set up an office in the country and is actively looking to hire local staff.
Several governments across the EU have positioned their jurisdictions to be welcoming towards blockchain, including Gibraltar, Malta, Estonia and Switzerland. Zug, Switzerland has quickly emerged as the global leader in fostering blockchain startups, leveraging the country’s progressive fintech industry and openness to innovative technologies. FINMA, a Swiss financial regulator was one of the first to address token classifications in ICO’s.
In July, the SIX Swiss Exchange, part of the SIX Group co-owned by 130 banks, announced its plans for establishing itself as a settlement and custody venue for crypto assets, one of the biggest statements of intent to enter the space by a European exchange. The exchange will be a “fully regulated” platform for digital asset trading by mid-2019.
Malta, with a population of less than 500,000 made headlines earlier this year when it became the country with the highest cryptocurrency trading volume in the world. This followed Binance’s announcement that it will move its operations there, a trend among high-profile blockchain firms and startups thanks to the country’s crypto-friendly legislations.
US-based exchange Bittrex has also partnered with European-licensed Invest.com to launch a new cryptocurrency exchange for EU customers. In addition to basic trading functionalities, the exchange will also offer derivative trading, portfolio management, algo-trading and equity trading.
When it comes to European cryptocurrency exchanges, HitBTC, Bitstamp, Livecoin and CEX.io lie amongst the top in the world in daily trading volume. Meanwhile, startups are entering the space to provide platforms that will make crypto-trading accessible to a wider public. Dutch startup Blockport has released user-friendly crypto exchange that combines social trading with a hybrid-decentralized architecture to help people safely trade crypto assets.
Moving forward, exchanges operating in or looking to operating in the EU would likely have to abide by AML guidelines which will likely to involve full customer verification. While officials are looking to bring cryptocurrencies under closer regulation, the legislations are aimed to protect citizens and save the euros being lost through money laundering and tax evasion while allowing legitimate, innovative trading solutions room to grow.
Earlier this year, the UAE launched the “Emirates Blockchain Strategy 2021”, which aims to migrate 50% of government transactions on to the blockchain by 2021. The Dubai Blockchain Corporate Registry Project, one of the pillars of this strategy, aims to streamline business operations and explore use cases while regulatory frameworks are being developed.
The Financial Services Regulatory Authority (FSRA) of Abu Dhabi Global Market (ADGM) has proposed a framework for cryptocurrency gateways, including exchanges, custodians and other intermediaries. The framework addresses anti-money-laundering and counter-terrorist financing, consumer protection, technology governance and safe custody.
The most renowned exchange regionally is UAE’s BitOasis, which offers an AED-BTC trading pair and has been operational since 2016. This year, Dubai-based startup ArabianChain Technology launched Palmex which boasts multiple trading pairs including Bitcoin, Ethereum, Ripple, and ArabianChain’s own DubaiCoin. In late June, Palmex became the first to receive a regulatory sandbox licence, allowing it to test its platform and services in a controlled environment with a live user base. The licence was granted by the Central Bank of Bahrain (CBB) as part of an ongoing fintech development program.
Since several countries in the continent suffer from rampant inflation, local economic conditions in Africa is ripe for the adoption of cryptocurrencies, which offers an alternative means for people to own assets that are not controlled by the central banks. The rapid use spread of mobile phones has also enabled African blockchain companies to onboard users to their mobile wallets and exchange services.
While trading volumes in the continent have been dwarfed by that of the far east in recent months, several startups and major banks have announced plans to expand their operations to serve more countries in the region.
Sygnia, a major South African investment firm plans to open an exchange called SygniaCoin later in 2018. It plans to adopt the BitLicense framework which is one of the most rigorous regulatory regimes governing cryptocurrency exchanges. According to a survey by MyBroadband, South Africa’s largest IT News site, almost 50% of readers who have never invested in cryptocurrencies plan to invest or get involved in crypto mining in 2018.
Zimbabwean exchange Golix, whose $32M ICO suffered a hiccup earlier this year when the Reserve Bank of Zimbabwe (RBZ) banned banks from processing crypto-related payments, has resumed its token sale after the Harare High Court ruled to overturn the RBZ’s directives. Golix has since opened exchanges in Kenya, South Africa, and Uganda, allowing customers to trade on the platform using fiat currencies through banks and mobile money.
Aside from dealing with legislative uncertainty and regulatory compliance, cryptocurrency exchanges worldwide are racing to meet consumer demand by establishing deep liquidity pools and onboarding new users through strategic partnerships, advance trading feature integrations, multi-tiered security protocols and user-friendly interface design. In this volatile market with a lot of investor money at stake, one simple oversight can put a smaller volume exchange out of business and give authorities more reason to restrict access to cryptocurrencies, adding friction against wider adoption.
While governments and financial institutions work to establish frameworks to protect investors and prevent fraudulent activity, the public has also been playing their part in calling out platforms whose practices do not do right by the user, and it is in everybody’s interest to ensure that the major concerns are addressed. As more capital and talent flow into the industry, we can be confident that in the long term, investors are poised to have a robust trading platform to turn to exchange their crypto assets.
*This article is jointly released by @nichanank and @yureehong17 on Twitter.
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