New Report Highlights Large Variance Between Crypto Exchange Standards

  • Only 32% of top exchanges have strong cold wallet storage
  • Majority of volume from small-state-registered exchanges

Standards of security, cold wallet storage, and know-your-customer (KYC) implementation are subject to a wide variance across centralized cryptoasset exchanges, a new report from data provider CryptoCompare has concluded. CryptoCompare surveyed the top 100 exchanges by trading volume, in order to glean broad trends among exchanges.

Cold Wallets

A key finding of the report is the low overall prevalence of cold wallet usage - cold wallets being disconnected from the Internet when their funds are not being actively traded. Only 32% of the top 100 exchanges claim to store the vast majority of users’ funds - at least 90% - in cold wallets, with a further twelve percent claiming to store a majority - at least 50% - in cold wallets, and nine percent claiming less than 50%.

An alarming 47% of the top exchanges do not detail their storage conventions, according to CryptoCompare. Since the usage of cold storage wallets is a major selling point for users trading on a centralized exchange, which no exchange should hesitate to advertise, it is not unreasonable to fear the worst for these 47% - half of the top 100 - not reporting any cold wallet usage.

The report revealed little correlation between exchanges’ cold wallet usage, and the jurisdiction of their legal registrations.

For example, the six exchanges with the highest reported percentage of cold wallet storage, itBit, Coinroom, Coinfloor, Bitfinex, Huobi Pro, and Coinbase, were registered in the U.S., Poland, the U.K., the British Virgin Islands, the Seychelles islands, and again the U.S., respectively. Almost none of the exchanges listed as having high cold wallet usage, with the exception of Bitfinex, were among the highest trading volume exchanges.

A helpful cross-reference for this observation is the New York Office of the Attorney General’s (OAG) recent audit of cryptoasset exchanges, which found only a small variance of cold-wallet standards among eight U.S.-registered exchanges that it surveyed, namely a high standard with “most participating platforms purport[ing] to keep a high percentage of the virtual currency in their possession in so-called ‘cold storage.’” These figures could perhaps suggest a somewhat higher standard of storage for U.S.-based exchanges.

Underlining the importance of cold wallets, eleven percent of top 100 exchanges have been hacked in the past. CryptoCompare reported that nearly 75% of exchanges require at least some KYC information from customers, while fully a quarter require no KYC.

Trade volumes

With respect to trading volume, CryptoCompare found that an inordinate amount of the trading volume goes through Malta-, Hong Kong- and South Korea-registered exchanges - in the case of Hong Kong, not even a completely sovereign nation but a “Special Administrative Region” of China. By far the most trading volume comes from Binance and OKEx, both registered in the small Mediterranean island nation of Malta, a member of the European Union and within the Schengen border zone.

The jurisdictions hosting the highest number of exchanges, the U.S. and U.K. both registering eight, see strikingly minimal amounts of trading volume pass through their borders. CryptoCompare calculated $366 and $137 million cumulative average daily trading volume, on all the exchanges in their respective countries - a total of $503 million on sixteen exchanges - versus $1.38 billion daily on just two Malta-registered exchanges.

The OAG report is again helpful in this case, as the single largest exchange examined by CryptoCompare, Malta-based Binance, declined the New York law enforcement office’s request to furnish information regarding its practices and standards. Two out of four of the highest-volume jurisdictions are small island nations with liberal cryptoasset regulations, and one is the city-state Hong Kong.

A clear preference for fast-moving , liberal , and “ creative ” regulatory regimes is evident for the high-volume exchanges. Given, as the OAG has noted, exchanges’ propensities to “[move] their operations with little or no warning,” a competitive atmosphere could be fostered to offer the most flexible and accommodating regulatory regimes, to cryptoasset exchanges searching for their next home.

Top Cryptocurrency Coin Mixer Seized; Grayscale Investments 'Big News' Today; More Records for CME's Bitcoin Futures

Major crypto headlines from the past 24 hours: European authorities enforce a world-first seizure of a leading cryptocurrency coin mixer; New York-headquartered Grayscale Investment set to drop "big news" today; and the all-time highs continue for CME Group's bitcoin futures contracts.

The cryptocurrency market has endured some significant selling over the past day. At the time of writing, bitcoin (BTC) and ether (ETH) are trading at $7,588.2 and $234.5; a 4.3% and 8.6% decline over the past 24 hours, respectively. As for the MVIS CryptoCompare Digital Assets 10 Index, it is currently tracking at 3,594.3 (-2.2%).

‘First Law Enforcement Action of its Kind’ Sees Top Crypto Coin Mixer Shutdown

The Dutch Financial Criminal Investigative Service (FIOD) – with the assistance of Europol and Luxembourg authorities – announced the seizure and closure of one of the three largest cryptocurrency mixer services in the world, Bestmixer.io.

This marked the “first law enforcement action of its kind against” a cryptocurrency mixer service, according to a press release from Europol. “A cryptocurrency tumbler or cryptocurrency mixing service is a service offered to mix potentially identifiable or ‘tainted’ cryptocurrency funds with others, so as to obscure the trail back to the fund’s original source,” the statement explained.

Despite the apparent victory for law enforcement, “authorities will come to regret the chain reaction that they are starting here,” according to Cornell associate professor of computer science, Emin Gün Sirer. Explaining his rational, Sirer tweeted “this kind of shutdown creates selective pressure for tumblers that cannot be shutdown. And we know, from the research world, that it’s possible to build much better ones.”

CEO of Cryptoasset Investment Giant Teases ‘Big News’ Today

Grayscale Investments – one of the world’s leading cryptoasset management firms – will be dropping some “big news” at 13:00 (UTC), its founder and chief executive Barry Silbert teased on Twitter.

Grayscale - a Digital Currency Group subsidiary - has been noticeably active on the publicity front in recent times. On May 1, it launched the largest mass media campaign the industry has ever seen and, in the time since, Silbert has been doing the rounds on the media circuit, appearing for interviews on the likes of Bloomberg, FOX Business, and Yahoo Finance.

Records Continue for CME Group’s Bitcoin Futures

CME Group – a world-leading derivatives marketplaces that also offers bitcoin futures contracts – revealed “May is shaping up to be the strongest month ever for CME Bitcoin Futures” in a client email sent on Tuesday.

According to the Chicago-based CME Group, they facilitated the trading of a staggering 33,677 bitcoin futures contracts on May 13; a new daily record. In U.S. dollar terms, this roughly equates to $1.3 billion. The firm also told clients the number of accounts trading its bitcoin futures contracts has risen to over 2,500 – also a new record high.