17 Aug Cryptocurrency exchanges making money hand over fist; Wall St looms
Despite the bearish bitcoin and cryptocurrency market, a Bloomberg article reports that cryptocurrency exchanges are still making plenty of money.
According to data from Sanford C Bernstein & Co, cryptocurrency exchanges could more than double revenue in 2018 to $4 billion compared with $1.8 billion in 2017.
The Bernstein report, titled “Crypto Trading – the Next Big Thing is Here?”, says crypto exchanges generated about 8% of the revenue of traditional stock exchanges in 2017 based on fees.
Coinbase building a powerful position
Although many of the large Wall Street firms are exploring cryptocurrency, most have been reluctant to make significant investments because of volatility, regulatory uncertainty, and a gap in technology knowledge and resources.
These barriers prevent lucrative institutional investors from being interested or able to take a position in new digital currencies, limiting new revenue opportunities for Wall Street in the short-term.
Bernstein analysts say Wall Street’s inertia could provide cryptocurrency exchange leaders like Coinbase with “an unassailable competitive position.” Coinbase now earns an estimated 50% of all cryptocurrency trading revenue with more than twice as many account users as mainstream’s Charles Schwab.
Wide range of issues are barriers to entry
The two biggest barriers to entry into cryptocurrency trading by Wall Street and institutional investors are custody and compliance.
But Wall Street hasn’t entirely been sitting on its bags of money watching the cryptocurrency parade go by.
Intercontinental Exchange (ICE), the owner of the New York Stock Exchange (NYSE), announced a new digital trading platform called Bakkt, developed in partnership with Microsoft, Starbucks, and BCG.
“Bakkt will integrate with the ICE’s US futures market and clearinghouse to list a physically-settled one-day futures product, complete with physical warehousing managed in-house by ICE,” according to a Bloomberg article. Bakkt will launch in November, pending regulatory approval.
Battlefield is set
The early cryptocurrency leaders like Coinbase, Binance, and OKEx are building strong positions driven by early market entry, market user experience, and technology.
In March, Bloomberg estimated the top 10 exchanges were likely making more than $3 million in revenue daily and on track to earn more than $1 billion each in 2018.
With new Wall Street-backed competitors on the horizon, expect to see new investment growth, new market interest, and new competitors. All which should make for interesting times ahead.