Coinbase’s IPO announcement has been hailed as “a milestone for the crypto industry” by Fortune Magazine. Similar to the Netscape IPO announcement that signaled the legitimacy of the internet, Coinbase’s impending public offering signals to the public at large that cryptocurrency trading is legitimate, legal and secure in the eyes of the Securities and Exchange Commission. And now, investors have an opportunity to own stock on the largest crypto trading platform in the United States.
As a result, many see an investment in Coinbase as an investment in the future of crypto trading. It is the highest volume U.S. crypto exchange, with three times the volume of its next closest U.S. competitor. The largest of anything in the U.S. must be the world leader. Except, it’s not. And conventional wisdom and current market realities are very far apart.
In order to understand the nuances of the crypto trading platform market, one must understand some important facts.
These are important implications that shape current market maturity and the problems institutional crypto traders face today. There is no single exchange that enables traders to access global trading markets, cross-border price discovery, global best prices, global liquidity or decentralized trading markets.
The crypto trading market is still highly fragmented with no dominant player
Together, the top five crypto exchanges represent only 41% of the total global trading volume. Coinbase, the largest exchange in the U.S., generates only 2.1% of global volume. The number one ranked exchange in the U.S. ranks only 19th globally. In the global market, there is no dominant player as we’d expect to see in a more mature market.
According to the data above, the New York Stock Exchange’s share of global equity trading is more than 12 times higher than Coinbase’s, and the top two U.S. equity exchanges account for over 50% of global daily trading volume, while the top two U.S. crypto exchanges represent only 3% of the global trading volume.
Compared to traditional stocks, the crypto market is also highly fragmented. The top two stock exchanges represent 51% of daily trading volume, while the top three crypto exchanges represent only 27% of daily trading volume.
No unified global trading market exists
The crypto trading market is still in its infancy. Based on my conversations with institutional traders and independent professional traders, I’ve learned that institutions are still clamoring for institutional-grade capabilities that are not yet available on a single platform, such as:
- Global price discovery — e.g., prices from global markets normalized for local currency.
- Global Best Bid and Offer — global order book, normalized for foreign exchange and fees in local currency.
- Global liquidity access — access to global liquidity, not just that of one exchange.
Each exchange is its own trading “lake” with no “canal” connecting them. In the U.S., a trader can only trade with 2.1% of global users, with an order book that is completely separate and distinct from other U.S. trading markets — e.g., Coinbase and Kraken.
Global trading volume, liquidity and price discovery are available only to those who are able to manage multiple accounts across multiple exchanges in multiple countries and continents. It’s a tall order that ties up both legal and technical resources.
Clearly, traders would benefit from a single, global order book normalized in a single currency to discover the best global prices along with the liquidity required to execute large block trades. The industry sorely needs crypto’s equivalent of traditional securities’ National Best Bid and Offer.
Centralized exchanges are only part of the trading picture
Binance and Coinbase are centralized exchanges that match buyers’ orders with sellers’ orders, executing trades and settling accounts. Customers’ crypto assets are held in custody by an exchange, and users only trade with other users on the same exchange. Even in aggregate, centralized exchanges don’t capture the entirety of digital asset trading volume.
This is because decentralized exchanges are on the rise, enabling peer-to-peer trades (or swaps), in which assets are exchanged directly between traders, typically without Know Your Customer. At one point during 2020, Uniswap’s trading volume exceeded that of Coinbase’s. It’s possible that DEXs will gain an even footing with CEXs, so one cannot gain a full picture of the crypto trading market without taking DEXs into account.
The CEXs that figure out how to incorporate DEX price discovery and liquidity into their trading will have an important advantage.
Decentralized exchanges are growing but lack infrastructure to scale
Decentralized exchanges generate approximately 15% of the total crypto trading volume (based on CoinMarketCap data on Feb. 16, 2021). DEX trading has been growing fast, with Uniswap’s trading volume surpassing Coinbase’s in 2020 — a feat achieved with only 20 employees. Today, Venus is trending alongside Binance, which leads the market in 24-hour trading volume at the time of writing.
Professional traders may value DEXs for the security of wallet-to-wallet, or peer-to-peer, trades. However, there are two issues. First, without counterparty KYC, institutional traders cannot trade on DEXs. Second, the public chain technology supporting DEXs is slower and more expensive than exchange trading.
