The Great Delisting: Why Crypto Exchanges Are Dropping Assets

Wednesday, 02/10/2019 | 07:23 GMT by Rachel McIntosh
  • This year, cryptocurrency exchanges have been axing tokens left and right. What gives?
The Great Delisting: Why Crypto Exchanges Are Dropping Assets
FM

The “crypto winter” that the industry experienced through most of 2018 and the first quarter of 2019 forced cryptocurrency to rethink its priorities. The same industry that had onboarded hundreds of thousands--perhaps millions--of new investors in 2017 was faced with declining prices, declining interest, and declining trading volume.

This led to a “purge” of sorts--coins, platforms, and other parts of the industry that weren’t competitive in a more mature market seemed to “die” away naturally. While the list of Cryptocurrencies is longer than it has ever been, coins that have been proven unreliable or extraneous are much more likely to fail or have failed already.

As such, savvy cryptocurrency exchanges have decided to delist cryptocurrencies that have failed to gain adequate attention or usage or have been associated with illicit behavior. In other cases, however, cryptocurrencies have been delisted for reasons that are not quite as ethically clear or sound.

What are the main causes of delisting cryptocurrencies? What are the ethics of delisting? And what happens after?

The BSV debacle: when crypto gets personal

Perhaps the most famous--and most ethically ambiguous--example of delisting in the crypto space has to do with Bitcoin SV (BSV), the cryptocurrency known to be created by the self-proclaimed creator of the original Bitcoin (BTC), Craig Wright.

A bit of background information: several years ago, Wright began publicly claiming that he was the individual behind the pseudonym “Satoshi Nakamoto,” and that he had authored the Bitcoin whitepaper that was published in 2008.

However, a number of experts within the space have agreed that there is a serious lack of any substantial evidence behind this claim--Wright has not been able to prove that any of the BTC wallets that were known to be under Satoshi Nakamoto’s control have been in his possession at any time; he also was found to have forged documents in a recent court case in an attempt to prove his status as Satoshi.

Wright’s claims to be the creator of the original Bitcoin were largely ignored by most of the industry until November of 2018 when a dispute between Wright and Bitcoin ABC (the group of individuals behind the Bitcoin Cash Protocol) led to an epic battle of computing power. Essentially, both Wright and Bitcoin ABC attempted to impose their software updates to the Bitcoin Cash protocol; Bitcoin ABC eventually won, and Wright’s update became a separate cryptocurrency: Bitcoin SV.

The real trouble started in April of this year when Wright began going after high-profile individuals in the cryptocurrency industry who publicly denied his claims that he is Satoshi Nakamoto. He sued at least three people who denied he was Satoshi for libel: the individual behind @HodlNaut (a popular cryptocurrency-related Twitter account), cryptocurrency podcaster Peter McCormack, and Ethereum creator Vitalik Buterin.

The delistings came as a direct result of the lawsuits. The idea to delist BSV appears to have originated with Binance CEO Changpeng Zhao, who Tweeted on Friday, April 12th, that “Craig Wright is not Satoshi. Anymore of this sh!t, we delist! (sic)”

BSV was off of the exchange by the following Monday.

In a statement on the delisting, Binance representatives wrote that “we periodically review each digital asset we list to ensure that it continues to meet the high level of standard we expect. When a coin or token no longer meets this standard, or the industry changes, we conduct a more in-depth review and potentially delist it.”

After Binance delisted, a number of other exchanges followed suit: Kraken chucked BSV after a user poll said that it was “toxic”; Shapeshift, Bittylicious, Blockchain , and more came next.

But ethical questions quickly arose: if BSV was to be delisted, who was really affected the most--the creator or the users? And is the behavior of any single individual in the crypto space really enough cause to delist?

Jimmy Nguyen, BSV supporter and president of the BSV-focused Bitcoin Association, told Finance Magnates that the delistings “[set] a terrible precedent for the cryptocurrency industry for an exchange to use its CEO’s personal dislike of a coin’s individual supporter as a basis to make delisting decisions.”

“What if one day Vitalik Buterin or Charlie Lee took personal actions that offended an exchange CEO? Should that be the basis for delisting Ethereum or Litecoin?” he asked.

