The number of exchanges that have closed in 2020 is 56% higher than in 2019. The progress of DeFi projects seems to influence the growth of decentralized exchanges.
According to a list on the crypto exchange graveyard site from cryptocurrency services comparison firm Cryptowisser, since January 2020, around 75 cryptocurrency exchanges have closed operations.
This number of closures of exchanges – most of which were centralized – represents 56% more closures than last year. This trend does not seem to show signs of decreasing,” says Cryptowisser.
The company states that competition, saturation, and the increase in regulations have influenced the increase in these statistics.
The closures could be due mainly to administrative problems, hacks, and government sanctions. Besides, some exchanges have been classified as frauds and others have yielded to the pressure that the authorities have exerted in various countries.
For example, Chilebit.net had to freeze subscriptions and withdrawals from the platform in January 2020. The company’s management noticed that Banco de Crédito e Inversiones (BCI) had blocked its accounts, which led it to suspend its operations in Chile.
They also mention that increased regulatory requirements forced Netherlands-based exchange Nlexch to close in September. The company said that the Central Bank of the Netherlands demanded the payment of high fees for the registration of all cryptocurrency companies. For that reason, the exchange could not cover the costs of providing the required level of security, support, and technology.
Concerning Hotbit, allegedly operating in Hong Kong and Estonia, and FEX, also in Hong Kong observed, the authorities classified them as scams.
Italy-based exchange CryTrEx closed operations after seeing that constant hacks had depleted its finances. The same occurred with the South Korean exchange Coinrail, which a hack affected in 2018. Cryptowisser indicates that it is not possible to access its website and its social networks are out of date.
Mexico-based platform Enmanet stopped working at the end of 2019 without clarification. Brazilian cryptocurrency exchanges OmniTrade and 3XBIT closed earlier this year without explaining. TokenJar, Bitrush, QBTC, Nexybit, Coinfinit, ChaoEX, CoinMex, Coinrate, CoolCoin, BTCBear, and Unichange also disappeared.
Austria-based VirWox announced the halt of its operations at the beginning of the year. This is one of the exchanges that voluntarily closed jointly with HBUS. The latter, a US subsidiary of the exchange Huobi Group, announced that it would cease its activities in January 2020. The closure came after Huobi froze US customers’ accounts, citing regulations as a reason.
Decentralized Exchanges Grow with Rising of DeFi
The rise of decentralized finance (DeFi) and the interest in the derivatives market may also be influencing the closure of exchanges. The issue of DeFi is a very influential factor, “since any platform that does not offer services associated with this system is likely to lag behind,” states Cryptowisser.
The firm speaks of an increase in the number of platforms for the exchange of cryptocurrency derivatives and a marked bullish trend in the decentralized exchanges (DEX) linked to DeFi.
This seems to indicate that the progress of DEX is likely to displace centralized exchanges. Among their advantages, Cryptowisser says that DEX is less susceptible to hacking and the offering of lower rates.
Other studies have focused on cryptocurrency trading volumes that exchanges have recorded in 2020.
According to the CryptoCompare Exchange Review report from August 2020, the trading volume at cryptocurrency exchanges fell by USD 643 billion last June. “The biggest drop was 53% among low ranked exchanges and 36% among high ranked exchanges.”
The size of the platforms is relevant since 95% of the volume of Bitcoin’s spot trading concentrates on the largest centralized platforms.
According to the Coin Metrics study, Coinbase, Bitstamp, Bitfinex, and Kraken dominate the market. This fact could make smaller exchanges more susceptible to closures.
By Willmen Blanco