Table of Contents
Main conclusions
Cryptocurrency exchange failures increased by 252% in 2019 and 17% in 2020 42% of exchange failures occurred without any explanation to consumers, while 9% were due to scams Only 22% of failed exchanges were due to commercial reasons However , as the market shakes amidst major turmoil, there could be more exchanges failing due to business reasons going forward Forecast 55% drop in the number of failed cryptocurrency exchanges Cryptocurrency has faced a turbulent market this year so far, with markets falling sharply as the Fed becomes aggressive on inflation concerns, the geopolitical climate worsens and investors flee to safe-haven money. Sometimes projects fail completely. That’s the nature of a start-up in any business, but it’s especially true in an industry as risky and innovative as cryptocurrency. Narrowing the focus to centralized exchanges, I was curious to see how many and why cryptocurrency exchanges have fallen so far.
Number of failed exchanges
After 23 exchanges failed in 2018, that number exploded by 252% in 2019, before rising another 17% in 2020. Staying at the same level in 2021, this year has finally improved, with a 55% reduction in failures if the rest of year follow the first six months. But wait until you see the reasons why they sank…
Reasons for failed exchanges
The reasons, however, are more intriguing. Surprisingly, 42% of exchanges that failed simply disappeared without a trace. This equates to 134 exchanges, highlighting just how opaque the cryptocurrency industry can be. One of the most notorious of these disappearing acts, for example, was that of Singapore-based exchange CoinBene. Last November, users received an announcement out of the blue: “Due to CoinBene global server maintenance, there is a problem of (being) unable to log in to (the) www.coinbene.com page. We are very sorry about that.” This shows how suddenly these entities can be funneled and how far the regulation is. The (former) exchange also ended up being included in a report to the SEC about fake exchanges and volumes. In addition to disappearing without a trace, 9% of exchanges have failed for outright fraud – the most recent of which was Crex24 in February this year, with posts suddenly appearing about wallets being drained of tokens and liquidity. Another 5% of exchanges were hacked, while only 22% failed due to legitimate business reasons, while another 8% closed their doors as a result of regulation. While the chart above shows that the longevity of centralized exchanges is improving, which is to be expected as the industry matures, the numbers here show that this is a necessity. If cryptocurrency is to be taken seriously and fully established, it needs to continue to clean up its image and leave behind hard-hitting statistics like the ones below.
From now on
While the cryptocurrency has suffered bear markets before, the environment is now different. This would be the first time that a bear market has occurred while the broader market is also facing a bear market, as macro sentiment is as bad as it has been since the Great Financial Crash, which occurred in the same year as the whitepaper. of Bitcoin was published by Satoshi Nakamoto. In the context of the current environment, I would therefore expect the figure above 22% for exchanges failing for commercial reasons to increase, as would be natural in a period of economic downturn. That would also hurt the predicted 55% drop in overall failures this year. As far as the amount simply disappearing into thin air, this can be expected to slow down – regulation is still long overdue, but it has at least made progress and should make it difficult for exchanges to disappear without a trace. The same logic holds true for scams, although it will be especially interesting to see how many exchanges close due to regulatory reasons going forward. Regulation should encourage innovation, not stifle it, so hopefully if exchanges are closing due to changes in the law, it’s for a good reason. As with everything in cryptocurrencies, however, it is difficult to predict with certainty whether this turmoil turns into a prolonged macro bear market – there is no precedent.
Sources
cryptographer
