TL;DR – Rapid innovation, development and improvement ahead waiting for bitcoin exchange market.
Bitcoin exchanges are hugely important in the cryptocurrency world. The decisions, actions, and mistakes made by these companies drive the price of public perception of bitcoin. For a currency to grow, people need to be able to buy and sell bitcoin easily and safely, and bitcoin exchanges are what make this possible.
Now, bitcoin is moving towards the mainstream. As it matures as an asset, bitcoin exchanges are now competing to become the preferred platform for serious investors. With both opportunities and challenges ahead in the cryptocurrency world, bitcoin exchanges will play a key role in shaping innovation, acceptance and future trends in this field.
Rapid Change in a Fast-Moving Environment
In the first few months of 2017, the bitcoin exchange market evolved rapidly. Bitcoin’s sustained rise in 2016 and signs of resilience in 2017 have proven conclusively it is more than just an experiment. Bitcoin is here to stay. All kinds of new organizations are taking a serious interest in bitcoin, and expectations are changing rapidly. Some of the major trends to look out for this year include:
- Lowering and simplifying fee structures
- More demand for margin trading
- Transparency and integrity
- Leadership in regulation and licensing
- Mobile development
- Introducing more cryptocurrencies to trade
- Bitcoin blockchain hard fork
Let’s take a look at how some of the innovations big exchanges such as CEX.IO, Bitfinex, Coinbase, GDAX, and Bitstamp are making in response to these trends.
Lowering and Simplifying Fees
Complicated fee structures and hidden costs are a big reason many have stayed away from trading bitcoins. That’s all changing now with companies competing to offer simpler and cheaper trading for beginners and professionals.
CEX.IO have recently introduced free deposits with bank transfers and a new tiered fee system to reduce costs for high volume traders. Coinbase has gone in the opposite direction, announcing they will no longer pay the bitcoin transaction fee for transactions on the bitcoin blockchain. We can expect to see further developments in fee structures to make bitcoin simpler and cheaper to use.
Increased Margin Trading
Lending and leverage are a key tool for day traders to earn profit. It allows traders to risk more capital than they actually own by borrowing funds from other traders.
CEX.IO and Bitfinex have offered margin trading for a while, but now many of the other exchanges such as GDAX are jumping on board. Bitstamp has also announced they are seeking regulatory approval for leveraged trading. This change will increase trading volumes on those exchanges, but also increase volatility.
Demand for Transparency and Integrity
Trust will be the most important asset for the bitcoin exchanges as the market grows. With its high value and guaranteed anonymity, bitcoin will always be a target for hackers and thieves. Most exchanges have been compromised, and hacks are expected.
Because of this, traders will look for platforms that provide both outstanding security and integrity when things go wrong. Bitfinex suffered an attack in 2016 but didn’t just leave users out of pocket like Mt. Gox. Recently, they announced 100% redemption of the debt tokens they issued to users who lost funds. This solution wasn’t perfect, but it showed that bitcoin companies can withstand major shocks and act like real financial institutions.
Regulation and Licensing
A big theme recently has been interest from regulatory bodies. Stories such as the denial of the Winklevoss twins by the Securities and Exchange Commission, and inspection by the People’s Bank of China, have made traders unsure of where they want to keep their money.
The trend now is towards a future where bitcoin is officially recognized and regulated by governments and institutions. Bitcoin exchanges will have a lot to gain by cooperating building a regulatory landscape that works for everyone.
The Japanese bitcoin market has enjoyed rapid growth recently, as Japan introduces new bitcoin legislation. The large Japanese exchanges such as bitFlyer and Coincheck are looking to gain competitive advantage. Coincheck business development lead, Kagayaki Kawabata, goes as far as to say “overall the new bill itself is a progressive bill that will position Japan as the leading bitcoin country.”
Mobile is emerging as a crucial platform for all technologies, including cryptocurrencies. A few of the exchanges already have great apps for trading on the go, including CEX.IO, BTCC, Bitstamp, ShapeShift, Bitfinex, and Kraken.
There are also many new mobile technologies hitting the market. BTCC have introduced a Twitter enabled app that allows you to send bitcoin via text message and use a bitcoin debit card. Also, Kraken has acquired Cryptowatch, a market visualization company, in an attempt to make their products more usable.
Expanding Beyond Bitcoin
Altcoins such as Ethereum, Ripple, Monero and Dash are increasing in demand and value. Kraken, ShapeShift, and Bitfinex already have a good selection of altcoins available, and GDAX has announced they intend to add new cryptocurrencies soon.
Dealing With a Possible Blockchain Hard Fork
The bitcoin community is becoming more and more divided over the issue of block size, and it’s looking like 2017 is the year a decision will be made. The exchanges are trying to keep customers in the loop with what this means for their bitcoins and trading plans. 20 of the most popular bitcoin exchanges (shown below) released a statement outlining a plan to deal with this big change for bitcoin.
The success or failure of the different blockchains will depend on how the big exchanges coordinate their efforts. You don’t want to be stuck using an exchange that doesn’t list your coins in line with others.
Bitfinex has taken an interesting approach, offering ‘chain-split-tokens’ that let traders speculate on future fork events.
Bitcoin exchanges have a major role to play in guiding bitcoin through its newest challenges as the currency develops. Expectations of customers, users, and regulators are changing, and the biggest providers need to adapt.
Bitcoin is set to become a major currency in the world of the future. To take advantage of the remarkable opportunities in this market, you need to understand how bitcoin exchanges are evolving and developing to meet the challenges ahead.