Why do exchanges delist cryptocurrencies? This question has resurfaced in recent weeks with the news that Binance has delisted a few coins from its platform.
In a bear market, delistings are not too uncommon, whereas in a bull market, the addition of cryptocurrencies to exchanges is extremely common. Each exchange will have its own listing and delisting policy. For example, when listing cryptocurrencies, some exchanges require an upfront fee.
Let’s take a look at some of the reasons why cryptocurrencies get delisted.
The effects of the bear market
One of the easiest assumptions to make is that the bear market has dried up much of the capital necessary to run a successful cryptocurrency. Not only is consistent development required, but many cryptocurrencies have shown how useful marketing can be even without a great product. If your cryptocurrency is not fortunate enough to have a strong community of volunteers that can help develop the code, then you are going to have to pay for it, and blockchain developers are not cheap. Whilst this isn’t too much of a worry when prices are rising, when prices are stagnant or depressing, issues can arise.
Such problems can escalate further. Without consistent development or the money for marketing, the communication between both the cryptocurrency team and its community can collapse. Not only will the GitHub not be updated, but bagholders will struggle to find any positive news regarding their coin. This in turn creates a rather vicious cycle that depresses both the value and all those who are involved.
All of these factors will then affect the trading volume of a coin. A quick glance at coinmarketcap.com shows that many coins that were being heavily traded in 2017 are now trading with just thousands of dollars worth of value on a daily basis.
This is a clear suggestion of a lack of interest in the majority of altcoins. When we analyse the market, the majority of altcoins do not have a working product, which therefore means most of the trading volume is due to speculative traders.
2018/19 is not the first time that coins have suffered from delisting. One quick look at coinmarketcap.com from 2013 shows how vastly different the market space looked. The cycle of hype, pumping and dumping, then depression is still all too common.
A liberal exchange listing policy also plays a role in the delisting of a coin. Bitconnect, despite clearly being a Ponzi scheme, was able to get listed on exchanges, and was also advertised on coinmarketcap.com. There are even more examples of pyramid-type schemes that are still listed on exchanges today as well. For some exchanges, the liberal listing of coins isn’t necessarily bad for them, but for unwise investors, it can be extremely detrimental. It isn’t just clear pyramid schemes that get listed either, but also contentious ideas.
There is still much debate within the cryptocurrency industry regarding how many cryptos are technically securities. Once the SEC catches up, this could spell doom for many. For SALT, which is being investigated by the SEC, this could be one of the main reasons it was delisted from Binance.
A weak hash rate and pump and dumps
Although the bear market can be detrimental, this isn’t the only susceptibility. Coins that have a weak hash rate can be susceptible to 51% attacks. If a 51% attack were to happen and the blockchain was modified, then theoretically it could kill off a cryptocurrency and lead to its delisting from an exchange. Whilst this type of attack isn’t as common as one would think, mainly due to the profit/loss margin, they still occur on some of the more major chains.
The most recent example is the 51% attack on Ethereum Classic, although this didn’t seem to do too much damage to the cryptocurrency anyway. Ironically, for many coins, their value is such that the time and effort to perform a 51% attack isn’t worth the money attackers would make.
Sharks who see illiquid coins could also pursue a pump and dump tactic, manipulating the price for their own benefit. If this is happening consistently, then it is likely an exchange would rather not have that cryptocurrency on their books due to the regulations they have to abide by.
Expect to see more coins delisted from your favourite exchanges in the coming months. With over 2,000 cryptocurrencies currently available, it is highly unlikely that all of them will succeed. This coupled with the variety of reasons why a cryptocurrency exchange might delist a cryptocurrency and an ongoing bear market means people should be vigilant. If you suspect any of your favourite bags to be under threat from the issues listed above, then it might be wise to reconsider your investment. Another tip is to keep your cryptocurrency off the exchanges, as this will ensure that if your coin is delisted from one exchange, you do not lose your coins.