Digital currency exchanges have been choked by fiat currency deposits and withdrawals
On the premise that the total amount of circulation is constant, currency, as a catalyst to drive the rapid transformation of means of production into capital, can gain the possibility of rapid rise wherever it flows. For the current digital currency market with a market value of only 220 billion+ US dollars, absorbing traditional funds into the market is a short-to-medium-term goal for the digital currency industry to gain the possibility of vigorous development. Compliant trust institutions such as Gemini Trust, PrimeTrust, and Paxos have launched stablecoins; traditional exchanges such as ICE and CME have launched bitcoin derivatives exchanges, etc., all of which have a common purpose - to lower the entry threshold of traditional funds and continue to expand digital The exposure of the currency in the traditional market ultimately achieves the purpose of attracting traditional funds to enter the market.
While trust institutions and traditional exchanges continue to work hard, players in the digital currency field are also constantly exploring at the edge, breaking the dimensional wall between legal currency/digital currency by expanding more fiat currency deposit and withdrawal channels. As we all know, fiat currency deposits and withdrawals can be divided into two categories: on-exchange transactions and over-the-counter transactions. On-site transactions directly support the secondary market transactions of fiat currencies and digital currencies, and can usually be carried out on licensed exchanges such as Coinbase pro, Kraken, Bittrex, Bitfinex, Bithumb, Upbit, EXMO and other exchanges.
Among them, Bitso, as the largest local exchange in Mexico, has just completed a round of financing recently, led by Ripple, followed by Coinbase and Pantera Capital. It is a relatively conventional way for leading exchanges to invest in local exchanges in various regions as a stepping stone to jointly open local fiat currency exchange sub-stations. For example, Binance invested $3 million in Koi Trading in January 2019. Koi Trading is a B2C over-the-counter exchange registered in San Francisco, USA and operated by a Chinese team. The traffic is poor, but it holds the MSB license issued by Fincen. BAM Trading Services (hereinafter referred to as BAM) and Koi Trading have the same registered address, so there is reason to believe that they are the same company. And BAM is a partner of Binance US, the legal currency exchange of Binance (BAM and Koi Trading share the MSB license). The main body and operator of Binance US are both BAM, but the brand is Binance, and Binance submits the exchange technology system. This is a typical case of investing in local exchanges (even OTC exchanges) to expand territory.
The author believes that the local exchanges that support fiat currency/digital currency secondary market transactions are one of the best integrated resources on the global expansion route of leading exchanges. Efficient and low-cost solutions to the problem of fiat currency deposits are expected to gradually set off an upsurge in investing in leading exchanges and integrating local fiat currency exchanges.
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What is the value of OTC transactions?
Why there is such a large off-exchange trading volume, we can spy on the user's off-exchange trading motivation.
The most important motivation is the need to reduce costs (time cost and capital cost) in transaction scenarios.
Large orders: Due to the lack of depth and liquidity in the exchange, it is difficult to digest orders of more than 100 BTC. Once such a large order is thrown into the exchange, it will inevitably cause great fluctuations in the currency price in the market; For the users of the order, the lack of depth will also cause a large slippage, and the final execution price will obviously deviate from the order price, resulting in capital loss, and it usually takes a long time.
Higher deposit fee: Take American users as an example, when they use a credit card or debit card to purchase Bitcoin on Coinbase pro, they usually charge a fee of 3.99%. If they use a bank transfer, the fee is slightly lower, but it takes a long time. And limited by U.S. regulations, there are very few tokens that can be traded on such compliant websites. Therefore, for U.S. users who have a strong demand for currency transactions, they usually need to withdraw tokens to other exchanges for trading after depositing, which is a cumbersome process. Therefore, users with similar scenarios in the United States and other countries have a driving force to go to the OTC market to buy bitcoins, and just enter the address of an exchange with many types of tokens directly.
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Who are the main buyers and sellers?
