Either by disaster or simple attrition, the cryptocurrency exchange landscape is evolving. Over the last two years, crypto exchanges have come and gone at a rapidly accelerating pace–as hordes of new crypto investors entered into the market, savvy entrepreneurs followed them with new exchanges.
However, many of these new exchanges–some of which were created hastily–did not have adequate security measures.
Others still found themselves unable to comply with the increasing demands of the governments of their associated jurisdictions; they have been forced to shut down or have been all but abandoned by their user bases. Even some exchanges that were around since before the crypto boom were crushed under the weight of the demands that came with it or by the bear market that followed in its wake.
So what is it that has allowed some cryptocurrency exchanges to stay successful–and even flourish–in spite of the trials and tribulations that the crypto market has faced over the last two years? Nick Chong, head of North America at Quoine, told us how his exchange has made its way through the ever-evolving crypto industry landscape.
Fate & Circumstance
Chong’s involvement with Quoine “started like many things in life,” he said. “it was a combination of coincidence of circumstance and correct timing.”
Chong said that his attraction to work with Quoine was largely based on the fact that Quoine was heavily focused on the institutional financial side of crypto trading long before most other exchanges were interested in attracting institutional investors.
“I think that Quoine is quite unique actually as an exchange Quoine started operations in 2014–one of the things that really impressed me about them was that from the very beginning, it was decided that as a cryptocurrency exchange, it would be focused on financial-grade crypto exchange services.
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“Although that’s probably not something that seems very unique today when you see a lot of the different institutional investors looking at Bitcoin and cryptocurrencies. Around that time, the Mt Gox crash in Japan still hadn’t happened–and a lot of other exchanges were [perhaps] run by competent technical teams, but were not competent from a financial standpoint,” he explained.
“And that is something that I found was very visionary from the point of view of Quoine’s founders to want to pursue that. And I think that ultimately, it’s something that has distinguished Quoine a lot from our competitors, even today.”
”The US market–in terms of exchanges–is a very, very competitive market.
“We recently announced our expansion into the US,” Chong said. “I think that the US market–in terms of exchanges–is a very, very competitive market. But because of the presence of institutional investors and a large population base, I believe that in surveying the different US-based exchanges, they are heavily focused on their domestic US market.
“And I think that they’re doing a relatively good job in that market as well,” he added. “So, we’ve pondered for ourselves: what can Quoine bring the USA as an exchange–what can we bring to the table? And I think there are a couple of things worth mentioning.”
“One of them is our liquidity,” he said. “The BTC-to-JPY trading pair is one of the highest-volume pairs in the world. And Liquid [(Quoine’s trading portal)] –we are the number one exchange in Japan for spot trading on Bitcoin. On a few occasions, our daily volume has surpassed that of all the other Japanese exchanges combined, for example.”
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— BitcoinAgile (@bitcoinagile) April 3, 2019
“So, we think that we can essentially bring [this pool of liquidity] to the US and expand it to the other trading pairs that will be offered less [commonly.]
Institutional Clients Expect Relationships with Crypto Exchanges to Have Same Standards as Other Financial Institutions
Chong said that while Quoine and Liquid are focusing on onboarding both institutional and retail clients in the United States, he personally believes that “there is a huge opportunity with institutional clients who are generally more discerning and selective about which exchanges they deal with.”
“Traditional institutional clients have experience in managing traditional assets, and I think that they expect some of the same standards in their relationship with a crypto exchange as they would, for example, with a stock market exchange.”
“Things like, for example, the security of their assets; measures against market manipulation and insider trading; these are all things that I think are high on their list for these institutional clients. And these are things that I think we do really well as an exchange.”
In addition to employing mechanisms that detect market manipulation, Chong said that Quoine and Liquid both have a strict policy on asset segregation. “This means that with our own exchange funds–whether crypto funds or fiat funds–we do not mix them with client funds.”
— Bank of Hodlers (@BankofHodlers) December 4, 2018
“I think that this is something that is quite critical if we look at some of the recent stories,” he said, referring to the infamous QuadrigaCX incident. “The customer funds were intermixed with Quadriga’s funds, and even Ernst & Young, who have spent a lot of resources trying to recover these funds, couldn’t really make heads or tails of where these funds actually went.”
”There Was a Silver Lining” to the Bear Market
We asked Chong about how Quoine and Liquid managed to stay afloat in the bear market that plagued the crypto industry throughout 2018 and into 2019. “There’s a bit of an art in managing your own crypto assets, whether you’re an individual or an exchange, a VC or a crypto fund,” he said, coyly adding that in Quoine’s case, “this is the black art of what our head of trading does.”
And because things were so much more difficult, few exchanges managed to increase their market share during the bear market. However, “[Liquid] was one of them.”
“I think that is indicative of increased awareness of what makes a better-quality exchange,” he added.
However, “I can tell you that surviving the market is something that was difficult for every player out there,” he continued. “But from my perspective, I think that there was a silver lining to this.”
“What [the bear market] allowed for people to do is to start to think about what I would essentially call a ‘purification process’ in our industry. In 2017, we saw simply too many ICO scams, too many cases of market manipulation, too many cases of lost crypto funds.”
“And I believe that in 2019, we will have a year of increased awareness–for example, of what makes the difference between a legitimate ICO and a fake ICO; and what makes the difference between a good-quality exchange and a lesser one.”