Institutional investors will need DEXs that are faster, with lower fees and robust KYC procedures. A DEX must be built on a faster, less expensive blockchain in order to attract institutional traders.
There are no true centralized exchanges — only brokers
Confusing matters even more, today’s crypto exchanges are more like regional brokers than true, global exchanges. For example, compare and contrast trading Apple (AAPL) on E-Trade versus trading Bitcoin (BTC) on Coinbase.
A professional trader in the U.S. seeking to trade BTC accesses only a small portion of the global market via Coinbase. Price discovery and liquidity are only by Coinbase’s BTC/USD order book. Over 97% of the world’s world’s supply, demand, price discovery and liquidity are only accessible via hundreds of other exchanges.
To sum up, selling Apple on E-Trade compared to selling Bitcoin on Coinbase:
- E-Trade places orders on Nasdaq, which captures nearly 100% of AAPL spot trades.
- Coinbase places orders on its own order book, which captures 2.1% of all global trades.
There is no truly global crypto trading market but rather hundreds of smaller, local markets. Imagine AAPL selling on 300+ different exchanges, each with its own buyers and sellers. This is the current state of the global crypto market.
The problems with this are twofold. First, trading on a CEX strips away many of the benefits of decentralized assets. Second, crypto trading is segregated into hundreds of discrete trading “lakes” — each with its own local fiat/crypto supply and demand.
Decentralization ensures no single entity can fully control a cryptocurrency. Users cede significant control when depositing in centralized exchanges that manage token listing privileges, custodianship, order matching and execution, and brokerage services.
This centralized power presents security and compliance hazards, which has led to market criticisms. In fact, Asia–Pacific traders have launched several coin withdrawal campaigns to show their resistance to CEX trading. The younger generation is averse to centralized power and daring to challenge it, as evidenced by the recent retail shorting war in the United States.
Centralized exchanges are also limited in their access to the global market and are severely limited. Why? Exchanges, such as Coinbase and Gemini, accept users from limited regions (the U.S. only) with limited fiat currency trading pairs (the United States dollar only) unlike E-Trade, which opens the doors for its traders to a multitude of exchanges, equities, exchange-traded funds and more. In contrast, CEXs close the doors to all others, severely limiting price discovery and liquidity, which leads to higher spreads, lower fill rates, higher slippage and, generally, inefficient markets. The concept of Best Bid and Offer does not yet exist in the crypto world, as the BBO on Coinbase is not the same as Gemini’s, Binance’s or Huobi’s.
Professional traders are underserved
From the perspective of professional traders, the market maturity and global trading capabilities required are not yet available. Cryptocurrency trading market segmentation is in its infancy, and the needs of professional traders are far from being met because: (1) they cannot efficiently access a global market; (2) they cannot access the best prices in a global market, and they cannot access institutional-grade liquidity.
Furthermore, DEX trading is not yet viable for institutional traders due to the lack of KYC during onboarding. Yet, the average Uniswap trader is far more active. Uniswap users are completely on-chain, open and transparent, and its 300,000 users trade more than Coinbase’s, which claims to have 35 million users. Therefore, an entire market of whales is trading outside of centralized exchanges, completely overturning the market misperception that Uniswap and DEX users are mainly retail investors.
No trading market exists that provides true global coverage, and retail and institutional traders cannot access a truly global market. And no trading market exists that provides institutional-grade DEX trading.
Asset digitization will drive growth
Industry consensus is that the continued digitization of assets is inevitable. Bitcoin and Ether (ETH) are blockchain-native tokens that constitute the main trading volume of the current cryptocurrency trading market. Yet the cryptocurrency market cap is less than half of Apple’s.
The stock market is almost negligible compared to the untapped digitized asset market. While the opportunity is large, it is also too early to predict the outcome.
Many exchanges expose traders to compliance risks
Some of the world’s leading exchanges allow trading in a large number of controversial tokens. Many exchanges’ Anti-Money Laundering regulations are not robust enough. Despite claiming to have licenses in some countries, it is hard to imagine the legitimate compliance of offering derivatives trading to users all over the world by using an exchange license in a single country. These compliance risks pose a serious challenge to the stability of the position of some exchanges, and not long ago, the market landscape for derivatives changed rapidly after BitMEX was indicted, resulting in a loss of users and a decline in trading volume.
