One of the most active markets for trading cryptocurrencies says it plans to list only a fraction of the hundreds of new digital coins that have been invented this year.
The cautious approach to new digital assets by GDAX, a marketplace whose backers include the New York Stock Exchange, underlines the risks around many of the cryptocurrencies born in 2017’s frothy market for initial coin offerings, or ICOs.
The highly unregulated, experimental fundraising mechanism has so far in 2017 produced more than 200 coins and generated some $3bn for early stage companies globally, according to tracking website CoinSchedule.
But it has also drawn warnings from financial watchdogs concerned about retail investors losing money on the young projects, many of which could turn out to be failures or outright frauds.
Short for Global Digital Asset Exchange, GDAX currently has the world’s fourth highest bitcoin trading volumes and is regulated by the New York Department of Financial Services. It belongs to San Francisco-based Coinbase, a digital wallet company valued at $1.6bn this summer, whose investors include Andreessen Horowitz and Union Square Ventures.
Designed for institutional traders, GDAX currently supports bitcoin, litecoin and ethereum, established cryptocurrencies which have been circulating for nine, six and two years respectively.
But as a wave of new coins has hit the market, GDAX says it is under pressure to expand its listings.
“The number one feedback I’d say we get from customers is, ‘add more things, I want to trade more assets’,” Adam White, head of GDAX, told the Financial Times. “We see those customers going to other venues, and we don’t want that to happen.”
However, Mr White played down the amount of new coins GDAX will list, saying only it expects to add “more than three” next year. “It’s not going to be hundreds,” he added, clarifying: “We plan to support dozens of new assets in the coming years.”
The exchange on Thursday launched a framework for evaluating digital assets for admission to its platform, which it hopes will help guide the nascent industry’s development.
GDAX’s framework considers factors including whether the team developing the coin has a “track record of demonstrable success or experience”, if there are examples of “real-world implementation” for the coin, and whether it advances GDAX’s company goals of creating an “open financial system”.
Courtney Chin, business operations associate for Coinbase, said there was an “internal risk-reward” calculation that GDAX had to make, and that it was generally opting to see coins mature before listing them.
Although notable finance figures such as JPMorgan Chase’s Jamie Dimon and famed investor Warren Buffett have derided cryptocurrencies, the prospect that mainstream financial services could embrace them was bolstered this week as CME Group, the world’s largest exchange operator by market value, said it was preparing to launch bitcoin futures.
Following the news, bitcoin leapt to record highs of over $6,500 on Wednesday.