While the news that half a dozen major financial firms are creating a new cryptocurrency exchange has been hailed for what it says about their confidence in the crypto market, it could also significantly reduce the cost of buying and selling digital assets.
Names like Schwab, Citadel Securities, Fidelity Digital Assets and Virtu Financial are behind EDX Markets, or EDXM, and while these names are its biggest selling point, they could provide a big boost to the industry at large.
After the crypto winter saw the price of bitcoin crash more than 70% since hitting nearly $69,000 in November, there have been many questions about the long-term viability of the market. It received a boost in August, when the world’s largest asset manager, BlackRock, partnered with Coinbase to offer institutional clients access to bitcoin.
See also: Coinbase will give BlackRock customers access to crypto
But the companies behind EDXM are giving the crypto markets a Wall Street imprimatur for small retail investors, whose ranks have swelled precipitously in 2021, from around 41.5 million to nearly 60 million before the crash hit. leave half of them underwater.
Read more: The Data Point: 23% of Consumers Have Held Crypto in the Past Year
This type of retail market investing suggests that major financial firms not only believe that the crypto winter will end, but that it will sooner than the years some have predicted. Other investors include Paradigm and Sequoia Capital.
Big promises on low prices
The EDX Markets exchange will use technology from the low-cost exchange MEMX, promising “tighter spreads enabled by greater liquidity” and better transparency in price discovery, as well as the best practices of traditional financial markets, a security and solid custody – traditionally problematic – and stronger regulatory compliance from owners who are well versed in it.
The cost of buying and selling bitcoins and other cryptocurrencies can reach 2% to 4% or more, especially for small purchases, with opaque spreads and transaction fees on top. While prices can drop significantly for very large orders and institutions buying over-the-counter, EDX Markets has the potential to trigger a price war that, despite predictions, hasn’t actually happened.
There are exceptions. In July, Binance and its sister company Binance.US began offering fee-free trading in bitcoin and a dozen other leading cryptocurrencies and stablecoins, while FTX.US charges a 0.1% fee. maker and 0.2% taker fee. Yet the two only have a fraction of the business of their international siblings, and overall a price war hasn’t happened.
Related: Binance CEO Lightning Rod for Controversy Launches Bitcoin Price War
Then there’s no-fee Robinhood, which only charges for the spread, but makes its money on the order flow payment – which can and has, according to the Securities and Exchange Commission, drive up costs. Popular exchange Coinbase allows customers who directly deposit paychecks to make pre-scheduled purchases for free.
EDXM’s argument is that when it all counts, its “commitment to price discovery and efficiency should result in better prices for investors than those offered by existing cryptocurrency exchanges.”
Learn more: Chainalysis puts crypto hacking losses at $1.9 billion for Jan-July 22
While it will serve institutional clients as well as retail clients, the board said in a statement that “EDXM will be a safe entry point for crypto and will serve as the exchange of choice for trading digital assets on a platform designed and used by leading financial institutions”.
The “safe” part will be another big deal, in an industry where hacks and thefts totaled nearly $2 billion through July.
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