Crypto Exchange Price War Nullifies Allure of Trading Fee Discount
HT, the Huobi exchange token, has soared more than 25% since the end of last week, following news that founder Leon Li has sold his majority stake in the high-profile crypto market. to Hong Kong-based fund manager About Capital, but the rally may be based more on relief that new ownership is in place than on fundamentals.
Huobi control, which has been forced to do most of its business outside of China due to Beijing’s opposition to cryptocurrenciesreportedly went on sale in August, with Tron founder Justin Sun among those interested.
Sun tweeted on Monday that he was a member of Huobi’s global advisory board and that the “key to revitalizing” the company is to “empower HT. Going forward, there will be many important changes around HT, including upgrading brand level, heavy empowerment and business cooperation.”
The five global advisers also include Ted Chen, CEO of About Capital, which he founded in 2008, according to a posting by Huobi on its website. The other members are Du Jun, co-founder of Huobi, Wang Yang, vice president of Hong Kong University of Science and Technology, and Leah Wald, CEO of Valkyrie Investments. The panel’s objective is “to guide Huobi Global’s business development as well as its strategic roadmap for global expansion,” according to the publication.
That’s all well and good, but the question on the minds of investors who bought the token between the second half of last year and the first six months of 2022 is likely what happens to a currency they paid up to $35 and is now just getting back above $5.
Use of Ethereum
HT’s high-flying days came in late 2020 and early 2021, when its home base was China and its community of active traders also came from the Chinese mainland. During this crypto bull period, the increase in online visitors to huobi.com led to an increase in trading volume and HT appreciation. While traffic growth to huobi.com persisted after China closed its crypto market in May 2021, the company’s monthly trading volume declined 96% from May 2021 to last month, falling to $74 billion versus $3 trillion, according to data from Nomics. With fewer cryptos being traded on the Huobi platform this crypto winter, the utility of the HT token has declined.
The dramatic drop in volume is partly the result of above-average fees and an intense price war between crypto exchanges. Huobi’s spot trading fee of 20 basis points – one basis point is one hundredth of a percentage point – is 54% higher than the weighted average fee of the top 50 exchanges by trading volume. The company’s 3.5 basis points for derivatives trading is 35% higher than the competition. Above-average fees are also an issue for established exchanges such as Gemini, Kraken, and Coinbase.
The speed and sloppy manner in which the new owner raised eyebrows. The company announced this in a press release dated in London early in the Asian morning of Saturday. According to the South China Morning Post, Li confirmed the sale during a WeChat post on Saturday evening. The timing of such an announcement could alarm customers and investors, and suggest that Li may have been under heavy pressure to sell. This pressure could have come from other Huobi stakeholders and HT investors demanding a reversal of the currency decline. In what must have been a bitter pill, selling Li at or near the bottom of a crypto winter likely resulted in a low transaction price. Terms of the sale were not disclosed.
Li’s vision for HT included an American bank that gave the company access to dollars, and he went so far as to obtain a banking license from the state of Wyoming that never got more than that. Huobi Technology Holdings, a subsidiary of the Huobi Group, changed its growth strategy in the United States by announcing in July 2022 that its American subsidiary HBIT Inc had received a registration license from the US Financial Crimes Enforcement Bureau (FinCEN) Money Services Business (MSB).
Sun’s announcement suggests that the new owners of Huobi will invest new capital and expand the popularity of Huobi and its token, perhaps throwing its hat in the competitive US and European markets. While About Capital Management may have access to cash, it could be argued that it lacks the combination of panache and deep pockets that might be needed to set HT apart from the rest of the crypto pack.
Crypto exchanges are in a price war, and those who receive discounts for using their exchange tokens will likely be forced to wipe out the benefits over time. Therefore, the usefulness of many of these exchange tokens will also likely decrease unless they find other ways to make themselves useful.