While the news that a half-dozen top financial firms are creating a new cryptocurrency exchange has been lauded for what it says about their faith in the crypto market, it could also substantially lower 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 the names are its biggest selling point, it could offer a big boost to the broader industry.
After the crypto winter saw the price of bitcoin collapse more than 70% since hitting almost $69,000 in November, there have been a lot of questions about the long-term viability of the market. It got a boost in August, when the world’s largest asset manager, BlackRock, partnered with Coinbase to offer institutional clients access to bitcoin.
But the companies behind EDXM give a Wall Street imprimatur to the crypto markets for smaller retail investors, whose ranks swelled precipitously in 2021 from about 41.5 million to nearly 60 million before the crash left half of them underwater.
This kind of investment in the retail market suggests that major financial firms not only believe the crypto winter will end, but that it will do so sooner than the years some have predicted. Other investors include Paradigm and Sequoia Capital.
Big Promises About Low Prices
The EDX Markets exchange will use technology from low-cost stock exchange MEMX, promising “tighter spreads enabled by greater liquidity” and better transparency in price discovery, as well as best practices from traditional financial markets, strong security and custody — traditionally problematic — and stronger regulatory compliance from owners well versed in it.
The cost of buying and selling bitcoin and other cryptocurrencies can reach 2% to 4% or more, particularly for smaller purchases, with opaque spreads and transaction fees on top of that. While prices can go down dramatically for very large orders and institutions buying over the counter, EDX Markets has the potential to start a price war that, despite predictions, hasn’t really happened.
There are exceptions. In July, Binance and its Binance.US sister firm began offering zero-fee trades on bitcoin and about a dozen other top cryptocurrencies and stablecoins, while FTX.US charges 0.1% maker and 0.2% takers fees. Yet both have only a fraction of the business of their international siblings, and by and large, a price war hasn’t happened.
Then there’s fee-free Robinhood, which charges only the spread, but earns its money on payment for order flow — which can and has, according to the Securities and Exchange Commission, raise costs. Popular exchange Coinbase allows customers who direct deposit paychecks to make pre-programmed buys free.
EDXM’s pitch is that when everything is counted, its “commitment to price discovery and efficiency is expected to result in better prices for investors than those offered by existing cryptocurrency exchanges.”
While it will service institutional clients as well as retail ones, the board said in a statement that “EDXM will be a safe entry point to crypto and serve as the exchange of choice for trading digital assets on a platform designed for 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.
For all PYMNTS crypto coverage, subscribe to the daily Crypto Newsletter.