This study focuses on the classification and analysis of the parameters helping to assess the reliability of a particular crypto exchange. Prosphero offers a primary analysis of the collected data allowing to compare exchanges to reveal the main trends in their development.
Trust as the most valuable business commodity plays a crucial role in building user confidence in crypto exchanges.
“Is it reliable and safe?” is the first question of a trader willing to conduct financial transactions on crypto exchanges. Having more than 200 exchanges currently available, the trader invariably encounters the comparison problems and faces the “right choice” dilemma, which confounds even experienced crypto enthusiasts.
In addition to key technical characteristics such as technical architecture, general security, and economic factors (exchange volume; fee structure), other indicators make a significant contribution to the popularity of an exchange and creating public confidence in it. This is about media presence (social media activity and relevant Internet sites on the crypto market), the availability of various trade instruments, the number of countries and languages supported.
This study focuses on the classification and analysis of the parameters, based on which one can assess the reliability of a particular crypto exchange. Prosphero also offers a primary analysis of the collected data allowing to compare exchanges to reveal the main trends in their development.
Data and Methodology
From a wide range of exchanges, our experts have selected 24, guided by the criteria for popularity, size, trading volume, growth prospects. The sample also includes small exchanges that managed to prove themselves well in the market. The exchanges with relatively low financial indicators were also added to the rating for higher representativeness and validity.
The research uses the data coming from crypto exchanges themselves as well as from the crypto market data aggregators, user feedback on crypto forums and social networks (Twitter; Reddit).
For the sake of the most objective and comprehensive evaluation, we singled out several parameters characterizing the reliability and user-friendliness of the exchanges. We conditionally divide selected indicators into the following groups:
– Host country business ranking (Doing business 2018)
– Host country GDP per capita (2017)
– Number of employees
– Number of trading pairs
– Number of visitors (February 2018)
– Social media activity
– Daily net revenue
– Trade volume (monthly, daily)
- Trust and security
– Level of security
– Downtime (news index)
– Year of foundation
– User ban cases
– Fiat withdrawals
– Stable coins / USDT
– Internal bonus coin
– Margin trading
Obtained results reveal the main crypto exchanges market trends.
1. Trade Volume vs. Traffic
To identify reliable indicators of crypto exchanges’ turnover, we analyzed the ratio of trade volumes to the number of websites’ visitors. The charts below depict several groups of exchanges. First, the highest peak values with rather strong fluctuations are demonstrated by Bithumb. LocalBitcoins has a more uniform trend, though with a rather large ratio. Poloniex shows almost the same dynamics, but with smaller ratios, which indicates more discreet volume distractions. OKEX shows the highest peak values among exchanges with relatively small volumes.
Another group with similar dynamics and ratios includes such exchanges as HitBTC, BitZ, and EXMO.
Close trends are also observed in the following exchanges: Coinbase, Bitfinex, bitFlyer, Bittrex, Kraken, itBit, Gemini, Bitstamp, and Kucoin.
Against this backdrop, BTCC differs from the others with the lowest ratios and relatively stable dynamics.
The graph below clearly shows the dominance of Bithumb, LocalBitcoins, Coinone, and Binance by the ratio of trade volume to traffic. This means a too large gap between the reported trade volumes and the number of customers, which in turn makes us think about the correctness and methodology for calculating the trade volume on crypto exchanges.
2. Trade Volume vs. Daily Net Revenue
The most serious gap between the volume of trade and daily net revenue is demonstrated by BitMex, which is due to the presence of margin trading. This high-risk high-reward form of trading provides users with significant opportunities for maneuvers, but artificially twists the exchange’s trade volume. A similar picture, though without such a big gap, is observed in HitBTC. The other exchanges have balanced distribution of trade volume and revenue.
3. Traffic vs. Social Media Activity
The activity of the crypto exchanges’ accounts in social media helps increase the inflow of users to the websites. For certain exchanges – Binance, Upbit, Bithumb, GDAX – Coinbase, Kucoin, Bitstamp, itBit – the traffic is well correlated with the activity in social networks, i.e., in this case, activity in social networks pays off by attendance. For most exchanges – Bittrex, Bitfinex, Bit-Z, WEX, Kraken, Poloniex, Huobi, OKex, HitBTC, Gemini, BitMex, EXMO – their increased activity in social networks is not followed by the extremely high websites’ popularity.
A special case is LocalBitcoins showing the highest social networks activity among all the others combined with a significant gap regarding the number of visitors. In contrast, Bitflyer and BTCC demonstrate another trend. Despite the relatively modest media activity in the social networks under consideration, these exchanges can attract a significant number of visitors.
