Introduction
In recent years, cryptocurrency exchanges have grown in size and importance, but not all digital assets make the cut for the long term. Some cryptocurrencies that were once actively traded get delisted, leaving investors stranded with tokens they can no longer trade easily. The reasons behind delistings vary from regulatory crackdowns to security risks, poor liquidity, and outright fraud. In this article, I’ll break down why exchanges remove cryptocurrencies, what happens when a crypto is delisted, and how investors can protect themselves from such scenarios.
What Does Delisting Mean?
Delisting means that a cryptocurrency is removed from a trading platform, preventing users from buying, selling, or holding it through that exchange. While the token itself continues to exist on its native blockchain, its absence from major exchanges significantly impacts its liquidity and market value.
Types of Delisting
There are two primary types of delisting:
- Voluntary Delisting: When a project team or community requests the removal of their token due to strategic reasons.
- Forced Delisting: When an exchange removes a cryptocurrency due to non-compliance, low trading volumes, security concerns, or other issues.
Key Reasons for Crypto Delisting
1. Regulatory Non-Compliance
Cryptocurrency exchanges must comply with regulatory frameworks, which vary by jurisdiction. If a token is deemed to violate U.S. securities laws or fails to meet Know Your Customer (KYC) and Anti-Money Laundering (AML) requirements, exchanges often remove it.
Case Study: Ripple (XRP)
The SEC lawsuit against Ripple in 2020 led to the delisting of XRP from major U.S. exchanges like Coinbase and Kraken. The SEC alleged that XRP was an unregistered security, leading exchanges to remove it to avoid legal risks. Following the lawsuit:
- XRP’s price dropped 60% within a month.
- Trading volume shrank as liquidity vanished from key exchanges.
2. Low Trading Volume and Liquidity Issues
If a cryptocurrency has low trading volume, it means fewer buyers and sellers are actively participating in the market. Exchanges make money from trading fees, and low-volume assets are not profitable to maintain. A token with poor liquidity is also prone to price manipulation, making it riskier for investors.
Example: Delisting of BitConnect (BCC)
BitConnect, a Ponzi scheme disguised as a crypto project, saw a massive price crash after exchanges delisted it due to fraud allegations. The price went from $400 to nearly $1 in weeks, wiping out billions of dollars in investor wealth.
3. Security Risks and Hacks
Cryptocurrencies tied to security vulnerabilities, smart contract exploits, or 51% attacks often get delisted. Exchanges want to protect their users from tokens that may suffer from continuous hacking attempts or technical failures.
Equation for 51% Attack Probability
A 51% attack happens when a malicious entity controls over half of a blockchain’s mining power. The probability of a successful attack can be estimated using:
P = 1 - (1 - (H/C))^NWhere:
- H = Hashing power of attacker
- C = Total network hashing power
- N = Number of confirmations needed for a transaction
If a network has low hashing power, the probability of an attack increases, leading exchanges to consider delisting.
4. Legal Issues and Lawsuits
Tokens linked to legal disputes or regulatory investigations face a high risk of being removed from exchanges. If a project is sued for fraud, insider trading, or misleading investors, exchanges may drop it to avoid association.
Case Study: TerraUSD (UST) and LUNA Collapse
In 2022, TerraUSD (UST) lost its peg to the U.S. dollar, leading to an $18 billion market wipeout. As legal actions followed, exchanges like Binance and Coinbase removed LUNA and UST from their platforms to avoid regulatory scrutiny.
5. Project Abandonment and Developer Inactivity
If a cryptocurrency project lacks ongoing development, it signals a high risk of failure. Exchanges monitor GitHub activity, team updates, and roadmap progress. If a project stagnates, exchanges may remove the token due to a lack of innovation and utility.
Impact of Crypto Delisting on Investors
1. Price Decline
Once a crypto is delisted, its market value typically plummets. Investors often panic-sell, further accelerating the downward trend.
| Cryptocurrency | Pre-Delisting Price | Post-Delisting Price (30 Days) | Percentage Change |
|---|---|---|---|
| XRP (2020) | $0.58 | $0.22 | -62% |
| BitConnect (2018) | $400 | $1.50 | -99.6% |
| LUNA (2022) | $85 | $0.0001 | -99.99% |
2. Liquidity Problems
After delisting, investors struggle to find platforms to trade their assets. Many must resort to decentralized exchanges (DEXs) or peer-to-peer markets, which have lower liquidity and higher risks.
3. Increased Risk of Fraud
Once a crypto is delisted, scammers often exploit the confusion by launching fake “relisting” campaigns or pump-and-dump schemes to lure desperate investors.
How to Protect Yourself from Crypto Delisting
1. Check Exchange Guidelines
Each exchange has listing criteria. Understanding these policies can help investors gauge a token’s risk of delisting.
2. Monitor Trading Volume
Low-volume tokens are at higher risk of removal. Regularly check the 24-hour trading volume on CoinMarketCap or CoinGecko.
3. Watch for Regulatory Red Flags
Tokens involved in legal battles or operating in gray areas of the law may face higher delisting risks.
4. Diversify Holdings
Avoid over-concentration in any single cryptocurrency, especially smaller altcoins that are more vulnerable to delisting.
Conclusion
Cryptocurrency delistings happen for various reasons, from regulatory compliance to security risks and low trading volume. When a token is removed from an exchange, its value often plummets, liquidity dries up, and investors face challenges selling their holdings. By staying informed, monitoring market trends, and diversifying investments, I can mitigate the risks associated with delistings and navigate the crypto market more safely.
