Why some bitcoin exchanges may collapse in 2015

The recent drop in bitcoin price volatility may be good news for Bitcoin users, but is it likely to push a group of exchanges to the brink?

CoinDesk recently spoke to the president of a company that was destined to trade in Bitcoin. In this informal conversation, the general manager said a disturbing situation: the drop in Bitcoin poses a series of problems for exchanges that rely on volatile trading volumes. Without trading volumes, their revenues would fall, leading to a 2015-year stock market slump.

That would be scary, but would it happen? Let's talk about the relationship between volatility and volume.

Volatility means trading volume

"Volatility is closely related to trading volume in all market environments, not just in the bitcoin market," he said. "said Jeren Lukashevitz, president of the New York Stock Exchange Coinsetter. "This is not one of our unique characteristics, but a fundamental trend in the overall transaction." ”

There are also numbers to support this claim. BTC.SX, president of the Bitcoin derivative platform, Joseph Li Hu The daily highs and lows through Bitstamp's trading data, and calculated the change in the weighted price per day.

"The direct correlation between price change (volatility) and volume is obvious." All exchanges in this area remain the same, "he said.

Volatility and exchange

So volatility and trading volume are the same. But is volatility really shrinking? With Bitcoin's volatility index, we found that volatility was relatively low from May 2014 onwards, compared with late 2010.

Researchers at George Mason University's Mercatus Center invented the volatility index with Lie Doradou. It puts forward this theory on the causes of the decline in volatility:

"The volatility of Bitcoin has fallen due to the growing ecosystem." Some more sophisticated operators will hedge and provide more liquidity to the market. ”

Gerald Kotten, president of the Vancouver Exchange Quadrigacx, said that in general, exchanges like volatility. On the contrary, if prices keep falling, everything will be difficult for them.

"Huge price fluctuations have two advantages, usually resulting in higher trading volumes and hence higher profits," Cotton said. "When prices have not changed, the overall volume will be lower, which will have a negative impact on profits." ”

If this continues, does it mean that the proceeds of the exchange will plummet?

Experts point out that this depends on several factors. BTC. One of these is what the exchange is based on, says Mr Lee of SX. Typically, exchanges make money by 0.1% to 0.6% of transaction costs, and it's easy to calculate their profitability, he says.

"China's exchange is biased towards a 0% per-transaction cost, but on the contrary, a commission is levied on deposits and withdrawals." "he said. "In this case, its relevance may not be so direct. Profit figures will be harder to figure out. ”

Not all exchanges are equal.

The wealth generated by an exchange's fluctuations in Bitcoin depends equally on the services it provides. Ethereum, a decentralized application platform and an online course for Bitcoin Udemy developers, the former president of Charles Hossikinson, said the exchange wanted to propose measures to mitigate the current situation.

"It relies on the products offered by the exchange," he said. "The derivative of Bitcoin, or the Wright dollar,

or dog coins, which are still there and have added value in the trading model. You can continue to expand and maintain relevance. ”

Hossikinson pointed out that Shanzhai currency is a highly profitable trade area. There are many exchanges, such as the vault of Satoshi, who subscribe to counterfeit currency trading equipment.

However, the choice of diversification will not stop because of the existence of counterfeit currency.

"We found that stability has created opportunities to increase profits in other areas," said Quadrigacx's cotton. "For example, we offer business services like BitPay, but we are paying more attention to the Canadian market." When volatility declines, we usually look for a higher business volume. ”

Another option is to provide derivative products, which can increase the difficulty and depth of the market and provide more balanced trading opportunities. However, Hossikinson pointed out that under such circumstances, a strict regulatory environment would seem like an obstacle.

Therefore, whether the stock market of the exchange is plunging depends on many factors. It is clear that the price of future Bitcoin can be kept stable is one of them. Second, the diversified income model that balances transaction risk is also one.

Selection

Coinarch's Lagos suggested that perhaps some exchanges should leave. "In fact some of the competition is good, but a highly fragmented market with so many flawed and bad actors, I think it's bad for everyone," he said. ”

Hossikinson pointed out that too fragmented markets would disrupt the liquidity of their internal transactions by assigning too few traders to too many deals.

If the stock market plunges, there may be some benefits. Doradou said. "Although volatility has a bad effect on Bitcoin in terms of speculative assets, it is good for bitcoin as a currency," he said. "he concluded. "The exchange may reap more deals because of the widespread adoption of Bitcoin, even though they have lost some commercial speculation at the moment." ”

The volatility of Bitcoin will reach its peak tomorrow, which will, of course, be a strong boost for those with a dedicated service and income model.

But just in case, can it be sensitive to hedging risks and creating a broader portfolio of services?

Source: Gold Rating Media

The article is only for the Personal Study Institute, if the infringement of copyright matters, please inform, in order to promptly delete