CHART OF THE DAY: How the world's biggest crypto exchanges stay one step ahead of regulators

(Lam Yik Fei / Getty Images)
  • Research from Morgan Stanley reveals some dramatic changes in crypto-adjacent industries.
  • Trading volume on global exchanges is dominated by exchanges that facilitate crypto-to-crypto transactions.
  • Crypto-to-crypto trades now exceed fiat-to-crypto transactions, due largely to the influence of controversial stablecoin Tether.

2018 has been a relatively quiet year for crypto markets, at least compared to the frenzy of activity seen in the second half of last year.

But sectors adjacent to crypto assets themselves, most notably crypto trading exchanges, have been subject to a number of interesting developments.

Research from Morgan Stanley shows the recent key trends in a sector that is global in scope but still only semi-regulated.

For starters, the top three biggest exchanges by daily trading volume aren’t based anywhere near the world’s global financial centres:

Morgan Stanley

Malta, Belize, and Seychelles — small jurisdictions which are often considered as off-shore tax havens.

US-based exchanges are only sixth on the list, while Australian exchanges facilitate a fraction of global trading volume.

Piecing together what major exchanges are based where, further analysis suggests that:

Binance is based on Malta;
OKCoin is based in Belize; and
BitMex is based in Seychelles.

As an indication of Binance’s overall market share, the actual number of exchanges in Malta is comparatively low:

Morgan Stanley

One feature of high-volume exchanges such as Binance and BitMex is that they offer significantly enhanced crypto-to-crypto trading capability.

For example, Binance offers no fiat-to-crypto option. To open an account, traders deposit BTC.

From there, they can trade their Bitcoin against a huge list of different alt-coins.

That differs from a large US exchange such as Coinbase, which offers fiat-to-crypto, but trading is limited to a small number of cryptocurrencies to avoid falling foul of US regulators.

It’s a similar story for Australian exchanges, many of which are cautious about what cryptocurrencies they allow on their platform.

But a global exchange based in Malta or Seychelles doesn’t have those limitations.

Interestingly, the Morgan Stanley research showed that crypto-to-crypto trading volumes now exceed crypto-to-fiat.

“2017 saw a transition away from developed-market fiat currencies towards stable coins,” the analysts said.

And they attributed the shift to increasing use of the controversial Tether stablecoin.

This chart illustrates the change among the currencies which Bitcoin is predominantly traded against:

Morgan Stanley

So, almost all of the money being traded against Bitcoin was coming out of China — until it wasn’t.

The yuan’s collapse as a Bitcoin trading pair coincided with a crackdown on capital outflows by Chinese authorities in early 2017.

The US dollar then picked up the slack during the 2017 bull market, and it now appears to have been replaced by Tether (USDT).

It makes for an interesting state of play as the market continues to mature; stable coins, crypto-to-crypto trading and huge trading exchanges seemingly hellbent on staying one step ahead of regulators.

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