Indeed, while Wright’s actions were questionable, Nguyen cautioned on the precedent that the delistings set for the industry: “cryptocurrency enthusiasts should not be cheering a precedent which can make all cryptocurrencies vulnerable to easy market manipulation and heavily influenced by just a few people at notable exchanges. Whether you agree with Craig Wright’s personal legal actions or not, those issues are for a court of law to decide – not crypto exchanges.”

In the US, regulatory pressure has caused delistings

But not every case of delisting is so ethically ambiguous. Indeed, one of the most popular reasons behind a number of recent delisting seems to be very practical: regulatory pressure in various jurisdictions around the globe is causing an increasing amount of exchanges to drop some of their assets.

One of the most prominent examples of this is the United States. After an increase in regulatory attention on cryptocurrency exchanges, restructuring has occurred on a number of different levels.

US-based cryptocurrency exchange Poloniex announced in May of this year that it would be axing nine trading pairs due to regulatory uncertainties in the United States. The exchange’s concerns seemed to focus specifically around whether or not certain cryptocurrencies could be classified as securities:

]Then, in June, US-based cryptocurrency exchange Bittrex announced that it would be blocking US-based customers’ access to 21 different assets, with a possibility of more to come: ‘Certain markets will soon become unavailable to U.S. Customers, a statement said. “Those markets will generally continue to be available to Bittrex International customers. Currently, Bittrex International features 200+ tokens and coins for non-US Customers and we anticipate that we will continue to add innovative blockchain projects to Bittrex International in the future.”

Binance didn’t exactly block US customers from accessing certain assets on the exchange--it went one further. Citing regulatory concerns, Binance completely shut down US-based users' access to its main exchange and opened an entirely new exchange for US users.

So far, the exchange--which opened its doors last month--lists a total of 28 trading pairs.

FATF guidelines have caused delistings in South Korea

In South Korea, OKEx and Upbit said over the course of the last several weeks that they would be delisting five privacy-focused coins in order to comply with the Financial Action Task Force’s (FATF) new guidelines on cryptocurrency transactions and customer identity information.

On September 10th, OKEx axed Dash (DASH), Monero (XMR), Super Bitcoin (SBTC), Horizen (ZEN), and Zcash (ZEC), writing in an announcement that “according to the statement corresponding to FATF R.16, OKEx Korea has restricted its implementation as the 'travel rule' recommends that exchanges be able to collect relevant information such as the name and address of the sender and recipient of the virtual asset.” (Translated quote.)

The exchange explained that “privacy-oriented cryptocurrencies, aka ‘dark coins,’” made it difficult for the exchange to effectively follow the FATF’s guidelines.

Two weeks later, Upbit made a similar announcement. Although it did not specifically cite the FATF’s new guidelines, the proximity to OKEx’s decision to drop several privacy coins may imply that the decision was made for a similar reason. The exchange dropped Monero, Zcash, Dash, Haven, BitTube, and PIVX, explaining that “the decision to end trading support for the crypto-asset was also made to block the possibility of money laundering and inflow from external networks.”

While there haven’t been any other instances of delisting associated with the FATF’s guidelines, there could be more as the January compliance deadline continues to draw closer.

Lack of liquidity

In some cases, exchanges have not gone so far as to completely delist an asset, but have instead slimmed down on the number of trading pairs that they offer due to a lack of liquidity.

On September 30th, Binance announced that it would be delisting thirty trading pairs, including six involving tokens that were released through its very own Launchpad program, and one involving Tron’s much-hyped BitTorrent Token.

In the announcement of the delistings, the exchange explained that it had made the decision to delist “to improve liquidity and user trading experience among our wide range of available assets.”

Just over a month before Binance announced its delistings, Poloniex announced that it would be dropping 23 of its trading pairs due to a lack of liquidity.

While dropping a trading pair is certainly not as severe as dropping an asset entirely, the drop in liquidity could have an effect on an asset’s price.

Pay up or get out

In some cases, cryptocurrencies have claimed that they were delisted after failing to pay large sums of money or agree to participate in wash trading to make their volumes appear higher.

Specifically, Bitcoin Gold (BTG) said in an announcement on September 1st, 2018 that “Bittrex has decided to de-list BTG after we declined to pay them 12,372 BTG to remain listed.’ Bittrex claimed to have made its decision to delist BTG “based on a double-spend attack they suffered back on May 19th [2018], despite all our efforts to assist them, and despite the fact that the danger is now over.”

