How do cryptocurrency exchanges make their money?

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In April 2018, the world was stunned when Binance announced higher profits than Deutsche Bank. That makes running a successful cryptocurrency exchange one of the most profitable businesses on the planet. How do these crypto exchanges make so much money?

Exchange Fees

Like any market, the main value the cryptocurrency exchanges provide is a long line of cryptocurrency buyers and sellers. In short, cryptocurrency exchanges are market makers by bringing the buyers and sellers of cryptocurrencies together. To do this successfully, a cryptocurrency exchange needs to have a lot of users and that usually requires:

  • Development of a beginner friendly exchange platform.
  • Millions of dollars spent on marketing.
  • Referral programs.
  • Running promotions to attract new users.
  • Develop easy to use mobile apps.
  • Provision of good customer support.
  • Establish a trustworthy reputation.

Needless to say, all this costs a lot of money to do properly. When you pay fees to an exchange, this is essentially what you are paying for.

What Do You Pay Fees For?

Every time you buy or sell cryptocurrency on an exchange, you pay a fee. For every trade made, the customer will pay the exchange a fee of around 0.1% or greater. That may not sound like very much, but remember that at the time of writing over $13.5 billion is traded on exchanges every day. 0.1% of that $13.5 billion amounts to $13.5 million in exchange fees paid every day.

For cryptocurrency exchanges, 0.1% is a low fee and it doesn’t take into account over the counter trades or contract for difference brokers either. Your plain vanilla cryptocurrency exchanges are probably collectively pulling in close to half a billion dollars every month in trading fees.

However, there are other fees as well. Every time you make a withdrawal, you need to pay the exchange a fee. This varies according to the exchange, but it can reach a couple of dollars per withdrawal. The common wisdom in cryptocurrency is that you should store your cryptocurrency in your own wallet and this means paying the exchange withdrawal fees.

Those are not the only fees that exchanges take. When depositing fiat currency onto the likes of Coinbase, your deposit method will have a significant impact on fees. If you’re using a credit or debit card to buy Bitcoin on Coinbase, you will be charged a 3.99% fee. In contrast, a bank transfer is completely free.

Business To Business Revenue

Cryptocurrency exchanges do not publicly advertise their exchange listing fees. However, it’s widely reported that cryptocurrency projects commonly pay in excess of $100,000 to get their coin listed on a good exchange. Some ICO founders have reported being quoted prices as high at $1 million for an exchange listing.

Now consider that many cryptocurrency exchanges have over one hundred cryptocurrencies listed. Imagine if just 50% of those listings were paid for at a price of $100,000. That would net an exchange a cool $5 million dollars in additional revenue.

The truth is that the top exchanges probably charge a lot more than a $100,000 for an exchange listing. However, this just goes to show how lucrative exchanges can be.

Final Word

Right now, there are many people questioning whether crypto exchange fees are excessive. It is important for all cryptocurrency investors to understand the fees they are paying and to be given the facts. This way cryptocurrency investors can vote with their feet. It’s on you to decide which cryptocurrency exchanges you wish to give your business to. However, if you need a bit of help deciding, then just check out this detailed guide to finding the Best Cryptocurrency Exchange.

For more insights and information on the cryptocurrency market, please do stop by my blog at TotalCrypto.io.