The recent rallies in cryptocurrency prices, especially Bitcoin, has captivated the financial world over the last year. In 2008, at the dawn of the global financial crisis, a completely digital asset based on blockchain technology was created called bitcoin.
Initially adopted by computer geeks, it didn’t take long for speculators to jump on the bandwagon. Now, bitcoin is all over the place and there is little doubt that the future belongs to digital money.
Demand for cryptocurrency is now many times higher than supply and it continues to grow exponentially. The trend has led to an increase in demand from people wanting to access to this new instrument with participants in the online trading industry scrambling to fulfill this need.
One of those participants is B2Broker, an aggregator of cryptocurrency liquidity and provider of turnkey, cloud and liquidity solutions for the Forex industry.
B2Broker responded to what it saw as a gaping need for cryptocurrency liquidity. There are currently in the region of 7,000 forex brokers and only 20 of them offer cryptocurrency trading. There is a gulf between a tiny market and enormous demand. In this respect, B2Broker became the only company to professionally set up cryptocurrency brokers and create liquidity in this market.
What is Cryptocurrency Liquidity?
Cryptocurrency liquidity is the opportunity to buy or sell digital assets in a desired amount – but it is scarce. There are currently around 150 exchanges engaged in cryptocurrency trading, with only about 50 having decent volumes.
This has resulted in there being no competition or incentive to improve services and trading conditions. Deposit of funds and withdrawal limitations coupled with immature services slow down operations and fast-growing demand is left unsatisfied. To purchase bitcoin easily, there should be at least 1,500 cryptocurrency exchanges in existence rather than 150.
In margin trading, the situation is little better. Over 60% of investors perceive bitcoin as a source of speculative income. They want to buy it today only to sell tomorrow and pocket the price difference. They do not require physical delivery. But if, say, EUR/USD liquidity allows you to trade any volumes, BTC/USD liquidity will put limitations on your ambitions. Therein lies the problem.
It therefore comes as no surprise to learn that, according to a survey in the latest issue of Finance Magnates’ Quarterly Industry Report (QIR 4 2017), retail FX/CFD brokers see one of the biggest obstacles of the crypto market being lack of liquidity. Nevertheless, of those surveyed, 50% of the brokers offering Bitcoin trading are considering adding more crypto assets to their instrument ranges.
Connecting to Cryptocurrency Liquidity
Connecting to cryptocurrency liquidity is technically quite simple. B2Broker has created B2BX, a cryptocurrency liquidity aggregator that combines the liquidity of five of the largest exchanges which will soon increase to ten. The exchanges create the liquidity, while B2Broker provides it to clients, connecting МТ4/МТ5 brokers free of charge via ready-made bridge technology. It is also possible to connect any platform using FIX API.
There are 35 brokers in the company’s portfolio that have access to the aggregator offering cryptocurrencies to their customers with plans to connect at least 200 brokers until the end of 2018, making B2BX the largest aggregator in the industry. While B2Broker focuses primarily on brokers, anyone can open an account and trade cryptocurrency, including banks, hedge funds and private investors.
Why Connect to Cryptocurrency Liquidity?
There are two key reasons for brokers to consider connecting to connect to cryptocurrency liquidity and offer cryptocurrency trading. The first is the
popularity and growth potential of cryptocurrency. The digital currency is characterized by deep corrections and high volatility, and yet in the next few years, it will inexorably rise against the background of legalisation in the largest countries and the widespread use of blockchain technology.
Secondly, there is the opportunity for huge commissions, along with lack of competition. The foreign exchange market is oversaturated and brokers have to compete at the price level, hence the narrow spreads and low commissions. Among the 15 largest exchanges, the commission varies from 0.2% to 0.5% of the volume traded. This means that a medium-sized exchange with an average daily turnover of $500 million per day earns a minimum of $1 million in commission. This market will remain very attractive for a long time, even though new players will emerge here soon, competition will grow, and commissions will eventually decrease.
Speculative and investment interest in cryptocurrencies is growing rapidly which is not surprising with the market being so highly volatile. With cryptocurrency liquidity from B2Broker, brokers can offer their clients beneficial conditions and fill a new niche in the market for this financial instrument to the benefit of both speculative traders and the blockchain community as a whole.
With a trading volume of over $20 billion per day, cryptocurrencies represent a new economy. Blockchain is a revolutionary technology, in terms of significance comparable with the Internet itself. The crypto-economy is estimated to become at least 20 times bigger within the next two years. The number of search queries for the “blockchain” keyword has also grown enormously, now exceeding 15 million per day.
The same is true for bitcoin. Since the beginning of 2017, Bitcoin has risen 1000% (from $1000 at the start of 2017 to $10,000 now) while the capitalisation of the entire crypto-currency market now amounts to around $434 billion. Yet, this is not the limit. There are in the region of $200 trn circulating in the global economy.
The capitalisation of the derivatives market which includes forex and CFDs, amounts to an astonishing $1.2 quadrillion. If we treat the digital currency as the derivative, then in terms of scale the crypto-economy may be comparable to the whole global stock market.
We have transitioned into a new world with new technologies, new exchanges and new brokers. This is a new dawn and the need for cryptocurrency liquidity has never been greater.