Introduction

Trading in cryptocurrency markets has boomed: more than 100 million people around the world are now using cryptocurrencies, including millions of retail investors and traders on crypto exchanges. A growing number of baby boomers and Gen Xers are becoming interested in investing in bitcoin and diversifying their portfolios with other tokens. Moreover, monthly data from exchanges and public filings indicated that retail investors, who had helped fuel the surge in share trading for much of the last year, turned their attention to cryptocurrency markets. As a result, trading on major crypto exchanges soared to $1.7tn in April 2021, according to CryptoCompare data collated by the Block Crypto. Meanwhile, we estimate the addressable market for highly active traders is 3,450,000 by 2021, accounting for US $100M in total monthly volume. 

Despite this growth of participants in the market, however, modern trading infrastructure still leaves much to be desired. For one thing, the typical exchange offers a complex UI/UX that can be a struggle to use for new and experienced traders alike. This is a particularly pressing problem considering the fact that cryptocurrency transactions are irreversible, meaning that mistakes made by traders due to confusing UIs can have catastrophic consequences.  

Another significant reason for the poor state of exchange infrastructure today is the ambiguous regulatory status of cryptocurrencies, as different governments have varying requirements and restrictions on businesses in the blockchain industry. 

Know Your Customer (KYC) and Anti-Money Laundering (AML) procedures have become the status quo for many exchanges that want to operate legally, particularly in major markets such as North America and Europe. Many people in the cryptocurrency world see KYC and AML as antithetical to cryptocurrency in general, but it’s impractical for any business to risk noncompliance with regulations at this early stage. 

A more addressable concern is simply that having different KYC/AML and login procedures on different exchanges is highly inconvenient for users. For example, a trader with high risk tolerance who actively trades small and medium market cap altcoins will most likely need to have 3 or more different exchange accounts to access all of the trading pairs they are interested in. Somebody who invests in ICO/IEO/STOs can have it even worse, as many of those young coins are only listed on 1 or 2 exchanges during their first months of trading. For that reason, it’s not unheard of for some of the most active cryptocurrency traders to have accounts on 10+ exchanges.

Additionally, it’s worth noting that the prices of all cryptocurrencies in the market are still strongly coupled with Bitcoin’s price, which remains highly volatile compared with traditional assets.

Figure 1: Bitcoin’s relative 30-day (blue) and 120-day (green) volatility in terms of USD

Traders need volatility in order to profit, which is one of the many reasons that the cryptocurrency market has drawn so many new traders over the past few years. However, inexperienced traders who don’t use operations analytics or apply basic risk management strategies can quickly see funds evaporate due to this volatility. Ultimately, that’s going to prevent the average person from wanting to store any meaningful percentage of wealth in crypto assets for as long as it remains true.

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