4. Migration of exchanges to countries with a more favorable economic and business climate
As early as 2017, there has been a clear trend towards relocation of the Chinese cryptocurrency traders to other Asian countries with more transparent and favorable regulation system. Following the clampdown by the Chinese government who decided to ban all ICOs and to shut down major exchanges, many cryptocurrency operators and some exchanges have relocated to more welcoming countries such as Japan or South Korea. The largest exchanges from our sample are registered in countries with high living standards, and they occupy the top lines of the Doing Business 2018 rating. The most popular countries on the list are the USA, Hong Kong, South Korea, UK, Japan. Singapore is another attractive region for crypto exchanges as the country has no current plans on regulating cryptocurrency. At the same time, the South Korean government announced its plans to clamp down on cryptocurrency trading. Anyway, the move and registration in the first-world countries represent a lot of capital, which is why exchanges have encountered pretty warm response from them so far.
5. The age of the exchange is not related to the number of employees
Evaluating business indicators, we considered the number of employees of each exchange as an additional element of reliability and organizational structure of the business. Although the young exchanges should have fewer employees and those founded several years ago – consequently more employees, we did not find any relation between the age and the number of employees. The most impressive indicators were demonstrated by Binance, founded in 2017 and having 140 employees. Other exchanges, founded in the same year, are not recruiting staff so quickly: Upbit and WEX – 29 employees, Bit-Z – 39 employees, Kucoin – 11 employees. At the same time, the staff of Kraken, founded in 2011, is only 49 people, while Poloniex, founded in 2014, has 35 people. The average number of employees of all sampled exchanges excluding Binance is 41 people. Binance’s need for many personnel is explained by the high growth rates of the exchange.
6. The largest and most frequently visited exchanges do not have confirmed cases of the user ban
The precedents of the user ban cause significant reputational damage to the cryptocurrency exchanges. That is why the most popular ones, such as Binance, Bitstamp, BitFlyer, BTCC, LocalBitcoins, have not resorted to closing accounts and they continue to be in demand among customers.
7. Exchanges allowing direct fiat/cryptocurrency trading are among the leaders in traffic
The crypto exchanges offering direct crypto trading against fiat are among the leaders in the number of daily visitors. The same goes for the possibility of fiat-withdrawal. We do not claim that direct crypto/fiat trade strictly determines the popularity of the exchange, but this option undoubtedly attracts the users’ attention, giving them a broader set of trading tools.
8. Margin trading is not a determining factor for the success
Even though most of the exchanges under consideration do not offer margin trading services, this does not prevent them from attracting more customers (illustrative examples are Binance, Bitstamp, BitFlyer, BTCC, itBit, Bittrex, LocalBitcoins). While exchanges that support margin trading, occupy the average position by the number of users.
9. Security as the basis for trust
The level of technological security makes a decisive contribution to the trust of users. According to our data, most exchanges provide two-factor authentication. However, some of the most popular exchanges have experienced problems with ensuring the complete safety of user data. For instance, Bithumb, one of the world’s largest cryptocurrency exchanges by trading volume, suffered a security breach that affected around 30,000 users in 2017. By using the emails of Bithumb employees, the hackers were able to extract sensitive personal and financial information of the users. Later, in November 2017, the Bithumb servers crashed when multiple users tried to sell their Bitcoin Cash simultaneously. Despite the history of questionable security, the exchange managed to hold its own as a leading one in terms of attendance.
Summing it up, our research presented some metrics allowing us to compare the crypto exchanges and assess their advantages and disadvantages regarding conducting trading operations. The identified criteria help to assess the reliability and safety of the exchanges included in the study as well as to apply the findings to other crypto exchanges.
Based on these criteria, the Prosphero experts have prepared a rating of crypto exchanges, which reflects current market trends. We will continue to monitor the market sentiment and customize our metrics to refine the rating based on them. In particular, among the nearest trends, we expect a significant increase in competition caused by the filling of the exchange market with new players offering attractive trading features, such as low-fee or even zero-fee trading. Existing exchange giants will likely expand and simplify a range of trading options to attract more amateur crypto investors.
 In early 2018, Binance has announced the immediate suspension of client registration “due to the overwhelming surge in popularity” and the need for an infrastructure upgrade. Other exchanges such as Bitfinex, Bittrex, Kraken have also reported difficulties with handling the massive influx of new users resulting in a halt of registrations. However, after the elimination of operational difficulties, exchanges continued to gain popularity.