Coinbase’s IPO announcement has been hailed as “a milestone for the crypto industry” by Fortune Magazine. Similar to the Netscape IPO announcement that signaled the legitimacy of the internet, Coinbase’s impending public offering signals to the public at large that cryptocurrency trading is legitimate, legal and secure in the eyes of the Securities and Exchange Commission. And now, investors have an opportunity to own stock on the largest crypto trading platform in the United States.
As a result, many see an investment in Coinbase as an investment in the future of crypto trading. It is the highest volume U.S. crypto exchange, with three times the volume of its next closest U.S. competitor. The largest of anything in the U.S. must be the world leader. Except, it’s not. And conventional wisdom and current market realities are very far apart.
In order to understand the nuances of the crypto trading platform market, one must understand some important facts.
These are important implications that shape current market maturity and the problems institutional crypto traders face today. There is no single exchange that enables traders to access global trading markets, cross-border price discovery, global best prices, global liquidity or decentralized trading markets.
The crypto trading market is still highly fragmented with no dominant player
Together, the top five crypto exchanges represent only 41% of the total global trading volume. Coinbase, the largest exchange in the U.S., generates only 2.1% of global volume. The number one ranked exchange in the U.S. ranks only 19th globally. In the global market, there is no dominant player as we’d expect to see in a more mature market.
According to the data above, the New York Stock Exchange’s share of global equity trading is more than 12 times higher than Coinbase’s, and the top two U.S. equity exchanges account for over 50% of global daily trading volume, while the top two U.S. crypto exchanges represent only 3% of the global trading volume.
Compared to traditional stocks, the crypto market is also highly fragmented. The top two stock exchanges represent 51% of daily trading volume, while the top three crypto exchanges represent only 27% of daily trading volume.
No unified global trading market exists
The crypto trading market is still in its infancy. Based on my conversations with institutional traders and independent professional traders, I’ve learned that institutions are still clamoring for institutional-grade capabilities that are not yet available on a single platform, such as:
- Global price discovery — e.g., prices from global markets normalized for local currency.
- Global Best Bid and Offer — global order book, normalized for foreign exchange and fees in local currency.
- Global liquidity access — access to global liquidity, not just that of one exchange.
Each exchange is its own trading “lake” with no “canal” connecting them. In the U.S., a trader can only trade with 2.1% of global…