January 29, 2018
Crypto trading is a complex business. The market – currently unregulated – is extremely volatile. While the enormously growing number of users has forced several major exchanges to halt newer registrations, trading volumes – largely influenced by unpredictable market developments – have seen major ups and downs for a while now.
Crypto exchanges, just like shovel sellers in a gold rush, are looking to make the most of the FOMO around crypto. Coinbase – through its wallet, retail exchange, as well as GDAX trading platform – recently reported $1 billion in revenue (66% above its forecast). Bittrex reportedly crossed 500,000 concurrent users. Binance now has more than five million users. However, for these exchanges, their revenues depend directly on the trading volume and thus keep fluctuating with the market activity. On the other hand, the costs (server upgrade, tech, KYC compliance, etc.) continue to increase with newer registrations, thus posing a significant question on the stability and sustainability of profit margins for these exchanges.
The crypto market is heavily dependent on FOMO-driven market activity and external developments. It is also largely susceptible to manipulation, with the role of OTC trade and darknet gradually coming to the fore. The regulators and governments in many countries have clearly shown their apprehensions about crypto trading. With all these apprehensions, growing AML/CFT concerns, and unstable profit margins driven by volatile market activity, the business models of these exchanges will definitely be tested as the time progresses.