BTG explained that “Bittrex informed us that they make this decision because the BTG team would not “take responsibility for our chain,” and that taking responsibility meant paying Bittrex 12,372 BTG to cover the loss they incurred. They later informed us they would cover part of the loss from their own BTG reserves and requested we pay the remaining ~6000 BTG, and that if we did not, we would be delisted.”

Rahul Sood, CEO of UnikoinGold, tweeted that OKEx told his company that UnikoinGold would be delisted if it didn’t artificially increase its trading volume. OKEx was also recently accused by the Blockchain Transparency Institute of having a high volume of wash trading on its platform.

What happens after a delisting?

Regardless of the reason, a delisting is never good news for a cryptocurrency. After all, the less available a coin is, the smaller the capital can flow into that coin’s market.

Additionally, traders may find themselves between a rock and a hard place: either forced to sell all of their holdings of the delisted asset, or to take pains to move them onto another exchange or OTC platform where they can still be traded: ‘if you want to transact with the asset in the future you’ll need to make sure that you have an account on an exchange that supports it, go through an OTC desk, or direct trade with a trusted party who has an interest in buying/selling it,” wrote Megan Knab, Founder & CEO of VeriLedger, in a Medium post.

But delisting may not necessarily be the end of the world for a cryptocurrency. Jimmy Nguyen told Finance Magnates of the BSV delistings that “certainly, it was a dramatic event at the time, and we were not pleased that it happened.”

Jimmy Nguyen, President of the Bitcoin Association and BitcoinSV advocate.

Ultimately, though, the network seems to be doing fine: “BSV’s price took an immediate hit when that happened, but it’s recovered, and it’s higher than it was at the time of the delistings,” which Nguyen said he believes is because of “the organic value that’s being built and demonstrated on the network over time.”

Therefore, it seems as though a cryptocurrency's value is not perhaps solely--or even primarily--defined by its availability; instead, perhaps a cryptocurrency’s value is ultimately determined by its ability to roll with the punches.

The “crypto winter” that the industry experienced through most of 2018 and the first quarter of 2019 forced cryptocurrency to rethink its priorities. The same industry that had onboarded hundreds of thousands--perhaps millions--of new investors in 2017 was faced with declining prices, declining interest, and declining trading volume.

This led to a “purge” of sorts--coins, platforms, and other parts of the industry that weren’t competitive in a more mature market seemed to “die” away naturally. While the list of Cryptocurrencies is longer than it has ever been, coins that have been proven unreliable or extraneous are much more likely to fail or have failed already.

As such, savvy cryptocurrency exchanges have decided to delist cryptocurrencies that have failed to gain adequate attention or usage or have been associated with illicit behavior. In other cases, however, cryptocurrencies have been delisted for reasons that are not quite as ethically clear or sound.

What are the main causes of delisting cryptocurrencies? What are the ethics of delisting? And what happens after?

The BSV debacle: when crypto gets personal

Perhaps the most famous--and most ethically ambiguous--example of delisting in the crypto space has to do with Bitcoin SV (BSV), the cryptocurrency known to be created by the self-proclaimed creator of the original Bitcoin (BTC), Craig Wright.

A bit of background information: several years ago, Wright began publicly claiming that he was the individual behind the pseudonym “Satoshi Nakamoto,” and that he had authored the Bitcoin whitepaper that was published in 2008.

However, a number of experts within the space have agreed that there is a serious lack of any substantial evidence behind this claim--Wright has not been able to prove that any of the BTC wallets that were known to be under Satoshi Nakamoto’s control have been in his possession at any time; he also was found to have forged documents in a recent court case in an attempt to prove his status as Satoshi.

Wright’s claims to be the creator of the original Bitcoin were largely ignored by most of the industry until November of 2018 when a dispute between Wright and Bitcoin ABC (the group of individuals behind the Bitcoin Cash Protocol) led to an epic battle of computing power. Essentially, both Wright and Bitcoin ABC attempted to impose their software updates to the Bitcoin Cash protocol; Bitcoin ABC eventually won, and Wright’s update became a separate cryptocurrency: Bitcoin SV.

