We are currently in the midst of a great crypto crash that hasn't been seen for some time. Hundreds of billions of dollars have been wiped off the market value of the crypto market. The stock market has also suffered a significant drop and some link this to macroeconomic factors, rising interest rates by the federal reserve, and the crypto prices crash.
The crypto market cap was down a huge $600 billion since the beginning of May with major cryptocurrencies like Bitcoin and Ethereum suffering significant price drops. Other popular altcoins such as MANA (Decentraland), Shiba Inu, and LINK (Chainlink) fell even more by as much as 60-80%.
What's worth noting is that a popular stablecoin (UST) lost over half of its value in a few hours and a cryptocurrency, LUNA (TERRA) is down to practically zero after having reached an all-time high of $110 only a few weeks ago.
In situations such as these, fortunes can be made and lost in a matter of seconds. Hence, the importance of having a fast deposit and withdrawal payment service on crypto exchanges is paramount since users can make or lose thousands in just a few minutes.
When high volatility is the order of the day, especially with digital assets, acting fast is imperative and a swift payment structure is key.
What are the challenges when a price drop occurs?
There are several challenges when you're trading or investing, and a price drop of this magnitude occurs in the crypto market. The main ones would be to protect your profits by making quick withdrawals and judging the right time to enter the market.
Crypto investors want to take profit quickly
When such volatility is affecting the market, it is obvious that investors will want to take their profit quickly. Whilst the exchange may have a system where stablecoins such as USDT (Tether) provide stability, investors may still want to withdraw their earnings in fiat at the earliest, possibly to re-invest their money in other lower-risk investments such as property.
People want to enter the market quickly
When there is volatility in the market, people will want to enter as quickly as possible and withdraw their profits before these turn to losses. Recently, Bitcoin fell to $28,000 from around $44,000 but in a couple of hours, it reached the $32,000 level. A quick 15% profit would have been made if the investor bought the dip and sold at the top. Tech stocks also suffered similar drops although the crash in crypto assets was by far higher
What payment methods do crypto exchanges offer?
Traditional banks have become extremely difficult when it comes to transacting with any type of crypto platform, mainly due to the risks associated with this digital asset class. In fact, only a few banks allow making and receiving payments to and from crypto exchanges. When not allowed, making such payments can result in the closure of your bank account.
On the other hand, this is not the case with forward-looking fintechs like FinXP which are much more conducive to working with the crypto industry.
When possible, crypto exchanges do offer the option to transfer funds via bank transfer. However, in Europe if the transaction done is a SEPA Credit Transfer, then the transfer may take anywhere from 1-3 days to be executed. This is not ideal for users who wish to deposit and withdraw funds quickly.
Apart from transacting via bank transfers, certain brokers and exchanges like eToro & Coinbase also accept Paypal for deposits and withdrawals, although the high fees are quite prohibitive. Another popular payment method is credit cards which allow users to instantly send money directly from their bank account. Unfortunately, this is another payment option that charges users high fees.
The other payment method involves using digital tokens. For this system, you must have some cryptocurrency in a digital wallet. There are various forms of digital wallets that are broadly secure such as Edge Wallet and Trust Wallet. Before converting your crypto to fiat, you must first send the digital tokens from your wallet to an exchange such as Binance or Kraken.
What is the ideal payment solution?
It is imperative in this fast-moving scenario that crypto exchanges offer not just crypto-to-crypto payments but also fiat-to-crypto and crypto-to-fiat options.
The recent crypto crash has demonstrated the need for payments to be faster as even stable coins have proven to be a disappointment as a store of value, especially with the UST/Terra scenario.
There are various instant payment options that can be used to facilitate fiat deposits and withdrawals. FinXP offers the leading payment methods discussed below.
Closed Loop Payments Solutions
FinXP offers a Closed-Loop payment solution where platforms and their customers are provided with a common payments ecosystem.
Both the merchant and the customer are provided with IBAN accounts with FinXP. The results in a B2B2C solution that facilitates the instant and secure flow of funds across borders from a business to its users and vice-versa.
This solution is ideal for crypto exchanges to facilitate customer deposits and withdrawals in fiat. End-users may also pair their IBAN account with a Debit Mastercard thus making it much easier for them to access and use their funds.
For an overview of the solution, check out the explainer video here.
Although credit card payments are more expensive than bank transfers, they remain a popular payment method due to the convenience that they offer to the end-user.
If your company is trying to penetrate markets that are traditionally heavy card users (such as France and Norway), then it makes sense to provide payment via credit cards as a payment option.
Alternative Payment Methods
Apart from Closed Loop Payment Solution and Credit cards, FinXP also offers a number of alternative payment methods. Below is a brief overview of three significant alternative payment methods:
Sofort, also known as Pay Now, allows users to make fast, easy, and secure payments using their online banking details. The merchant receives a real-time confirmation of the transfer order. This payment method is used by over 85 million people, mostly in Germany, Austria, Switzerland, and Belgium.
Giropay is a German payment method based on online banking that was introduced in 2006. It allows customers to complete transactions online using their online banking environment, with funds debited directly from their bank account. It is used by around 40 million people in Germany.
Real-time payments by FinXP is a payment method that also enables crypto exchange customers to pay via their bank accounts. Payments are received in real-time and there are significant cost savings when one compares to credit card processing fees.
How important is a fast payment method during a crypto crash?
In conclusion, the past month has been quite testing for the crypto markets with a fall in market value that reached hundreds of billions of dollars.
With fortunes lost in a matter of minutes if not seconds, the need for a fast withdrawal method, enabling users to convert digital assets to fiat is imperative.
The same goes for those investors who have cash and wish to enter the market quickly to snap up bargains and realize their profits with a quick resale.
In the future, when the market trend turns bullish again, millions of people will get back to speculative trading, engaging in token sales, and investing in bitcoin and other cryptocurrencies. At that point, offering a selection of instant payment methods will be crucial, especially to new users entering the crypto market for the first time.
If you have any queries or wish to learn more about our payment and banking services for companies in the crypto industry, please get in touch via our contact form here.