Cryptocurrency trades are notoriously difficult to settle. Could a new platform help fix that?
San Francisco-based startup Blockstream Corp. launched the Liquid Network today, a trading platform that promises faster and more secure settlements of digital tokens. The platform connects cryptocurrency exchanges, brokers and financial institutions around the world. So far, more than 20 companies have signed up, including Bitfinex, Bitmex and OKCoin.
The goal is to improve liquidity, which has been an issue in the market, said Samson Mow, Blockstream’s chief strategy officer. “Liquidity across exchanges is definitively not there yet,” he said in an interview. “With the advent of Liquid — with faster settlement times — we should be able to improve it by making it faster and easier to transfer.”
Regulators have raised concerns about transparency on cryptocurrency platforms, including the risk that just a few trades could potentially skew trading volume. “Customers face the risk that the availability of liquidity in those assets could change, without notice and at any time,” said a recent report from the New York attorney general’s office, which looked into 13 major crypto marketplaces for details on their operations.
The number of exchanges has exploded. Dozens of new platforms were launched as the price of Bitcoin, the industry’s bellwether currency, surged to more than $19,000 last December. There are now more than 500 crypto exchanges, according to Bitcoin.com. But many market participants say they suspect some exchanges could be offering incentives that inflate volume. As a result, it could be more difficult for individual investors to trade than some reported figures suggest.
“Liquidity is almost always related to volume, and there’s so many exchanges and that’s a bit of a problem,” said Mike McGlone, a Bloomberg Intelligence analyst. The Liquid platform is “trying to get liquidity from that overall volume measure in a single execution point.”
The price of Bitcoin has dropped more than 60 percent since it hit its $19,511 high last year and trading volume has fallen in tandem. Volume on exchanges is down about 80 percent since its peak, according to Digital Asset Research, and Bitcoin has seen its daily transaction volumes fall from an average of around 360,000 per day in late 2017 to around 230,000 last month.
The launch of Liquid Network shows “forward thinking” and a focus on priorities investors find to be lacking, such as speed, said David Tawil, president of ProChain Capital, a crypto-focused fund. “But practically, at this point, this is just a very good idea with some sophisticated technology.”