In the age of ICOs, cryptocurrency exchanges are taking a cut of the gold rush.
With the price of bitcoin soaring past US$10,000 this week, the idea of trading it for a less proven token sounds crazy. But for the nouveau riche of the cryptocurrency world, it’s an opportunity to invest in faster-moving currencies.
“Most guys who are holding bitcoin are high-risk, early adopters. They have a high tolerance [for] swings,” explains Changpeng Zhao, founder of Binance, a cryptocurrency exchange operating out of Tokyo. “Sometimes it’s not even about the money. People just want more.”
Sometimes it’s not even about the money. People just want more.
That’s one of the drivers behind growing exchanges like Binance, which deals exclusively in cryptocurrency – no dollars or fiat currency of any kind. Instead, traders buy and sell bitcoin, ether, and a variety of tokens from different initial coin offerings (ICOs), a cryptocurrency-based crowdfunding model that’s raised more than US$3.7 billion for blockchain projects this year. It’s a way for bitcoin traders to diversify their holdings through riskier tokens with potentially higher returns.
Zhao says Binance’s exchange processes about US$500 million in trade every day, of which the company takes a 0.1 percent fee – which drops to 0.005 percent if users pay commission in Binance Coin (BNB), Binance’s own token. In its first quarter ending in October, the company reported a profit of about US$7.5 million in commission fees.
Not bad for an exchange that launched in July.
“This year, ICOs have definitely contributed to exchange volume,” he says. The increasing number of bitcoin buyers has boosted trade as well, as it’s the first cryptocurrency most people become familiar with. Still, there’s a lot more room to grow, emphasizes Zhao.
“The crypto space even today is a very small part of the overall market potential,” he says, pointing out that the traditional equity market is much larger. “This is just the beginning.”