Cryptocurrency Markets

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Let me explain the key drivers of the cryptocurrency/crypto asset markets. 

The major stakeholders in this market are exchanges, altcoin/cryptocurrency/fork issuers, and coin rankings sites, which mutually work together to extract value from one group: retail investors. Investors finance the whole operation with infusions of capital. While none of this is particularly groundbreaking, it is worth exposing these relationships so that investors might understand the nature of the game. 

Exchanges. There are two broad sorts of exchanges: the fiat onramps, and the altcoin exchanges.  The fiat onramps tend to be regulated, comply with KYC/AML, may even surveil trading, and generally behave like full-reserve banks. Coinbase and Gemini are the archetypes. They generally play by the rules and are in the midst of a pivot towards regulator friendliness. 

The other exchanges are the altcoin exchanges. They tend to be un- or lightly regulated, domiciled in places like the BVI or the Seychelles or Malta, and may hop around from jurisdiction to jurisdiction to avoid the regulators. Binance is the archetype. They tend to have a casual attitude toward compliance, KYC/AML, wash trading, and reporting. They may not even deal in fiat at all.  Traders often have to use BTC and ETH to get access to the rest of the exchange. 

Using these exchanges is often quite difficult. Getting BTC at a fiat onramp, getting registered at a crypto-to-crypto exchange, sending the BTC, navigating the orderbook, making the trade, and juggling private keys and wallets is confusing to most newcomers. Instead, end users at these exchanges are day traders and gamblers who want access to the global, 24/7 altcoin market. The majority of participants are retail investors looking for a 100x. 

Altcoin developers and team members.  Exchanges have a mutualistic relationship with altcoin developers and marketers (“issuers”). Generally speaking, creating an altcoin is not technically challenging. The main challenge for the altcoin team is not technical, but social. This refers to broadening the set of buyers for the token or coin, and getting existing buyers to further support their chosen coin.

 From the developer’s perspective, marketing is a delicate game of creating just enough innovation so that investors believe that the project is progressing at a reasonable pace. Developers are encouraged to hype up partnerships, new releases, new objectives, and a drip feed of news and announcements. Each unanticipated piece of information is a positive shock that encourages investors to keep buying and justifies their prior purchase.

 It is an open secret that altcoin developers and marketers pay exchanges to list their project. Often, a large listing on an exchange like Binance will be an opportunity for insiders to divest their holdings and reach a successful exit. So it’s in the interest of altcoin developers/promoters to pay a large fee (these can cost issuers hundreds of thousands of dollars, usually paid in BTC), and it’s in the interest of exchanges, especially second-tier exchanges, to project an image of deep liquidity. 

Coin Rankings Sites Sites like CoinMarketCap, CoinGecko, CoinRanking, Cryptoslate, CryptoCoinRankings, CoinCodex, CryptoCoinCharts, sell ads, and in some cases, insert affiliate links into the exchanges. Some of them will sell blended pricing APIs to more sophisticated traders who want a reliable price feed. Many if not most exchanges have affiliate schemes, and referral links can be a lucrative source of revenue if you are the intermediary between active traders and exchanges. 

Sometimes, rankings sites accept payment for banner ads for exchanges or trading venues, and then including their own affiliate links in the ad itself. Investors go to these sites to find links to exchanges where they can trade their coins of choice, especially if they are smaller projects and do not have many points of liquidity. Since the rankings sites are the ports of call for investors, they have an almost captive audience and can easily monetize with an affiliate link. Some aggregators will allow you to trade cryptocurrency directly from the rankings site itself. 

The take away is trade with reputable exchanges and do your homework before you buy. 

Let this sink in: Yesterday and today the Fed is printing an amount of money roughly equal to the entire market cap of Bitcoin… but Bitcoin is somehow the problem and the Fed is somehow serving the best interests of the public. What?????