Running a cryptocurrency exchange comes with a lot of considerations. What are the regulations in the country you operate in? Do you have sufficient liquidity? How will you handle security? Adhering to all of these requirements leads to excessive costs involved with setting up and operating these platforms, which means that a high price is often required to get a coin listed on them. This only makes it that much harder for new assets to find a market.
Regulations still uncertain and vary by location
Depending on where you are in the world, the regulations concerning cryptocurrency can be anywhere from strict to completely absent, with changes often coming swiftly after long periods of silence. While local rules can vary greatly, many governments have been moving toward stronger Anti-Money Laundering laws, such as the European Union’s 5th Anti-Money Laundering Directive, which is currently forcing some firms in the EU to rethink their location.
In the United States, Representative Paul Gosar, a Republican from Arizona, introduced the Crypto-Currency Act of 2020, which would see unique definitions and oversight of crypto commodities, cryptocurrencies and crypto securities. Moreover, South Korea just passed a law requiring cryptocurrency exchanges to partner with banks to enforce AML policies. Meanwhile, the Reserve Bank of India recently lifted a ban on cryptocurrency that had only been enacted in April of 2018.
The point here is that regulations are subject to change based on geopolitical location and can also quickly evolve within just one jurisdiction. This can be costly to mitigate for exchanges. Paying for professional help just to understand the latest laws can add up, as can employing the teams necessary to collect and verify AML documentation from customers. However, failing to do so could lead to expensive fines or even to the platform being shut down. Unfortunately, these regulations are rarely seen as optional once they are decided upon.
Managing other complications
Regulations aren’t the only obstacles for new exchanges. Issues can arise just in the act of setting up an exchange. There are myriad facets to think about, and all of them can be complex and expensive. Designing an interface, programming the matching engine, integrating AML practices, and working with local banks are just a handful of the concerns a team setting up a new exchange would need to address. All of these would also need a fair amount of time just to be implemented. Then, there is interacting with multiple blockchains in real time, security systems, and the sheer cost of storing and maintaining servers. The amount of time needed just to find quality programmers, build the codebase and debug it can easily take a year or longer if a team is starting from scratch.