The real trouble started in April of this year when Wright began going after high-profile individuals in the cryptocurrency industry who publicly denied his claims that he is Satoshi Nakamoto. He sued at least three people who denied he was Satoshi for libel: the individual behind @HodlNaut (a popular cryptocurrency-related Twitter account), cryptocurrency podcaster Peter McCormack, and Ethereum creator Vitalik Buterin.

The delistings came as a direct result of the lawsuits. The idea to delist BSV appears to have originated with Binance CEO Changpeng Zhao, who Tweeted on Friday, April 12th, that “Craig Wright is not Satoshi. Anymore of this sh!t, we delist! (sic)”

BSV was off of the exchange by the following Monday.

In a statement on the delisting, Binance representatives wrote that “we periodically review each digital asset we list to ensure that it continues to meet the high level of standard we expect. When a coin or token no longer meets this standard, or the industry changes, we conduct a more in-depth review and potentially delist it.”

After Binance delisted, a number of other exchanges followed suit: Kraken chucked BSV after a user poll said that it was “toxic”; Shapeshift, Bittylicious, Blockchain , and more came next.

But ethical questions quickly arose: if BSV was to be delisted, who was really affected the most--the creator or the users? And is the behavior of any single individual in the crypto space really enough cause to delist?

Jimmy Nguyen, BSV supporter and president of the BSV-focused Bitcoin Association, told Finance Magnates that the delistings “[set] a terrible precedent for the cryptocurrency industry for an exchange to use its CEO’s personal dislike of a coin’s individual supporter as a basis to make delisting decisions.”

“What if one day Vitalik Buterin or Charlie Lee took personal actions that offended an exchange CEO? Should that be the basis for delisting Ethereum or Litecoin?” he asked.

Indeed, while Wright’s actions were questionable, Nguyen cautioned on the precedent that the delistings set for the industry: “cryptocurrency enthusiasts should not be cheering a precedent which can make all cryptocurrencies vulnerable to easy market manipulation and heavily influenced by just a few people at notable exchanges. Whether you agree with Craig Wright’s personal legal actions or not, those issues are for a court of law to decide – not crypto exchanges.”

In the US, regulatory pressure has caused delistings

But not every case of delisting is so ethically ambiguous. Indeed, one of the most popular reasons behind a number of recent delisting seems to be very practical: regulatory pressure in various jurisdictions around the globe is causing an increasing amount of exchanges to drop some of their assets.

One of the most prominent examples of this is the United States. After an increase in regulatory attention on cryptocurrency exchanges, restructuring has occurred on a number of different levels.

US-based cryptocurrency exchange Poloniex announced in May of this year that it would be axing nine trading pairs due to regulatory uncertainties in the United States. The exchange’s concerns seemed to focus specifically around whether or not certain cryptocurrencies could be classified as securities:

]Then, in June, US-based cryptocurrency exchange Bittrex announced that it would be blocking US-based customers’ access to 21 different assets, with a possibility of more to come: ‘Certain markets will soon become unavailable to U.S. Customers, a statement said. “Those markets will generally continue to be available to Bittrex International customers. Currently, Bittrex International features 200+ tokens and coins for non-US Customers and we anticipate that we will continue to add innovative blockchain projects to Bittrex International in the future.”

Binance didn’t exactly block US customers from accessing certain assets on the exchange--it went one further. Citing regulatory concerns, Binance completely shut down US-based users' access to its main exchange and opened an entirely new exchange for US users.

So far, the exchange--which opened its doors last month--lists a total of 28 trading pairs.

FATF guidelines have caused delistings in South Korea

In South Korea, OKEx and Upbit said over the course of the last several weeks that they would be delisting five privacy-focused coins in order to comply with the Financial Action Task Force’s (FATF) new guidelines on cryptocurrency transactions and customer identity information.

On September 10th, OKEx axed Dash (DASH), Monero (XMR), Super Bitcoin (SBTC), Horizen (ZEN), and Zcash (ZEC), writing in an announcement that “according to the statement corresponding to FATF R.16, OKEx Korea has restricted its implementation as the 'travel rule' recommends that exchanges be able to collect relevant information such as the name and address of the sender and recipient of the virtual asset.” (Translated quote.)

