Bloomberg Quint magazine reported today that it is the cryptocurrency exchanges that are raking in the bucks. Just like in the California gold rush days, it was rarely the miners getting rich. No, it was the shopkeepers selling the picks and shovels. It is the same today. Yes, a few cryptocurrency buyers have become mega-rich, but they are few and far between. It is the exchanges, which are selling cryptocurrency to the masses, who have really struck it rich.
The top exchanges are estimated to be pulling in millions of dollars in transaction fees every single day. Based on this estimate, those same exchanges might have revenue in the billions of dollars. But note that these are only estimates since all large exchanges are privately held and so are not required to publish their real incomes, expenses and profits. Some of these companies so tightly guard their information that they do not even list where they are located or who the owners are.
Most of the biggest exchanges are located in Asia where cryptocurrency adoption started early in the cryptocurrency lifespan and it has remained very high. These companies have been known to shift corporate headquarters when cryptocurrency regulation gets too strict. That is what Binance exchange did in 2017 when it moved from Shanghai to Japan after the Chinese government started to restrict cryptocurrency trading on all exchanges.
The exchanges with the easiest sign-up process usually win more customers and therefore get a larger portion of the fee pie. But this lack of restrictions and controls may also indicate a risky exchange which could translate into lost customer funds.
These lucrative fees and profits are starting to tempt traditional, regulated, financial services companies to get into the racket. This may force the “old” privately held exchanges to clean up their act and start to conform to many standard operating principles, including transparency.
There are a lot of traditional banks which may decide that the best way to get into the game is to take over an existing exchange. Which one will be next?
