Published: August 17th, 2022
Publicly traded crypto exchange Eqonex (EQOS) announced this week that it will shutter its trading operation, thanks to a toxic mix of reduced trading volumes, low margins and intensifying competition from other exchanges. The company says it will now focus on its crypto custody and asset management businesses.
Trading on the exchange will formally end on 22nd August, giving crypto traders one week to close their trading positions. After that, all trading on the exchange will stop. Traders have until 8AM UST on 14th September to move their assets to an external crypto wallet. Eqonex is waiving all withdrawal fees during the close-down period.
The Nasdaq-listed exchange’s native EQO token, however, has already ceased trading and can’t (yet) be withdrawn. In a press release, Eqonex said they would contact EQO holders directly with more information about their EQO balances.
‘This move will dramatically simplify our business, free up resources, and enable us to focus on growth,’ said Eqonex CEO Jonathan Farnell, who left Binance to join the company in March. 'We will operate more efficiently and increase our ability to aggressively pursue market segments with high growth potential.”
Eqonex’s crypto exchange launched in the Summer of 2020, a period of rapid crypto market growth where both Bitcoin and Ethereum reached new all-time highs. In October of that year, it became the first crypto exchange with a listing on Nasdaq. The company notched a 30-day trading volume milestone in June 2021, reaching USD five billion. Analysts at the time were bullish on Eqonex’s prospects and it looked like the exchange could only ‘go up’ from there.
But crypto markets are notoriously volatile and 2022 has seen the onset of an extended bear market. Eqonex now says it will focus on its Digivault custody and asset management unit. In 2021, a compnay announcement claimed Digivault was the first crypto custody provider to receive a license to operate from the UK's Financial Conduct Authority (FCA).
By closing the crypto exchange, Eqonex executives believe the company will be leaner & meaner in other areas of its business. ‘The crypto trading market now has close to 300 spot exchanges, often with overlapping features that make it hard to distinguish one from another,’ the company press release said. ‘The volatility and declining trading volumes seen across crypto markets this year have created headwinds for all exchange operators. As a result, we’ve re-evaluated and come to the view that maintaining an exchange won't deliver the financial outcomes we want in the near-to-medium term.’
Even top-tier crypto exchanges have struggled in recent months to offset the impact of declining volumes and cratering crypto prices. Coinbase cut staffing by 18 per cent in June after posting a USD one billion net loss in its Q2 earnings report. Blockchain.com announced a 25 per cent workforce reduction in July, blaming flat institutional revenue.
After a bullish 2021, crypto markets started collapsing in the opening months of 2022. In late February, Blockchain analysis firm Glassnode released an analysis of on-chain metrics that pointed to a steady build-up of widespread selling pressure for Bitcoin.
Glassnode said that loyal Bitcoin holders were ‘facing an onslaught of headwinds,’ from a raft of increasingly negative network data.
The company’s data scientists identified general weakness in traditional financial markets as aggravating factors, along with intensifying geopolitical issues. Both, they said, would likely push BTC bulls to adopt risk-off sentiment for their digital assets.
'Softness in both crypto and mainstream markets mirror the ongoing risk and uncertainty around the US Federal Reserve rate rises expected in March,' they said. 'Worries about an escalation in the Russia-Ukraine conflict, plus the freedom convoy in Canada and general civil unrest around the world are making traders re-think their current positions.’
In a note accompanying the research, Glassnode said that as the downtrend deepened, the likelihood of an extended bear market was also on the rise. At that point, Bitcoin’s price was down more than 45 per cent from the all-time high reached in November 2021.
In May, Glassnode noted that large crypto holders were taking advantage of dipping prices for crypto assets and beginning to buy again.
Unlike retail investors, ‘whales’ (institutions, hedge funds, and other corporate investors with large holdings) have the financial flexibility to weather market storms. The data analytics firm found that large investors were using price volatility to shift more assets into Bitcoin, Ethereum, and exchange-traded instruments that derive their value from other cryptocurrencies.
A separate report from Coinshares found that crypto investment products saw net inflows of around USD 40 million in the last week of May, while Bitcoin saw net inflows of USD 45 million, a sign that investors were seeing market opportunity to move into exchange-traded Bitcoin products at bargain-basement rates.
CoinShares looked at exchange-traded crypto instruments like Grayscale’s Bitcoin Trust (GBTC), which moves more or less in tandem with BTC price movements. For example, on Monday 27th May, shares of GBTC were down 18 per cent over the previous week, against a 22 per cent drop in price for Bitcoin.
Any hopes that whales might turn markets around haven’t yet materialized. Along with Eqonex, other exchanges are being hammered by low trading volumes. Some are trying to diversify their services as a result.
Coinbase, for example, is trying to cash in on the NFT craze by adding new features and services to its Coinbase NFT marketplace in an attempt to attract more customers.
A number of enhancements were announced in July, including a ‘bulk manage’ dashboard, notifications, a ‘like’ button, simplified editing for listings, and upgraded trade analytics. Coinbase has also added a time-delay function for new listings, a Facebook-like feed for follower news and activity, and the ability to link ten crypto wallets to a one Coinbase NFT account.
Despite all those features, a critical mass of NFT traders has yet to materialise.