- Cryptocurrency Trading Demographics
- Importance of Cryptocurrency Exchange Security
- Impact of Whales In the Cryptocurrency Market
- How do Exchange Choose the Coins They List?
- Trends
- The Future of Cryptocurrency Trading
- Cryptocurrency Trading Psychology
- Final Thoughts
Behind the Scenes of a Cryptocurrency Exchange: Secrets, Strategies, and More
The following article is based on insights from the Blockchain Connect Conference in San Francisco. Included in this exchange panel are exchange CEOโs Chris Lee (OKEX), Jesse Powell (Kraken), Mike Kayamori (Quoine), Chief Strategy Officer Kailong Cai (Huobi), and Head of International Markets Ted Lin (Binance Exchange).
โWeโre gonna be a much more prosperous society because we donโt require such a huge drag on our societyโฆ because the blockchain is now that trusted third party.โ- Tim Draper, American venture capital investor.
Cryptocurrency Trading Demographics
The US, Japan, and China are major cryptocurrency markets. The average trader is male in their 20s and 30s, with females and other extreme age groups entering the market.
OKEX: โ30% of all Koreans are trading crypto.โ
Huobi: 70% of customers come from China, a lot from Japan, but not much from US. About 50% are 30-50, while the average Chinese investor is 20-30. ย โThe male to female customers 4 months ago was 4:1. Now itโs 3.3:1. So female involvement is growing very fastโ.
Kraken: Kraken exchange users are mostly male, with a recent influx in both really young (18 years old with little money) and those around 70 years old. ย The average age in mid-30s more and tech-savvy with a bit of money to invest. โLately weโve seen both of the extremes, teens and people 70+.โ
Binance: โWe are 270th globally on Alexa, and 70th in the USA. The US is our biggest market, average age 25-35, mostly men.โ The ones that are still not in crypto are the midlife crises ones, ages 50-60s, โbut even grandmas are talking about cryptoโ.
Quoine: Early 20s coming en masse.โWhen I started itโฆ. they were looking for the next excitementโ. ย Crypto is โbigger than FXโ and other assetsโJapanese investors are interested in leverage trading.
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Importance of Cryptocurrency Exchange Security
Individuals need to make sure the exchange they are using makes security a priority, as exchanges are always a target. Moreover, users need to stop posting their cryptocurrency investments on social media.
Kraken: โSecurity is something we think about constantlyโฆ it was at the core of the exchangeโฆ itโs what inspired us to make an exchangeโ said Powell. โItโs a marathon, not a raceโฆ saw a lot of prominent members getting their cellphones ported away, people getting kidnappedโ. Powell continues to warn traders on their personal safety, saying โif you talk about Bitcoin on social media, you should think twice about itโ.
Binance: โWhen you grow too fast too quickly, you take shortcutsโฆThereโs a tradeoff between customer convenience and securityโ. Lin makes it clear that some exchanges arenโt taking warning security measures in actual practice. Even with a regulated market in Japan, things still happen, which is why it is โup to each individual to make sure the service provider you are using puts security front and foremostโ.
Impact of Whales In the Cryptocurrency Market
The exchange leaders tend to agree that there are whales, ranging from medium to heavy influence over the cryptocurrency market. However, there are no market makers with control total control over the market just yet. Investors need to beware of coins with low liquidity as they can be easily manipulated.
Kraken: โThere are definitely whales that are market-makingโฆ. but I wouldnโt say anyone has massive influence over the priceโ.
Binance: โI would say whales exist, but not necessarily with evil intentionsโ. Some whales โout to play, some out to arbitrageโ. Lin continues to say that some whales are โout to play, some out to arbitrageโ, with less liquid markets like Ripple (which is 60% owned) having โwhales that are market making, doing arbitrageโ. Ultimately, Lin believes manipulation isnโt too widespread.
Huobi: Whales effect โ70% of Bitcoin positionsโ.
How do Exchange Choose the Coins They List?
OKEX: The company looks at technology and how large the market is, and if there is โa ceilingโ for this market. They also want to know if it is a utility token, and the risks, security, and the characteristics of the technology behind it. Lee says it takes a couple of weeks to a month to list a new coin.
Huobi: Huobi has a credit system called โsmart chainโ based on five criterion. This includes the strategy, management team, technology, its market size, and its potential. However, โone thing we donโt share is how we weight these itemsโฆ we donโt want the bad guys to go publicโ.
Binance: People ask me โwhat are you gonna list next. Itโs become a craze for people to jump on the next big thingโ. Lin says there are only a few different ways to really understand if you picked the right project. โFor us, we do a very proprietary methodology. Is the team good, do they have good track records, do they have a productโฆ. And do they actually use blockchain technology for real?โ. He continues to say they like modest teams that donโt seek extravagant amounts of money. โWe pass less than 3% of all applicants in our reviewsโฆ 97% of those are rejectedโ states, Lin.
Trends
Bitcoin still is the preferred coin to trade, but altcoins are gaining traction. Thereโs also a slew of entrepreneurs attempting to appeal to the masses by launching ICOs.
Huobi: Before, we saw people trading a lot more. Now we see people holding it.
Quoine: Bitcoin is still the most popular coin. Its popularity is due in part because itโs the largest token in respects to volume as well as the Japanese government calling crypto legal tender.
Binance: Japan is more around Bitcoin, with the altcoin market being very small. This has to due with government regulations, as the government has to approve coins.
The Future of Cryptocurrency Trading
While the cryptocurrency market still looks like the wild west, market manipulation is expected to decrease. Countries should be looking to regulation to help control this manipulation.
Quoine: As the market matures, market manipulation will go down. Overtime, when there are more institutional investors and retail investors, the market will mature and exchanges will have to be transparent about whoโs making markets, and whoโs buying what.
Cryptocurrency Trading Psychology
People need to do better background research on coins instead of just investing based on its value or what the news says.
Kraken: Powell states โitโs scary when you hear some of these strategiesโ. He believes the news manipulates trading behaviors and thinks it is often dangerous to invest in coins just because they have a less than one cent value.
Binance: New users are often looking to coins with large fluctuations as they find them more exciting and potentially lucrative.
Final Thoughts
As the cryptocurrency world evolves in terms of user adoption and government regulation, cryptocurrency exchanges will be forced to adapt. Many exchanges are making large strategic bets on where they see the industry headed. Running a cryptocurrency exchange requires having nearly sage-level foresight mixed with the grit of being able to run a startup in an extremely fast paced and competitive environment.
Cryptocurrency exchange developments are going to be a very interesting topic to follow in 2018, so stay tuned for more!
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