Tradfi players that offer crypto services set to muscle out crypto exchanges – report

Crypto exchanges face a fight for survival as traditional financial firms force their way into the market, the authors of a new report say.

As Asian governments prepare to green-light Bitcoin exchange-traded funds, customers could start to desert established crypto trading platforms, crypto analytics firm Tiger Research said in a nine-country study of current crypto trends.

“Traditional financial institutions are entering the market by leveraging familiar-seeming investment products like Bitcoin spot ETFs,” the report’s authors wrote. “Ahead of the next bull market, exchanges will only be able to survive if they prove to investors [that they can provide services] that traditional finance cannot.”

Investors around the world are pouring billions of dollars into crypto ETFs at a time when crypto exchanges are laying off staff, seeing their trading volumes drop, and experiencing share price slumps.

Acute problem

The problem is acute across Asia, but is being felt hardest in nations like South Korea, Tiger Research said.

The nation is home to just five permit-holding crypto exchanges, all of which started life as tech startups.

But the creeping influence of traditional finance is already making its presence felt in Seoul. The securities giant Mirae Asset is on the verge of sealing a takeover deal with Korbit, the country’s oldest Bitcoin trading platform, for instance.

Up to 16 million South Koreans, or almost a quarter of the country’s population, have experience trading crypto on domestic exchanges, per official estimates.

However, average daily trading volumes are down, and Korean won deposits are gradually decreasing, Tiger Research noted.

“Investors are moving to the stock market or overseas exchanges in pursuit of better returns,” the report’s authors said.

The picture is similarly gloomy in Japan, the authors said. New inflows have stagnated due to high tax rates that will not be reformed until 2028.

In Hong Kong, meanwhile, strict regulations mean only high-net-worth traders who classify as professional investors can enjoy unfettered access to crypto exchanges.

Tradfi Creep

In the battle to capture new users, traditional finance firms have the edge, the authors said.

When those players enter the market, new users will be able to buy Bitcoin and high-cap altcoins through their existing banking and securities trading apps, the firm wrote.

“What traditional finance provides is not new information, but a familiar experience,” said Tiger Research.

Crypto exchanges can fight back by offering services banks cannot — such as access to decentralised finance and a wider range of cryptocurrencies, the firm said.

But these services are “meaningless” unless exchanges take steps to demystify the world of DeFi and altcoins for people who only have a passing interest in crypto, the authors concluded.

Big banks are currently angling for a slice of the crypto pie in nations all over the world.

“Banks are going to get fully into the crypto industry,” David Sacks, the US government’s AI and crypto czar, told CNBC in January. “We’re not going to have a separate banking industry and crypto industry. It’s going to be one digital assets industry.”

A similar picture is set to emerge to an even greater degree in Russia. Lawmakers are set to roll out legislation that will soon force internet providers to block overseas exchanges and force crypto traders onto bank-run trading platforms.

Tim Alper is a News Correspondent at DL News. Got a tip? Email him at tdalper@dlnews.com.