What Happens If An Exchange Delists A Cryptocurrency?

Delisting a cryptocurrency is another way of saying an exchange has removed an asset from its trading platform. To illustrate, consider the setup of a traditional equities market. Stocks must meet a set of restrictions to be listed. If the stock later falls below a certain price for an extended period of time, the exchange may delist the stock from being traded. The cryptocurrency market operates similarly, with only a few minor differences.

One of these differences is that on cryptocurrency markets, the reasons for delistings are ambiguous. However, among the most common are the project team asking to initiate the request or the asset no longer meeting the minimum requirements for the cryptocurrency exchange.

Why exchanges remove cryptocurrencies

There are many reasons why an exchange might delist an asset. Some of these reasons include the lack of commitment to the cryptocurrency project, the quality of development activity, the level of public communication from the project team, or the evidence of fraud. Other important factors include the community and “social good,” which have emerged as values that prominent exchanges take into account when evaluating tokens. Each exchange sets the criteria individually and will also determine the listing fees for new projects.

Another assumption is that the founding team has simply run out of capital to continue funding the project. Cryptocurrency tokens often require consistent development and talented marketing teams. While some community members might work voluntarily, many are looking for regular payment. In a bear market where prices decrease, it might be hard for the founding company to make their project a profitable endeavor.

Furthermore, exchanges may delist a coin due to regulations from jurisdictions in the area of operation. Governing parties may add pressure to exchanges to drop some of their assets. One example of this occurred in the United States. After scrutinizing cryptocurrency exchanges, restructurings occurred that caused the platform Poloniex to remove nine trading pairs from their listings since these assets failed to meet the standards of being a “security.” Many exchanges that focused on coins with strong reputations did not face the same scrutiny.

Exchanges may also delist coins if they have a weak hash rate. Weak hash rates can make a cryptocurrency target a 51% attack that could modify the blockchain and impact its credibility. A 51% attack is not common but still may occur. For these reasons, exchanges still flag this as a reason for delisting.

What you should expect when exchanges delist a cryptocurrency

When an asset gets delisted from a cryptocurrency exchange, the platform will remove all available trading pairs. The asset may still be available on another decentralized exchange or through over-the-counter trading but will cease to exist on the exchange in question. Once the exchange removes the trading pair, users can continue to withdraw from the exchange for a specified period of time. This way, users don’t lose out on existing funds even if the trading platform no longer makes the asset available.

That said, when a cryptocurrency delists, users will see a translation to the asset price. For example, the BSV delisting resulted in a 20% decrease in the price following the delisting on popular exchanges. Depending on the size of the exchange, liquidity will likely also be affected.

The cryptocurrency markets and exchanges are still growing in maturity and have a long way to go before reaching the level of uniformity present in the NASDAQ and NYSE. In the meantime, investing in a cryptocurrency that has shown consistent growth and choosing an exchange that actively communicates with its investors can go a long way in protecting your interests.

Conclusion

With over 2,000 cryptocurrencies available for trade, investors should proceed with the expectation that not all of these coins will succeed. Even if they do, there are still many other reasons the exchange may delist the coin. If you have invested in a lesser-known currency, you can protect yourself by keeping your coins off the exchange and in an offline wallet. Keeping your cryptocurrencies in cold storage will ensure you keep your coin balance even in the event of a delisting. Cold storage is also a general best practice that investors should follow.

Also Read: Tips For Investing In Cryptocurrency