42% of failed crypto exchanges completely vanished, leaving users in the lurch
Key Takeaways
- Crypto exchange failures had increased 252% in 2019 and 17% in 2020
- 42% of exchange failures occurred without any explanation to consumers, while 9% were due to scams
- Only 22% of failed exchanges occurred due to business reasons
- However, as market shakes amid major turbulence there could be more exchanges failing due to business reasons going forward
- The number of failed crypto exchanges forecast to fall 55% this year
Cryptocurrency has faced a turbulent market this year thus far, with markets dropping sharply as the Fed turns hawkish on inflation concerns, the geopolitical climate worsens and investors flee for safe haven cash.
Sometimes, projects go under entirely. That is the nature of a start-up in any business, but it is especially true in an industry as risky and novel as cryptocurrency. Narrowing the focus to centralised exchanges, I was curious to see how many, and why, cryptocurrency exchanges have gone under to date.
Number of failed exchanges
Following 23 exchanges going under in 2018, this number exploded upwards by 252% in 2019, before increasing a further 17% in 2020. Remaining at the same level in 2021, this year there has finally been improvement, with a 55% reduction in failures if the rest of the year follows the first six months.
But wait until you see the reasons why they went under…
Reasons for failed exchanges
The reasons, however, are more intriguing. Amazingly, 42% of exchanges which failed simply disappeared without a trace. That amounts to 134 exchanges, highlighting quite how opaque the cryptocurrency industry can be. One of the most notorious of these vanishing acts, for example, was that of Singapore-based exchange CoinBene. Last November, users received an announcement out of the blue:
“Due to the maintenance of CoinBene global server, there is a problem of (being) unable to log in (to) the www.coinbene.com page. We are very sorry about this”.
It shows quite how suddenly these entities can go pear-shaped, and how far behind regulation is. The (former) exchange also ended up being included in a report to the SEC about exchanges and fake volumes.
Beyond vanishing without a trace, 9% of failed exchanges were outright scams — the most recent of which was Crex24 in February of this year, with posts suddenly appearing about wallets being drained of tokens and liquidity.
