This report offers an intensive study on the developing environment for crypto exchanges from different lenses, such as a thriving derivative market, momentum of rapid trading volume growth, regulation impacts and innovative applications. The report also brings a forward-looking view on the end-state competitive landscape, as well as perspectives on growth avenues for crypto exchanges.
Commenting on the report, Managing Director of Bitget, Gracy Chen said, “This report shines light on the recent developments of the crypto market, with keen insights revolving around crypto exchanges and the future paths of winning operations. We continue to witness tremendous enthusiasm from investors despite such market conditions. According to the findings of the report, crypto trading volume still has large headroom to grow, while LATAM and APAC remain the two most attractive regions for global players to expand into, due to higher market potential and progressive crypto regulations. This is the same view echoing our developing strategy, as these two regions are among those of our primary focus. Meanwhile, we will continue to enhance our products with creativity and innovation, boost adoption of crypto trading and social trading, with the vision to increase financial independence for the rest of the world.”
Managing Director and Senior Partner of BCG, Tjun Tang said, “Despite the recent market disruption, we believe the market has opportunities for growth ahead. Crypto exchanges play a key role in the Web3 ecosystem by providing access, liquidity, and infrastructure. With competition intensifying, crypto exchanges must adapt to the dynamic market situation and transform their strategy to beat the competition. In this report, we offer perspectives on the future of Web3 adoption, emerging high potential markets, and the crypto exchange competitive landscape and future end-state. We highlight unique growth opportunities that crypto exchanges can explore: strengthening and scaling core offerings; expanding into adjacent products and offerings; developing innovative business models; and leading the way in bringing Web3 solutions to traditional industries.”
For more information on the report, please refer to the executive summary below or view the full report here.
Strong historical growth of the overall crypto industry and increasing worldwide adoption
- Despite the recent crypto market disruptions, we believe that the crypto economy is here to stay
- The global centralised crypto trading volume was $54 trillion in 2021. Spot trading volume was $20.6 trillion, more than 2,000 times 2016 volumes. Historically, spot trading volume strongly correlates with overall crypto market capitalisation and volatility.
- Crypto is still at the beginning of the adoption curve:
- Value wise: Just 0.3% of individual wealth is currently held in crypto assets, in contrast to the 25% that is held in equities
- Volume wise: Crypto adoption level is close to the internet in 1998. While it is difficult to predict, if the trendline of crypto adoption continues, the total number of crypto users could reach 1 billion by 2030
Three Macro Trends Impacting the Growth of Crypto Exchanges
I. Sophistication of market with increased institutional participation
- While the global quarterly spot trading volume grew sevenfold to $3.2 trillion in the two years to the first quarter of 2022, crypto derivatives trading expanded twelvefold to $6.3 trillion in the same time frame.
- Institutional investors, mostly prop trading firms, are drawn to derivative trading mainly because of the flexibility to apply more trading strategies, higher capital efficiency, better risk management as well as tax efficiency.
II. Rapid development of Web3 applications leading to the increase in trading volume of altcoins
- Web3 applications, leveraging blockchain technology, increase the utility of crypto in real-life applications. Number of applications increased from ~800 in 2017 to ~10,000 today
- Crypto exchanges are key to enable the Web3 ecosystem by providing liquidity. In some cases, centralised exchanges can also take on the responsibility of providing infrastructure for crypto custody via exchange custodial wallets.
- To illustrate the emergence of web3, over 70% of the spot trading volume increase between 2020 and 2021 was driven by non-BTC and ETH tokens
III. Emerging markets leading the way in crypto adoption; significant increase in trading volume in 2021
- Emerging markets and advanced APAC countries accounted for 1/3 of global spot trading volumes and around 40% of global derivative trading volumes in 2021.
- Spot trading volume in MEA, LatAm and APAC rose from 26% in January 2021 to 32% in December 2021. Derivatives volume share in the same region grew from 39% to 42%
- Crypto penetration in some emerging markets is already higher than in developed countries; For example, crypto penetration in Nigeria is over 40%, even higher than traditional banking penetration in the country.
- LatAm and APAC are the two most attractive regions for global players to expand into, due to higher market potential and relatively more progressive and certain crypto regulations.
- Some use cases in emerging countries go beyond just being an investable asset: it could range from remittance to crypto-backed payments as a cheaper alternative to traditional financial infrastructure.
- The future of work coordinated by decentralised autonomous organisations (DAOs) will unlock new collaboration use cases
Growth prospects for crypto derivatives
- We expect higher crypto derivative growth, reflecting more advanced financial markets with mature regulatory environments regarding derivatives. The overall crypto derivative-to-spot ratio is expected to get closer to those observed in traditional equity markets.
- More product innovation within crypto derivatives, favouring futures and options rather than perpetual swaps.
- The emergence of institutional investors has boosted demand for hedging and risk management
- Considering the recent market events and volatility, we could expect potentially tighter regulations for derivatives compared to spot.
Crypto Exchange End-state perspectives
- Crypto exchange landscape is concentrated with the top five crypto exchanges accounted for around 70% of the spot trading volume and around 90% of the derivative trading volume in 2021
- Similar to how the traditional finance market landscape has evolved historically, regulations will play an important role in shaping the competitive end-state and preventing monopolies. We observe increasingly more proactive stance from regulators, especially after the recent market events
- Benchmarking with traditional finance, we estimate a competitive end-state in which the top five exchanges would continue to consolidate the market and take a 65–75% share of spot trading globally
- Similarly, we would expect the top five exchanges to consolidate and reach 80–90% share of derivative trading in emerging markets and a 70–80% share of derivative trading in developed economies due to tighter regulatory environments and competition from local regulated players.
Crypto Exchange Playbook for Growth
- In the short-to-medium term, crypto exchanges should focus on strengthening product offerings by tailoring to their core customers’ needs and expanding to emerging markets
- In the medium-to-long term, crypto exchanges should explore a combination of different growth tactics
- Expand into adjacent fields such as NFTs and DeFi
- Leverage exchange tokens to bootstrap ecosystems and user growth
- Embrace traditional finance use-cases, especially in emerging markets where financial infrastructure is relatively immature and crypto-backed infrastructure has the potential to surpass traditional finance
Established in 2018, Bitget is one of the world’s leading cryptocurrency exchanges with a core focus on social trading. Currently serving over two million users in more than 50 countries around the world, Bitget accelerated its mission to promote decentralised finance with a 600-strong workforce representing over 38 nationalities.
Since Bitget’s official launch in the crypto derivatives market in June 2019, the platform has now become one of the world’s largest crypto copy trading and derivatives exchanges, and is ranked in the top five globally by CoinMarketCap and CoinGecko for derivatives trading by volume. The leading exchange focuses on transforming the way people connect and trade with social trading. Its flagship offering, One-Click Copy Trade, is nothing short of a pioneer in social trading, and has amassed over 55,000 professional traders, with approximately 1.1 million followers, innovating the experience for crypto derivatives traders worldwide, with over 20,000 active traders generating close to US$100 billion in transaction value in 2021.
Adhering closely to its philosophy of ‘Better Trading, Better Life’, Bitget is committed to providing comprehensive and secure trading solutions to users globally, aiming to be the portal that transcends Web2 and Web3, that connects CeFi and DeFi, resulting in an expansive bridge to the vast web of crypto. In September 2021, Bitget announced its sponsorship of world-renowned football team Juventus as its first-ever sleeve partner and PGL Major’s official esport crypto partner soon after. Partnerships with the leading esports organisation, Team Spirit, and Turkey’s leading and long-standing football club, Galatasaray, were also announced in early 2022.
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