When large supermarket chains arrive in a neighborhood, the owners of the local grocery stores soon feel the 'thud'. This is because part of the customers do not hesitate to change the place of purchase, since the giants have a greater variety of products and generally offer lower prices. This was the effect generated by the exchange Binance when it arrived in Brazil at the end of 2019.
In just over a year of operation in the country, the broker not only took the leadership of the major brokers in the Brazilian cryptocurrency market – Bitcoin Market, NovaDAX and BitPreço -, but also grabbed a piece of the trading volume of small exchanges. Some did not resist.
Braziliex, for example, announced last week the closure of activities. The alleged reason was the entry of new competitors. The company traded 480, 600 and even 720 bitcoins per month in the first half of 2020, according to data from CoinTraderMonitor. From July of last year until now, however, the volume fell, and the average registered between January and April of this hit 274 BTC monthly.
Without mentioning any specific company, Ricardo Rozgrin, founding partner of Braziliex, told the Bitcoin Portal that without a doubt the entry of foreign companies raised the technical level of the competition. "Better platforms, greater liquidity and lower rates make a relatively large customer base move in that direction."
Despite the closure, Rozgrin said that in general the entry of new players is good for the market: “We see this in a positive way since the customers who gain from it are the customers. However, it is not common to find in these companies the same level of quality in terms of customer service, especially the most lay people ”, he said.
Drop in volume
Like Braziliex, the ‘Binance effect’ was also felt by other small or medium sized exchanges. Broker Brasil Bitcoin, for example, traded 500, 700 and even 876 bitcoins per month in the first half of 2020. The average from January to April 2021, however, dropped to 328 BTC monthly.
The drop in volume also occurred at brokerages Bitnuvem, Nox Bitcoin, Alter and many others. For trader Raphael Soffieti, who has been operating in the cryptocurrency market since 2014 and has been a partner at Foxbit brokerage, this low volume of trading is the great enemy of exchanges.
“If you look at the volume list of brokers in Brazil you will see that most of them operate less than R $ 1 million per day. Moving this amount, the company earns 0.5% or less, and with this it is unable to afford high costs of employees, attendance, registration, compliance, etc. And there is even an international broker in this situation ”.
According to the trader, however, small Brazilian exchanges suffered because of the low volume well before Binance arrived here, and this was seen even in some international ones: “It is necessary to understand the Brazil factor. Otherwise, the company cannot take it, even if it is managed by the richest Chinese in the world ”.
Local brokers can also benefit
The CEO of PagCripto brokerage, Carlos Lain, said that brokerages feel the effect of new players that may be relevant, regardless of whether they are national or international. He said that in the specific case of Binance, however, many Brazilian brokerages were also able to benefit because they were invited to act as market makers.
“The Brazilian market today is very convex, there are several players that end up intercommunicating liquidity through arbitrage transactions and that ends up distributing the transactions across the entire market and can sometimes negatively affect a specific broker that was unable to have such competitive pricing options as the competitors throughout the day ”.
The exchange's average trading volume in the first four months of this year was 253 bitcoins, compared to 131 BTC in the first half of last year. The exchange also saw a jump in OTC volume, which jumped from an average of 339 bitcoins in the second half of last year (when data are available) to 471 BTC this year, beating a record high of 807 in April.
“There were several factors that helped this and the automation of our OTC that made it possible. Binance does not represent much of our volume, but due to our automation we have managed to allow several Brazilian brokerages to have greater liquidity in their market making work within their own platforms, ”said Lain.
For the businessman, unfair competition is due to Brazilian legislation, and not to international brokers such as Binance. "I think we have a great deal of legal uncertainty here in Brazil, which ends up forbidding us to offer various services that international companies are able to offer".