P2P bitcoin platforms aren't keeping up with the wider market momentum

Quick Take

January 2021 is setting itself up to be a record-breaking month for bitcoin and cryptocurrency market activity
Despite centralized and decentralized exchange volumes hitting all-time-highs this month, volumes on peer-to-peer (P2P) exchanges are still lacking
The Block Research analyzes the P2P bitcoin markets

January is setting up to be a record-breaking month for the cryptocurrency industry.

With ten days remaining, monthly centralized exchange volumes have already doubled 2017’s volumes to reach an all-time high.

Meanwhile, decentralized exchange volumes have also passed their DeFi Summer highs.

Yet there appears to be a sub-sector of the industry that has not benefited from the boost provided by bitcoin’s price reaching all-time highs. These are the peer-to-peer (P2P) bitcoin marketplaces, popularized by LocalBitcoins.

In fact, P2P bitcoin trading volumes have yet to pass their 2017 highs of $140M in weekly volumes, with the most recent data showing only $85M in volumes for the week ending on January 16, 2020.

The chart below shows the divergence of trading volumes between centralized exchanges and P2P marketplaces. While bitcoin volumes on centralized exchanges have doubled from their mid-2018 peaks, P2P volumes are still off by 40%.¹

Let's put this in a clearer perspective: the chart below displays P2P bitcoin volumes as a share of centralized exchange volumes. P2P’s share of centralized exchange volumes peaked at 42% in November 2017 and has since struggled to pass 6%.

One line of reasoning for this decline in market share could be the rapid expansion of Binance, which was founded in mid-2017, in regions that might have primarily been served by P2P marketplaces.

The tightening KYC requirements, previously analyzed by The Block Research, could also be the reason why market share has plummeted — if users have to choose between KYCing on P2P marketplaces to make physical trades (in person, through the email, etc.) vs. KYCing on centralized exchanges to make digital trades, they will likely choose the latter.

The battle for this decreasing slice of volume continues to be between LocalBitcoins and Paxful.

For a brief period in mid-2020, Paxful overtook LocalBitcoins to become the new dominant P2P bitcoin trading marketplace. As you can see in the chart below, LocalBitcoins has retaken the lead.

¹ Binance, Coinbase, Kraken, Bitfinex, and Bitstamp are the exchanges in this data set. We only pulled bitcoin volumes from these exchanges for a fair comparison.