Currently, the main participants in OTC trading are as follows:
• Hedge funds, small capital management companies, Family office (buy side)
• Miners (sellers)
• OTC Broker (buyer/seller - arbitrage)
• Retail investors and liquidity providers in the exchange OTC market (both buying and selling - deposit and withdrawal)
The main buyers in the over-the-counter trading market of digital currencies come from hedge funds. Although Bitcoin is still difficult to value at present, it can help investors hedge against inflation, especially for large amounts of funds, the anti-inflation effect is particularly obvious, so it can be used as part of the investment portfolio. Therefore, hedge funds like Horizon, ARK, Purpose, Pantera, Grayscale, FBG, etc. usually acquire a large amount of bitcoin spot off-site. In terms of derivatives, there are currently many compliant and B-side venues similar to CME and Bakkt to meet the needs of hedge funds for leveraged arbitrage and hedging.
Take Grayscale's 2019Q3 investment report as an example. In 2019Q3, the total amount of digital currency under its custody was 254.9 million US dollars, with a quarterly increase of 200%. Among them, Bitcoin has the highest proportion, and ETH has the largest increase. But Q3 returns were all negative.
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Types of OTC transactions
Here, we define stablecoin issuers with custody licenses as the primary market; other sectors in the above figure are defined as the secondary market. The primary market is a scene of minting and releasing coins. The main participants are stablecoin issuers with custody licenses such as Paxso, Primetrust, Circle, Xapo, BitGo, Gemini, etc. Through this service, USD can be converted into stablecoins, such as Paxos (PAX) or TrueUSD (TUSD), and PAX or TUSD can be converted into cash. However, due to the strict KYC review and the high threshold of initial capital exchange, not many users use it. At present, most of them cooperate with exchanges to expand the source of customers. At the same time, exchanges also provide users with more deposit channels by accessing more compliant stable currency issuance channels, or cooperate with them to issue other stable coins to achieve the same purpose.
The secondary market can be divided into two modes of on-exchange/off-exchange transactions. On-site transactions have been described above. As far as over-the-counter transactions are concerned, they can be divided into two main modes: B2C and C2C, which respectively include online/offline trading methods.
l In the online B2C mode, users can directly buy or sell bitcoins on the platform, and the price is specified by the platform. After the platform collects the user's payment, it releases the bitcoin directly to the buyer, or releases the funds to the seller after receiving the bitcoin. The funds or bitcoins on the B-side are owned by the platform and come from cooperative merchants. B-side participants mainly include HiveEx OTC, Octagon Strategy, Genesis Trading, Bitpanda, CEX.io, bitstocks, circle trade, cumberland mining, genesis trading, IBC group, itBit, Enigma Securities, SFOX, B2C2, XBTO, QCP Capital, etc.
l Offline B2C mainly refers to purchase through Crpto-ATM, physical stores and other offline methods. For Crpto-ATM, rather than seeing it as a deposit scenario, it is better to use it as a transfer medium. Traditional cross-border remittances take a long time and have high financial friction. Ripple's cross-border payment system still requires users to have a bank account to operate. According to public data, there are still 1.7 billion people in the world without bank accounts, most of whom are concentrated in developing countries. When they do cross-border transfer operations, they are more inclined to use digital currency to complete. For example, Southeast Asia, Latin America and other regions have a large number of labor exports, and the laborers have a large demand for cross-border remittances. These users tend to convert the local legal currency they earn into BTC on the offline Crpto-ATM machine, and the recipients will go to the local The Crpto-ATM is exchanged for domestic legal currency and withdrawn. Bitcoin acts as a transfer medium to help users complete the exchange between different legal currencies with low friction, and it is basically instant.
But generally speaking, Crpto-ATM will charge a higher transaction fee for each transaction. According to Coinatmradar data, the current average rate of buying Bitcoin through Crpto-ATM is 6.5%, which is not compared with online C2C and fiat currency secondary markets. Direct transactions have advantages, even higher than B2C fees. Its advantage is that it can conduct cash transactions directly, and it is a transaction with a machine, which is relatively safer; the threshold of access is lower. For developing countries, users are obviously more familiar with cash transactions. Crpto-ATM is a simpler Whether it's at your local grocery store or a beauty parlor, you can accidentally find a bitcoin machine nearby, and it's easy to do. In addition, KYC is not required for transactions that are not too large. But the problem is that Crpto-ATM can easily bypass the foreign exchange control of some countries, and there is a risk of money laundering, so China still prohibits Crpto-ATM at present.