Innovation in institutional-grade exchange technologies is not yet widely available. Volume rankings tell today’s story. Tomorrow’s story will be told by the trading markets that provide a true, global Best Bid and Offer price discovery, institutional access to DEX pricing and liquidity, and the ability to execute global trading strategies on a single platform.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.
The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Haohan Xu is CEO of Apifiny, a global liquidity and financial value transfer network. Prior to Apifiny, Haohan was an active investor in equities markets and a trader in digital asset markets. Haohan holds a Bachelor of Science in operations research with a minor in computer science from Columbia University.
Bitcoin At $100,000: Estimating The Chance Of Six Figure BTC In 2021
Bitcoin price (BTC) reached a new all-time high this week, soaring to almost $65,000 on Wednesday the 14th of April. With Bitcoin’s price now in “blue sky territory” and its market cap sitting comfortably around the $1.17 trillion level, the big question is – just how high will the current bull market push the BTC price this year?
Rounding Up The Most Famous Bitcoin Price Predictions
Here are some of the most famous individuals and institutions in crypto that have gone on record with bullish Bitcoin price calls:
In March, analysts at major US investment bank, JPMorgan, were reported to be eyeing a Bitcoin price of $130,000 – although no timeframe was provided for their prediction. JPM’s CEO, Jamie Dimon, was vocal in his criticism of Bitcoin in the past. However, the firm’s increasing involvement in crypto projects reflects the growing integration of cryptocurrency within the traditional financial sector.
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MicroStrategy’s CEO, Michael Saylor, is renowned for converting his firm’s cash reserves to Bitcoin and encouraging other corporate leaders to follow suit. At last count, MicroStrategy held over 90,000 BTC, worth approximately $5.5 billion at the time of writing. Unsurprisingly, Saylor is extremely bullish on the BTC price, saying in a March interview that he “can see Bitcoin going to a million… [or] five million.”
Pantera Capital, launched in mid-2013 as the original American crypto investment fund, has projected a Bitcoin price of $115,000 before September of 2021. Pantera’s call is based on the Stock to Flow (S2F) model of Bitcoin’s price, which has thus far shown a high degree of predictive power. Given the time-specificity of Pantera’s call as well as their transparency regarding its rational basis, we would consider this the most considered prediction.
Daily Bitcoin chart showing the bull run since late 2020 until present | Source: BTCUSD on TradingView.com
A Rally-Supportive Economic Environment
Predictions alone, no matter who makes them, aren’t enough to elevate Bitcoin to a six-digit price level. What’s needed are enthusiastic buyers and hodlers, whether they be individual investors or large institutions.
As to the latter, we’ve already alluded to MicroStrategy’s crypto corporate coffers. Perhaps following Saylor’s advice as presented to thousands of corporate representative, Time Magazine recently announced their own acquisition of Bitcoin.
Furthermore, with financial titans like BlackRock and MasterCard recently announcing their involvement in Bitcoin, there can be no doubt of the institutional appetite for » Read more
” href=”https://www.newsbtc.com/dictionary/satoshi/” data-wpel-link=”internal”>Satoshi’s invention.
The stock-to-flow model projects much higher prices for BTC | Source: Digitalik.net
Perhaps the most compelling reason driving investors, big and small alike, into Bitcoin is the expectation – and indeed the observation – of high inflation. With central banks around the world printing billions if not trillions of fresh fiat units as a response to COVID 19, the scene has been set for declining fiat value and rising costs for goods and services.
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With high inflation everywhere except government statistics – steel prices up 3x on the year, for example – it’s no wonder that demand for hard, deflationary money has never been higher.
Featured image from Deposit Photos, Charts from TradingView.com
Coinbase’s $86bn Valuation Has Been Grossly Exaggerated by Misleading Media
Coinbase shares closed at $327 on their Nasdaq debut, giving the crypto exchange an initial market cap of $86bn on a fully diluted basis.
Fully diluted refers to the total number of common shares outstanding and available to trade on the open market after all possible sources of conversion. But some feel this measure gives an inaccurate valuation as it includes options and restricted stock, therefore overstating the number of shares used in the valuation.
