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Dmitry Pshenin

Partner crypto fund | Marketing |Blockchain entrepreneur|Fundraise capital |Influencer

Crypto Exchanges Analysis. Will 80% of exchanges die? 03 Nov 2018

Crypto Exchanges Analysis. Will 80% of exchanges die?

Full version: https://medium.com/@chainsalexx/crypto-exchanges-analysis-8607222da6af

 

Hello everyone!) Not long ago one Crypto Exchange came to us (Me and Dmitry Pshenin — Blockchain TOP-expert https://icobench.com/u/dmitry-pshenin ) for a consultation, it is faced with the goal of getting into the TOP-20 Exchanges at Coinmarketcap within a year (Coinmarketcap rating equals to other exchanges ratings).

Coinmarketcap’s Exchange Rating is formed according to trading volume per 24 hours. Daily trading volume is the key metric of this service in relation to the comparison of exchanges. The higher the trading volume (24h), the higher this exchange in the rating. So it gets good share of traffic, recognition, trust and, therefore, more trading accounts opening.

https://coinmarketcap.com/rankings/exchanges/
To complete this task we needed a better understanding of the market situation and the players. To build a strong IR and Marketing Strategy.

First, I would like to note that this article is not about marketing tactics and tools, but about the information that we found in the process of a marketing strategy preparation and that did not leave us indifferent.

It immediately became clear — we just need to take someone’s place in the TOP- 20 rating. But even on the approaches to the TOP- 20, we will have to face a considerable number of competitors who have their own tricks, tools and a different set of resources.

Unfortunately, there is no “How To Promote Your Exchange to the TOP With The Help Of Guerrilla Marketing” book on the Internet, so we had no choice but to develop our own approach to collecting and analyzing information about the exchanges to prepare our own unique methodology.

The task appeared to be fascinating, and we began to collect information. Based on the information gathered we compiled a table (available below), which included various criteria.

As a result, we collected data on 90% of the exchanges, and especially carefully studied the TOP-50.

Criteria that were selected and organized in a comparative table:

Daily trading volume. At first we were focusing on 24 hours trading volume, but later, due to volatility, we began to use the 30-day approach — you should have seen the difference in the lists! Source: Coinmarketcap.
The average number of currency pairs represented. Source: Coinmarketcap.
External financing. Since the exchange that contacted us had a limited amount of funds allocated for marketing, (1.8 million dollars a year), we began to analyze the external financing of all competitors, because it would be difficult to compete with companies that were allocated $100 million for development. We divided the funding into venture capital and ICO fundraising. Source: Crunchbase and tokendata.io.
Product. To start, we analyzed more bottlenecks in the form of complex KYC and verification procedures, without which it is forbidden to deposit / withdraw large amounts of funds. But of course there are some positive points.
*This item remained for internal use and was not included in the public report.

Site traffic. Site is the main hub of the entrance to the personal account. For the analysis, we used visitor counters. Source: Similarweb.
The age of the exchange. It was interesting to know who appeared and when. Source: Coinmarketcap.
The number of employees. Necessary metric to understand what costs the exchange incurs when it becomes larger. Source: Crunchbase.
Turnover per visitor. This is a useful metric we created. Inside the team we called it a GDP per site visitor. Source: Coinmarketcap data (“/” divided by) Similarweb data.
*For a more in-depth analysis, we used monitoring services of references in the media, statistic excerpts from the exchange founders and exchanges in social networks, chat growth in Telegram, etc. That was not included in this report.

The analysis made helped us to come to a better understanding of some of the information about exchanges, their tricks, and see some not the most pleasant things more clearly.

Profile Of An Average TOP-20 Crypto Exchange

USD turnover per month — 11 billions (max 28, min 4)
Currency pairs — 170 (max 780, min 6)
Age — 2 years
Traffic — 3 million visits per month
Turnover per visit — $27 000 (max 100 000 USD, min 800 USD)
Frequent use of external financing. In the form of an ICO (the average amount is $20 million) or venture financing (the average amount is $5 million or is not disclosed).
Number of employees + — 90 people
*Apparently, all this can be a hoax and not be real information … However, if you suddenly wanted to invest $1 million in the creation of an exchange, consider whether you can cope with richer competitors…

 

Average age of an exchange from TOP-20 is 2 years. Picture is made by my friend. Want such? Mail me.
Weird Moments

It is weird that Coinmarketcap almost does not display 30% — 40% of the information. If this resource is so popular, why does not they care about the correctness of the information provided? For example, only BTC/USD currency pair is displayed for Bitmex, but in fact there are much more! Do not believe? Go to the site. (What the Coinmarketcap management is doing?)
 

It is sad that the Top 4 exchanges have a turnover of up to 40% of the turnover of the entire cryptomarket! — Oligopolies are already appearing.
It is strange that the very young Bitforex.com exchange, which is 6 months old, accumulates huge trading volumes — $28 billion per month!
Careful examination and analysis of the vast amount of data collected (all these figures, dates, nuances and inconsistencies) ultimately led to certain conclusions, which we arranged in tables for the sake of clarity.

