Crypto Exchanges Are Raking in Billions of Dollars
Digital-asset exchanges are emerging as one of the biggest winners of the cryptocurrency boom.
The
top 10 are generating as much $3 million in fees a day, or heading for
more than $1 billion per year, according to estimates compiled by
Bloomberg using trading volume reported on data tracker
CoinMarketCap.com and fee information on the exchanges’ websites. Fees
in the lowest range of the exchanges’ scale were used for the
calculations.
The projections are a rough estimate as it’s near impossible to know
what exactly the closely held firms are charging, including discounts
for their most active traders. Based on daily trading volume and fees
listed, annual revenue for the top 10 goes into the billions of dollars.
While the numbers aren’t exact, the order of magnitude shows the boom
in virtual currencies is generating some very real cash.
“The exchanges and transaction processors are the biggest
winners in the space because they’re allowing people to transact and
participate in this burgeoning sector,” said Gil Luria, an equity
analyst at D.A. Davidson & Co, who reviewed the methodology for the
revenue estimates. “There’s a big business there and it would not
surprise me if they’re making hundreds of millions of dollars in revenue
and possibly even billions a year.”
Tokyo-based
Binance and Hong Kong-based OKEx are handling the largest volume of
trading, equal to about $1.7 billion daily. Based on fees of 0.2
percent, which are higher than OKEx’s 0.07 percent for the most active
traders, Binance is likely bringing in the most cash per day.
Huobi,
Bitfinex, Upbit and Bithumb, which are all based in Asia, come next in
the ranking. They process between $600 million and $1.4 billion of
trading volume and charge fees of 0.3 percent on average. More than half
of the crypto currency trading happens in Asia-based exchanges,
according to data compiled by smart contract platform Aelf.
Asia’s
influence in crypto trading can be explained by a concentration of
cryptocurrency mining in the region from Bitcoin’s early days, as miners
took advantage of cheaper electricity costs, said Aelf co-founder
Zhuling Chen. Other reasons include the region’s young population, which
adopts new technology quickly, consumers that are comfortable with
mobile payments, and even a strong gaming culture, which incentivizes
virtual transactions, said Chen. Tightening regulation in the region,
with China and South Korea restricting trading and initial coin
offerings, also means that Asian firms have been forced to become
global, he said.
Binance’s prominence is notable considering the firm started
operating in July. It shifted headquarters to Japan from Shanghai after
the Chinese government tightened its grasp on the industry late last
year. The firm can process 1.4 million orders per second, which it says
makes it one of the fastest exchanges in the market.
Its loose customer accreditation process may also explain its
growth, said Chris Slaughter, co-founder of crypto investment platform
Samsa. It’s also very reliable, he said.
“They don’t make users go
through the know-your-customer process until withdrawal,” Slaughter
said. “It’s a complicated process. You can lose customers in the two or
four hours that it takes. In Binance, you can go from not having an
account to having funds on an account in less than 20 minutes.”
South
Korean exchange Upbit, which is among the top five in trading volume,
only started operating in October. It’s controlled by Dunamu Inc., which
also owns Kakao Talk, the most popular messaging app in Korea. Upbit is
integrated in Kakao Talk and lists over 120 cryptocurrencies, thanks to
a partnership with the U.S.-based exchange Bittrex.
All
of the exchanges are privately held and only a few years old, which
often means it’s difficult to find financial information or details on
management. HitBTC, the 10th largest, doesn’t provide any information on
who runs it or where the firm is based, even as customers asked these
questions on the exchange’s
forum. Bit-Z, WEX and EXX, among the 20 biggest by trading volume, are some of the others that don’t provide those details either.
Bitfinex,
among the five biggest, has come under heavier scrutiny as the U.S.
Commodity Futures Trading Commission sent subpoenas to the company in
December.
Potential competition from public companies and traditional financial
firms may push crypto exchanges to be more transparent and even reduce
costs, said Slaughter.
“More conventional businesses like banks
and funds are likely to acquire crypto platforms at some point to make
sure they have a strategic foothold in the market,” he said. “It’s a
no-brainer. Financial services is where all the real business revenue in
crypto is.”
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