Several crypto exchanges have burst from the seams in regard to generating millions of dollars every day. Case in point: Binance and FTX.
According to Financial Times, they’re both about to hit the $1 billion ceiling in 2021.
Coinbase, the largest listed digital asset exchange, has reportedly surpassed market expectations by $1.6 billion.
Since the start of the year, Binance has generated nearly $1.8 billion of trading revenue — the biggest crypto trading volume.
These companies’ billion-dollar success is exclusively pegged on the explosion of Bitcoin, which has supercharged them into becoming enviable powerhouses.
Incidentally, some of these crypto exchanges are barely four years old. Yet, they boast bumper revenues each year. So, the question is: how long can the success last?
Rapid Growth Intensifies Regulatory Scrutiny
The dizzying profits come at a time when financial regulators are tightening the noose on crypto exchange activities. As a result, their rapid growth will attract regulators’ scrutiny.
Even as competition between them spikes, large crypto exchanges should seek juicy profits away from trading digital assets — in anticipation of profit margin downfalls.
Here’s an example:
Binance loses profits (often held in several cryptocurrencies) because digital assets fluctuate every day.
According to Binance CEO Changpeng Zhao, Binance — which rarely calculates its profits in US dollars — is on watch to beat last year’s profits that ranged between $800 million to $1 billion and counting.
Ballooning valuations
Hong Kong-based FTX is not an exception either. Its popularity is also majorly attributed to Bitcoin. This year, FTX is projected to make approximately $400 million in profits. Last year, FTX made nearly $77 million.
In other words, big crypto exchanges have seen a spike in their average daily trading volumes. And it’s this rate of growth that translates to ballooning evaluations.
That said, this growth rate is unsustainable in the future — thanks to increased competition, higher regulatory costs, and new crypto (mostly Bitcoin) buyers.
It could end badly, though, for these crypto exchanges if they don’t engage with financial regulators.
Regulations are set to create more clarity about crypto rules, and they’re inevitable. Binance CEO says that those crypto companies that ignore regulations are either lying or don’t understand what’s going on today.
In the past, large crypto exchanges profited from a lack of set rules in the crypto markets. That’s because, back then, financial regulators paid little attention to crypto.
Things have changed. Right now, the risk of regulation looms large for billion-dollar crypto companies. And that’s a fact.
