Paxful has overtaken LocalBitcoins for the first time. What's behind the P2P flippening?

There’s a new leader in over-the-counter, peer-to-peer cryptocurrency trading. Earlier this month, Paxful passed LocalBitcoins in weekly global trading volume after nipping at its heels for half of a year.

During the week that ended June 6, Paxful users traded nearly $39.8 million, pushing LocalBitcoins, which saw just over $39.5 million, into the second position for the first time. In the weeks following, Paxful has only increased its lead, registering more than $44.7 million to LocalBitcoins’s $37.9 million during the week that ended June 20.

As the chart shows, Paxful came close to claiming the top spot late in 2019. Now, after a drop during the early months of this year for both companies, Paxful appears to have regained the momentum it demonstrated last winter.

If we zoom out further, we see that this was hardly a competition until the fall of 2019. In September, LocalBitcoins started requiring users to submit identification.

Paxful has a similar identity verification system. But it charges lower fees for bank transfers — one of several important differences between the two services that are likely factors in Paxful’s surge, according to data scientist Matt Ahlborg.

Ahlborg, who analyzes P2P trading volume on his blog, says a “huge difference” between the two services is that whereas LocalBitcoins has discontinued gift card trading, Paxful has gone out of its way to cater to that particular market. Gift card trading is complex from a regulatory standpoint, particularly with respect to money laundering and fraud, and it also requires more customer service, says Ahlborg. “That’s why (LocalBitcoins) got rid of it.”

Another factor is geographical. Latin American P2P trading has leveled off and even slowed, while P2P trading in Africa has surged. That’s been a boon for Paxful, which has established a better foothold there, says Ahlborg.