In the buildup to the IPO, some analysts expected Coinbase to achieve a $100bn valuation. While its closing valuation wasn’t a million miles away, it was still less than expected.
Coinbase Listing is a Watershed Moment For The Cryptocurrency Industry
Coinbase is the first major crypto company to test the U.S. public market. Its IPO was hailed as a turning point in cryptocurrency going mainstream. Analyst Dan Ives wrote:
“Coinbase is a foundational piece of the crypto ecosystem and is a barometer for the growing mainstream adoption of bitcoin and crypto for the coming years in our opinion.”
” href=”https://www.newsbtc.com/dictionary/coin/” data-wpel-link=”internal”>COIN opened at $381 on the Nasdaq Global Select Market. Early on, buyers pushed the price as high as $429, but bears soon took over to dip the price as the day wore on. It ended the session at $327.
Source: COINUSD on TradingView.com
The firm had released some impressive figures before its public debut. It showed a spike in revenue and a doubling of its monthly active users from the previous quarter.
But market research firm New Constructs had already sounded the alarm on a severe overvaluation at $100bn. They believe a valuation this high takes no account of a future squeeze on its transaction margins.
the company has little-to-no-chance of meeting the future profit expectations that are baked into its ridiculously high expected valuation of $100 billion.”
The Actual Valuation Should be $65mn
While Coinbase’s fully diluted valuation came in at $86bn, pretty much in the middle of pre-debut expectations of between $60bn – $100bn, CIO at Arca Jeff Dorman said this figure is grossly overstated.
Dorman slammed the media for “misinformation” and “horrible reporting,” saying they were using the wrong share count. Based on 198mn class A and B shares, Coinbase’s closing valuation should be $64.7mn.
“That math is wrong — There are 198mm class A and class B shares o/s, not 261mm. If we use fully diluted share count, then every stock on the planet has infinite shares due to no restrictions on how much stock a company can issue.“
On the matter of ever reaching a $100bn valuation, researcher Larry Cermak expects this to happen as long as the bull market continues.
“Direct listings almost always trade down in the next few days because of the high float that’s being dumped. As long as the bull market continues, it will eventually recover and go $100B+ IMO. Low volume today is somewhat surprising though.”
At this point, it’s unclear whether an overstated Coinbase market cap is a help or hindrance to crypto. While an overstated valuation is likely to drum up interest, the spin side sees additional pressure on Coinbase to live up to the hype.
ETH bonanza as three North American Ethereum ETFs approved in one day
While gaining exposure might still be difficult south of the US-Canada border, Canadian investors will shortly have a host of options to choose from to gain exposure to Ethereum (ETH) via an ETF as regulators have approved three different Ethereum ETFs in a single day.
Purpose Investments, Evolve ETFs, and CI Global Asset Management were all approved by Canadian regulators to launch Ethereum-backed ETFs today. The ETFs will be the first ETH ETFs in North America, and among the first in the world.
Some observers noted that all three being approved at once may have been part an effort not to give Purpose an “unfair advantage”. Purpose appeared to gain an edge after the launch of the wildly popular Purpose Investments ETF, the first North American Bitcoin ETF which quickly swelled to $1.3 billion in AUM while competitors waited for approval. Rival Evolve Fund Group’s Bitcoin ETF only managed to attract $100 million in AUM, despite launching only two days later than Purpose and offering 25% less management fees.
In a Tweet, a reporter for Bloomberg said that the CL Galaxy and the Purpose ETF funds will begin trading on 4/20 — a date he thought would please Elon Musk, given it’s marajuana culture connection. Likewise, Evolve’s ETH ETF — which they first filed for in March — will begin trading on the same day.
Updating yet again… @CIGlobalAsset & @GalaxyDigital just got approval for their #Ethereum ETF alongside @PurposeInvest‘s. I THINK both will begin trading on … wait for it … 4/20 — Amazing @elonmusk https://t.co/SNFY4jNpUa pic.twitter.com/4ZUSCJEVQ5
— James Seyffart (@JSeyff) April 16, 2021
The Canadian stock market has already demonstrated a significant appetite for exposure to crypto assets. Previous exchange-traded Ethereum products led to market halts on the first day of listing, and Purpose’s Bitcoin ETF cracked $100 million in its first day of trading.
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