Cryptocurrency Exchanges May See Windfall Gain In 2018

A report published by Sanford C. Bernstein & Co. reveals that cryptocurrency exchanges continue to reap astonishing rewards despite the market being bearish.

The report titled ‘Crypto Trading – The Next Big Thing is Here’ specifically states that cryptocurrency exchanges may realize revenues of up to $4 billion in 2018, an increase of more than 100% from last year.

Crypto Trading Revenue Growth

Last year, cryptocurrency trading and related activities enable exchanges to generate fees to the tune of $1.80 billion, representing 8% of the revenue generated by traditional exchanges.

The total market capitalization of all the exchanges have grown exponentially to ~$218 billion as of today, from $17.70 billion at the beginning of 2017. Obviously, the stupendous growth has showered exchanges with tons of money in the form of transaction fees. Charges are levied in numerous forms as explained underneath.

Exchange Fees

It is the amount paid to process a buy or sell order. The fee varies widely from one exchange to another, but mostly remains flat in all cases. Only a handful of exchanges have opted for the maker-taker model where the fee varies with the nature of trading activity.

Network Fees

It is the fee paid to the miners to process transfer of cryptos from one wallet to another. Miners are the backbone of the cryptocurrency market. They validate transactions between two parties, before adding the data to the blockchain. The exchanges generally charge a fee higher than the amount they pay to miners.

Wallet Fees

It refers to the amount paid to the firm which offers digital wallet services. The wallet provider in turn uses the fees for their development costs, software updates, server maintenance and other storage related expenses. Wallet providers generally receive a huge portion of their revenue from institutional clients who opt for custodial services.

Growth of Crypto Trading Activities

Bloomberg estimates indicate that trading volume of top ten cryptos results in $3 million in daily fees. Binance, one of the top three exchanges by trading volume, is expected to generate $1 billion in profits in 2018. Irrespective of whether traders earn or lose money, exchanges continue to generate profits. Notably, Coinbase generates 50% of all the transaction fees generated by exchanges.