Coinbase, the largest fiat-to-crypto exchange in the global market, is set to bring in over $1.3 billion in yearly revenue by the end of 2018.
Binance, the go-to crypto exchange for digital asset traders, recorded a profit of $200 million in January, nearing that of Germany’s biggest financial institution Deutsche Bank.
Upbit and Bithumb, two of the largest exchanges in South Korea, have reportedly been recording a monthly revenue of $100 million in early 2018 mainly from transaction and withdrawal fees.
In January, Yoojjin Investment researcher Jung Yoon-ho told local publications that considering the $2.5 billion in user funds that are actively traded on the platform, and the average transaction fee is 1 percent, Jung said that Bithumb generated $2.5 million in daily revenue earlier this year.
However, due to the bear market and the decline in trust towards crypto exchanges by investors in South Korea due to the two consecutive security breaches of Bithumb, experts predict that the monthly revenues of major crypto exchanges in South Korea have dropped from $100 million to around $60 to $70 million in the past 10 months.
Why are Exchanges Still Making a Lot of Money?
According to Bloomberg, documents obtained by the publication disclosed the projected annual revenue of Coinbase to be around $1.3 billion.
“The company’s $1.3 billion in sales for 2018 comes from the commissions on trades on its platform, as well as from gains and losses in its own crypto holdings. Because the firm looks at several internal measures of revenue, the exact figures can vary,” Julie Verhage at Bloomberg reported.
The vast majority of revenues brought in by cryptocurrency exchanges are generated through fees on buy and sell orders, as well as withdrawal requests.
Binance, for instance, publicly disclosed that it will donate all of the listing fees given by projects to be listed on the exchange to fund transparent initiatives led by reputable organizations like the UN with crypto.
“If you look at the first few UN Sustainable Development Goals, such as poverty, hunger, health and even education, these are easily addressed or improved by the charity initiatives. Yet, what we’re trying to do is a level deeper. I believe that by improving transparency in the charity sector, we will be able address all 17 goals as a whole, at a more fundamental layer,” Binance CEO Changpeng Zhao said.
As such, major crypto exchanges have concentrated their revenues to the core business model of facilitating cryptocurrency trades with minor fees.
Throughout the past eleven months, the volume of the crypto exchange market, which hovered at around $20 billion, has nearly halved. The volume of Bitcoin, the most dominant cryptocurrency in the market, dropped from nearly $8 billion to $3.5 billion.
Still, a $10 billion daily trading volume of the crypto exchange market, which is still at its infancy, is sufficiently significant for exchanges to generate large revenues.
The lucrative business model of crypto exchanges has lured in many institutions and conglomerates throughout the year. In South Korea, many crypto exchanges are now operated by conglomerates such as Kakao, Shinhan Bank, and Nexon, multi-billion dollar companies that dominate local industries.