The exchange explained that “privacy-oriented cryptocurrencies, aka ‘dark coins,’” made it difficult for the exchange to effectively follow the FATF’s guidelines.

Two weeks later, Upbit made a similar announcement. Although it did not specifically cite the FATF’s new guidelines, the proximity to OKEx’s decision to drop several privacy coins may imply that the decision was made for a similar reason. The exchange dropped Monero, Zcash, Dash, Haven, BitTube, and PIVX, explaining that “the decision to end trading support for the crypto-asset was also made to block the possibility of money laundering and inflow from external networks.”

While there haven’t been any other instances of delisting associated with the FATF’s guidelines, there could be more as the January compliance deadline continues to draw closer.

Lack of liquidity

In some cases, exchanges have not gone so far as to completely delist an asset, but have instead slimmed down on the number of trading pairs that they offer due to a lack of liquidity.

On September 30th, Binance announced that it would be delisting thirty trading pairs, including six involving tokens that were released through its very own Launchpad program, and one involving Tron’s much-hyped BitTorrent Token.

In the announcement of the delistings, the exchange explained that it had made the decision to delist “to improve liquidity and user trading experience among our wide range of available assets.”

Just over a month before Binance announced its delistings, Poloniex announced that it would be dropping 23 of its trading pairs due to a lack of liquidity.

While dropping a trading pair is certainly not as severe as dropping an asset entirely, the drop in liquidity could have an effect on an asset’s price.

Pay up or get out

In some cases, cryptocurrencies have claimed that they were delisted after failing to pay large sums of money or agree to participate in wash trading to make their volumes appear higher.

Specifically, Bitcoin Gold (BTG) said in an announcement on September 1st, 2018 that “Bittrex has decided to de-list BTG after we declined to pay them 12,372 BTG to remain listed.’ Bittrex claimed to have made its decision to delist BTG “based on a double-spend attack they suffered back on May 19th [2018], despite all our efforts to assist them, and despite the fact that the danger is now over.”

BTG explained that “Bittrex informed us that they make this decision because the BTG team would not “take responsibility for our chain,” and that taking responsibility meant paying Bittrex 12,372 BTG to cover the loss they incurred. They later informed us they would cover part of the loss from their own BTG reserves and requested we pay the remaining ~6000 BTG, and that if we did not, we would be delisted.”

Rahul Sood, CEO of UnikoinGold, tweeted that OKEx told his company that UnikoinGold would be delisted if it didn’t artificially increase its trading volume. OKEx was also recently accused by the Blockchain Transparency Institute of having a high volume of wash trading on its platform.

What happens after a delisting?

Regardless of the reason, a delisting is never good news for a cryptocurrency. After all, the less available a coin is, the smaller the capital can flow into that coin’s market.

Additionally, traders may find themselves between a rock and a hard place: either forced to sell all of their holdings of the delisted asset, or to take pains to move them onto another exchange or OTC platform where they can still be traded: ‘if you want to transact with the asset in the future you’ll need to make sure that you have an account on an exchange that supports it, go through an OTC desk, or direct trade with a trusted party who has an interest in buying/selling it,” wrote Megan Knab, Founder & CEO of VeriLedger, in a Medium post.

But delisting may not necessarily be the end of the world for a cryptocurrency. Jimmy Nguyen told Finance Magnates of the BSV delistings that “certainly, it was a dramatic event at the time, and we were not pleased that it happened.”

Jimmy Nguyen, President of the Bitcoin Association and BitcoinSV advocate.

Ultimately, though, the network seems to be doing fine: “BSV’s price took an immediate hit when that happened, but it’s recovered, and it’s higher than it was at the time of the delistings,” which Nguyen said he believes is because of “the organic value that’s being built and demonstrated on the network over time.”

Therefore, it seems as though a cryptocurrency's value is not perhaps solely--or even primarily--defined by its availability; instead, perhaps a cryptocurrency’s value is ultimately determined by its ability to roll with the punches.

About the Author: Rachel McIntosh
Rachel McIntosh
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Rachel is a self-taught crypto geek and a passionate writer. She believes in the power that the written word has to educate, connect and empower individuals to make positive and powerful financial choices. She is the Podcast Host and a Cryptocurrency Editor at Finance Magnates.

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