A Glimpse into the Dark Underbelly of Cryptocurrency Markets

The major stakeholders in this market are exchanges (naturally), altcoin/cryptocurrency/fork issuers, and coin ranking sites, who mutualistically work together to extract value from one group: retail investors. Unwitting investors juice the whole operation with infusions of capital. While none of this is particularly groundbreaking, I felt that it was worth exposing these relationships so investors might understand the nature of the game that they’re playing.

The below graphic summarizes the essence of the relationships between the four groups.

This might be a bit difficult to parse, so I’ll explain each group in turn.

Exchanges

You have two broad sorts of exchanges in this industry: the fiat onramps, and the altcoin casinos (I’ll leave aside p2p exchanges or DEXes for now). The fiat onramps tend to be regulated, comply with KYC/AML, may even surveil trading, and generally behave like full-reserve banks. Coinbase and Gemini are the archetypes. This piece is not about those exchanges?—?they generally play by the rules and are in the midst of a pivot towards regulator friendliness.

The other exchanges, the ones I’m writing about here, are the altcoin casinos. They tend to be un- or lightly regulated, domiciled in exotic places like the BVI or the Seychelles or Malta, and may hop around from jurisdiction to jurisdiction to avoid the watchful eyes of regulators. Binance is the archetype. They tend to have a devil-may-care attitude to compliance, KYC/AML, wash trading, and reporting. They may not even deal in fiat at all?—?traders typically have to use BTC and ETH to get access to the rest of the casino.

Actually using these exchanges is quite difficult in many cases. The great unmentionable in the industry is that no one interested in a “utility token” and the resources it might provision habitually uses these exchanges. These are not individuals that these exchanges target as end users. Getting BTC at a fiat onramp, getting registered at a crypto-to-crypto exchange, sending the BTC, navigating the orderbook, making the trade, and juggling private keys and wallets; this is impenetrable to most neophytes. Instead, end users at these exchanges are day traders and gamblers who want access to the global, 24/7 altcoin casino. Some whales naturally trawl the markets but the majority of participants are retail investors looking for a 100x. Nothing new here.

Altcoin developers and team members

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