Crpto-ATM is experiencing a period of rapid growth. As of now, there are nearly 6,000 Crpto-ATMs in the world, mainly concentrated in North America, Europe and other regions.
Global Quantity Growth of Crpto-ATM
Global distribution of Crpto-ATM
l There are two main scenarios for the online C2C model. One is the C2C fiat currency trading zone set up by exchanges such as OKEx and Huobi. The account of the exchange is the main deposit channel of this type of exchange. For exchanges, a large OTC trading volume often means better depth and liquidity of spot products. In addition to opening the OTC market in the form of C2C, the exchange can also access various B2C deposit channels. For example, Binance has access to Simplex and Koinal. It should be noted that this method is also only a means of recharging digital currency, and does not support direct secondary market transactions between fiat currency and digital currency.
The other is an independent third-party independent C2C trading platform, such as LocalBitcoin, Paxful, Remitano, Bitsquare, LocalCoinswap, Hodl Hodl, altcoin.io, CrptoBridge, Victorium, etc. This type of platform provides a place for buyers and sellers to publish information. The model is similar to "Taobao". Buyers and buyers can publish information by themselves, and can also conduct one-to-one transactions based on the published information. Relatively speaking, an independent C2C trading platform supports more trading regions and legal currency types. Among them, LocalBitcoin and Paxful rank high in terms of trading volume and monthly activity. Founded in 2012 and registered in Finland, LocalBitcoin is recognized as the largest C2C over-the-counter trading platform, providing bitcoin over-the-counter trading services for users in 248 countries and 7,792 cities, including RMB users. From the perspective of weekly transaction volume, LocalBitcoin’s transaction volume from Russia has gradually surpassed that of the United States since 2017, becoming the largest contributor to transaction volume.
Founded in 2014, Paxful is registered in Delaware, USA, and holds the MSB Digital Currency License (Money Services Business) issued by the Financial Crimes Enforcement Network (FinCEN) of the U.S. Department of the Treasury. It can legally provide services to users in the United States. LocalBitcoin does not have an MSB license, and trading on LocalBitcoin has strong regulatory risks. Therefore, most of the American users of LocalBitoicn have gradually migrated to the competing product Paxful, and the transaction volume contributed by American users accounted for 79.55% of the total transaction volume of Paxful. However, from the perspective of total transaction volume, although the two are gradually approaching, Paxful is still about 37.5% lower than LocalBitcoin. From the perspective of monthly activity, according to Similarweb data, the average monthly activity of Paxful in the past three months is 4.409M; LocalBitcoin is 3.638M, and Paxful has surpassed LocalBitcoin in terms of traffic. Moreover, Paxful is currently still in a double growth period of traffic and transaction volume, and is expected to surpass LocalBitcoin in Q1 of 2020 and become the world's largest C2C OTC trading platform.
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Distribution of legal currency deposit types
It is easy to get different results due to different statistical methods and scopes of fiat currency deposits. fromcoinlib.ioThe data shows the recent 24h (10/18-10/19) capital flow. In addition to USDT being the main force, the rankings of fiat currencies are USD, RMB, EUR, JPY, GBP and KRW. It can be speculated that the United States, China, the European Union, Japan, the United Kingdom, and South Korea are the main legal currency imports.
Data from bitcoincharts shows that the US dollar, euro, British pound, Japanese yen, Polish zloty, Brazilian real, and South African rand are the main deposit currencies.
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Cheats for expanding fiat currency deposit channels
For exchanges, we summarize the cheats for expanding fiat currency deposit channels as follows:
1. Self-built C2C fiat currency over-the-counter trading area (a test of the exchange's Broker cooperation ability).
2. Cooperate with PrimeTrust, Paxos, etc. to launch stable coins (many exchanges have implemented it, but the exchange threshold is high and user-friendly).
