Crypto exchanges are having a hard time. In less than a year, the market cap for crypto fell from nearly US$3 trillion to US$946 billion, while trading volumes, once as high as US$200,000,000, now stand at US$55,000,000. As a result, crypto trading platforms are trying to stay relevant by either diversifying or consolidating.
Diversification into stock trading is one option. After all, Canada’s Wealthsimple showed that stock trading and crypto buying can co-exist under one company.
Now, Bitbuy is entering the fractional stock trading market. Fractional shares allow investors with limited capital to buy pieces of a share, instead of the whole thing, based on what they can afford.
The crypto platform has partnered with Canaccord Genuity Group and Alpaca Securities to offer fractional stock trading with real-time settlement. Canaccord, a Canadian full-service brokerage, will route, process, and hold customer trades and deposits. Alpaca, a US-based tech company, will provide a commission-free application programming interface (API) and algorithms for stock trading.
In order to differentiate itself, Bitbuy will not only offer commission-free stock trading but instant settlement on fractional trades as well. Right now, Wealthsimple bundles together its buy and sell orders of fractional shares and submits them twice a day. A purchase is not instant so the price is not guaranteed; it can fluctuate between the time you press the buy button and when the order is filled.
According to Ben Samaroo, CEO of Bitbuy, real-time settlement is instant, giving investors better control over the price they pay for a fractional share. “Real-time settlement provides optimal pricing and transparency, and investors are increasingly focused on this.“
An official launch date has not been confirmed, but Bitbuy users can expect access to 3,000 US securities and 8,000 over-the-counter (OTC) stocks and exchange-traded funds (ETFs) sometime in the first quarter of 2023. “ This is in furtherance of our goal of making users’ lives easier and bringing key asset classes within our easy-to-use, regulated platforms,” explains Samaroo.
Crypto companies are feeling the squeeze
Bitbuy’s announcement comes during a tough year for cryptocurrencies, a struggle punctuated by hiring freezes and layoffs across the digital asset market and broader tech industry. Bearish conditions have chased investors away from the high-risk asset class, killed trade volume, and pummeled user growth.
Crypto and tech companies are feeling the squeeze. In June 2022, Coinbase, a major crypto platform in the US, announced a hiring freeze and then slashed 1,100 jobs. That same month, Wealthsimple let go of roughly 13% of its workforce.
Crypto exchanges need to grow and get new customers onto their platforms
Glenn LaCoste, CEO and President of Surviscor, says Bitbuy’s move is unsurprising and unlikely to prompt traditional brokerages to expand into cryptocurrencies. What crypto platforms are doing is less of a new market trend and more about survival. “As they [the crypto exchanges] acquire assets, like users or account numbers, they’re more valuable to sell or amalgamate with somebody and I think that’s a bigger play.”
Bitbuy’s move into stock trading is one way to capture new customers and grow assets under management, and they’re not the first to do it. In May 2022, FTX, one of the largest crypto platforms in the world valued at US$32 billion, was the first crypto platform to launch stock trading.
Back in Canada, that trend started even earlier. In December 2021, Mogo Inc., a fintech company that offers various financial services and Bitcoin trading, announced it would launch stock trading in 2022. However, not all Mogo users can access it. Only those who have verified their identity can use the platform by invitation only.
While Mogo’s decision to enter the equities market happened long before crypto cratered, further economic turbulence could accelerate the trend among other crypto companies. However, such a move isn’t exactly groundbreaking, and neither is commission-free trading.
Wealthsimple was the first to offer zero-commission trades, followed by bank-owned platforms like National Bank and TD Easy Trade. Zero-commission trading is the default setting DIY investors expect from platforms trying to win their business.
Canadian crypto exchanges are looking to consolidate
Another way crypto companies can stay relevant is to consolidate with other, bigger companies. That’s the prevailing trend in the crypto market right now.
Launched in 2016, Bitbuy was an independent crypto exchange until it was acquired by WonderFi in March, 2022. The following month, WonderFi announced its agreement to purchase Coinberry, in with over 220,000 users.
In September 2022, WonderFi also announced its plan to acquire the blockchain development firm, Blockchain Foundry Inc., best known for its NFT marketplace, LastKnown.
That same month, Canada’s Coinsquare announced an agreement to purchase CoinSmart. According to Coinsquare, the move will create the largest cryptocurrency trading platform in Canada.
The wave of crypto consolidation is so big, it caught the eye of the Competition Bureau, a law enforcement agency tasked with keeping markets competitive for the good of consumers. For crypto companies, cornering the market is a key growth strategy.
Securities brokers are looking into crypto
Securities brokers are moving into the cryptocurrency space too, further narrowing the gap between traditional and digital assets. Robinhood, an American trading app popular among younger investors, made cryptocurrency trading available to users back in 2018.
In 2020, Wealthsimple also launched cryptocurrency trading. The trend among digital platforms makes sense, given the user base tends to be a younger demographic more likely to be interested in crypto.
Will the more traditional brokerages follow the trend? Glenn LaCoste, President and CEO of Surviscor, doesn’t see that happening anytime soon. “I don’t think there’s going to be a trend among the bank-owned firms. Maybe some of the independents will start to dabble.”
Amber D. Scott, an Anti-Money Laundering Specialist and owner of Outlier Solutions Inc., sees crypto assets trending toward mainstream adoption. “For companies that get registered as securities dealers,” she explains, “ it’s a natural evolution to look at other securities products. On a long enough timeline, I think crypto, in some form, will be a part of most portfolios.”
What do these moves mean for retail investors? Stedroy Crump, a financial analyst for SkipTheDishes, says “It proves that both systems can co-exist. As crypto becomes regulated, I’m sure we’ll see banks have their own exchanges.”
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