So, below you can see a series of the insights on the exchanges:

TOP-10 exchanges by trading volume not in 24 hours, but in 30 days:

 

Exchanges with a large amount of external financing:

Exchanges with with venture capital funding:

 

+ more new fresh deals!
Exchanges with ICO funding:

 

These exchanges have some oddities with the trading volume per site visitor (high):

 

These exchanges have some oddities with the trading volume per site visitor (low):

 

Low traffic on the exchange website:

 

High traffic on the exchange website:

 

Final Conclusions

I will not lie if I say that the source of information about cryptocurrency is Coinmarketcap. But read the conclusions below.

Rating of exchanges is not based on security or the use of special tools for risk decrease, verification and other standards, but on the Trading Volume (24h) — the utopian metric.
If the large exchanges have “bubbled trading volume” to stay in the top and attract new customers, then most likely, the rest (smaller ones) will also bubble it. How? Just google “market making”.
Consequently, the exchange will lure new customers showing huge trading volumes.
Coinmarketcap rating is a fun for the masses. Professionals, look for something more serious!
In fact, the exchanges have very low official commissions, about 0.35% for making + taking. Some of them even lower.

Imagine an exchange with a turnover of 1,000,000,000 per month.

This is serious money. But half of the money can be subtracted: these turnovers do not exist — these are market making riders, algorithmic robots, which create a wonderful picture of active trading.

At the same time, our exchange, as we considered above, has on average about 70 employees, expensive computer equipment, high requirements for security and legal service, a large comfort-class office, because in the field of crypto there are high salaries and high requirements for employees as well as from employees to working conditions.

 

Picture is made by my friend. Want such? Mail me.
Total exchange expenses per month = 70 people * $3,500 average salary = $245,000 per month + office rent ($100,000) + conferences ($30,000) + marketing and PR ($70,000)

TOTAL: $445,000

Total exchange income per month = 1,000,000,000 / 2(“bubbled trading volume”) = 500,000,000 * 0.35% = 1,750,000 per month

Earnings from “junkcoins” listing ($200,000)
Extra junk revenue
Total profit can be: $2,200,000 — $445,000 = $1,505,000

Not bad.

But!

such a turnover is only in 19% of all the exchanges;
and if the “bubbled trading volume” is more than 50% (… for example 80% …?), this means that 60% of exchanges barely make two ends meet, or vice versa are unprofitable. That certainly can suggest the low level of protection of exchanges against attacks and loss of funds.
Then where is the hope for these exchanges?

And here come the answers:

the market will grow and so do the turnover… (sure?);
attract an additional round of funding (it is not possible for every exchange);
will sell the exchange to the giants (it is not possible for every exchange);
will reduce the staff and will work in a more severe and austerity mode (it is quite likely that this will be risky in terms of protection against hacker attacks);
launch their own ICO and release on the market more illiquid coins;
launch their own STO.
In fact, all these answers contain only part of the truth.

Here is another curious question:

Why do exchanges have different rates for bitcoin and other currencies? Oscillating +/- 2%? Perhaps their real income is not from a trading fee of 0.35% but from a hidden surcharge to the cost of cryptocurrency?

P.S.

Perhaps 80% of exchanges will disappear forever in the next 2 years (is there 40 Facebooks, PayPals or Youtubes in the USA?), and will be replaced by new ones, very young and creative SnapChats and Vimeos, but that is a completely different story…

After every collapse of the exchanges, bitcoin dominance will increase (it is already 54%), since cold wallets and the most reliable exchanges primarily support only bitcoin and currencies from the TOP-10, and bitcoin itself cannot be additionally emitted in case of loss, unlike “junkcoins”.

There will be transactions for financing exchanges by venture capital with full legal binding of the founders and due diligence of security.

Investing in new cryptoexchanges from the ex top management of the high-profile exchanges (even those that failed) will grow, because these people have background and connections.

And we will definitely see some new successful ICOs and STOs of exchanges, because Venture Capital can not be attracted by everyone, and a good exchange eats up a lot of money and requires at least some funding. Exchanges that have completed ICO and STO would be more flexible with regard to AML and KYC + listing junk tokens as a means of additional income.

By the way, if the exchange conducts STO and informs in the prospectus that it will distribute dividends, then it will not be able to drive up the turnover using market making, since from every driven up dollar it will receive and distribute a few cents of the commission.

THE END
P.P.S.

We are professionally engaged in the collecting and analysis of BigData in various industries (IT, Marketing, Finance, Crypto, Venture), attracting investment, conducting STOs and ICOs, creating marketing and IR strategies.

Would you like to get a more detailed article and full list of traffic sources of exchanges?

Contact me by email: [email protected]

or message me in my LinkedIn or Facebook with a note — Exchanges Traffic.

Also follow me on LinkedIn, Facebook, Twitter, Instagram, Telegram, Medium.

mail: [email protected]

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Or Contact Dmitry

Dmitry Pshenin
Dmitry Pshenin (Moscow), Partner crypto fund | Marketing |Blockchain entrepreneur|Fundraise capital |Influencer …icobench.com
facebook: facebook.com/pshenin

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