3. Strategically cooperate with C2C platforms such as Locabitcoin and Paxful, and B2C platforms such as Bitpanda, Coinmama, CEX.io, Simplex, etc., for diversion (can efficiently support multiple legal currency deposits).
4. Strategic cooperation with local exchanges in different regions that support fiat currency secondary market transactions (for example, Binance was able to open a Binance US branch with BAM Trading Services through its investment in Koi Trading, but different regions cannot quickly replicate it).
5. Promote compliance business or expand legal currency/digital currency secondary market transactions in areas with loose legal currency policies through partnerships (this method is the most direct and has the fastest effect)
For the last one, many exchanges are expanding.
On October 24, 2019, Binance announced a partnership with payment solution service provider Flutterwave. Users can recharge Nigerian naira (NGN) to Binance.com through Flutterwave, and open BUSD/NGN, BNB/NGN, BTC/NGN transactions at the same time market. Flutterwave is a B2B payment service founded in Nigeria, mainly for overseas companies to open up their payment channels for African users. Flutterwave’s domestic partners also include Ali, which provides payment services for Alipay and African merchants. In addition, at the Moscow conference not long ago, Binance announced that it will launch ruble fiat currency trading pairs within two weeks, and also revealed that it will be through third-party cooperation. We expect to cooperate with third-party payment companies in Russia as well. .
The Nigerian fiat currency naira and the Russian fiat currency ruble above are directly traded on the secondary market opened on binance.com. In addition, Binance currently has the following four fiat currency exchange sub-sites:
Binance Uganda: Launched in June 2018, compliance was completed through cooperation with the local government. At the same time, Binance Labs incubated/invested in African blockchain startups, and Binance Charity continued to focus on social welfare in Africa. Binance Uganda currently supports Ugandan fiat currency UGX trading with BTC, ETH, BNB, PAX, LTC, and BCH.
Binance Jersey: Launched in January 2019, it is the first fiat currency exchange operating in Jersey under the auspices of the Jersey Financial Services Commission (JFSC). JFSC is equivalent to the SEC in Jersey, and Binance Jersey can open a fiat currency exchange in compliance with JFSC's approval. The defense and foreign affairs of Jersey are both in charge of the United Kingdom and have a close relationship with the United Kingdom. Binance can radiate to the entire euro zone through the United Kingdom. Jersey station currently supports GBP, EUR and BTC, ETH, BNB, LTC, BCH, BGBP transactions. (BGBP is a stablecoin pegged to the British pound issued by Binance)
Binance Singapore: Launched in April 2019. In October 2018, Binance announced that it had received a strategic investment from Vertex Investment, a subsidiary of Singapore's sovereign wealth fund Temasek, and the funds will support Binance's establishment of a fiat currency exchange in Singapore. To some extent, the investment is more like setting up a joint venture to develop regional business rather than equity investment. It is reasonable to speculate that Binance’s compliance in Singapore was completed with the help of Temasek. The Singapore station currently supports transactions between the Singapore legal currency SGD and BTC, ETH, BNB, LTC, BCH, and XRP.
Binance US station. Launched in September 2019,. Above, we mentioned that the main body and operator of Binance US are BAM (there is an investment relationship between Binance and BAM), BAM holds the MSB license, and compliance issues are resolved by BAM.
In terms of Huobi, the current sub-stations opened by Huobi include Huobi South Korea, Huobi Middle East, Huobi Indonesia, Huobi Russia, Huobi Argentina, and Huobi Thailand. Among them, the South Korea station can directly support the secondary market transactions of Korean won; the Middle East station, Indonesia station, Russia station, and Argentina station do not support direct fiat currency secondary market transactions, but only open the C2C fiat currency trading area; Thailand station has obtained the Thailand A digital asset business license issued by the SEC. In addition, Huobi recently announced that it will open the secondary market trading of the Turkish fiat currency lira on Huobi Global in 2019.
The above is the author's thinking on the fiat currency deposit market. If there is any inappropriateness, welcome to hook up and discuss.
