Cryptocurrency Exchange Are Some Of The Most Lucrative Businesses In The Cryptocurrency Industry, Will Poloniex's Recent Performance Open The Doors For Other Firms?

There are only a few business models in the industry that make a consistent and reliable profit, regardless of the pricing of performance of the any specific coin on the market. 

Poloniex has been my absolutely favorite exchange since I originally began trading cryptocurrency, but I must admit that I did give up my search after I was on Poloniex for a few days. Poloniex in the past was always very fast, reliable, and seemed to be very professionally run and managed. While Poloniex has been recieving record level of users, volume, and trade amounts over the past few months, the site has been really struggling to keep up over the past few weeks. It has gotten to the point numerous times where it has been so slow that users can't enter into or exit positions, which is legitimately unacceptable for m any traders.

 Luckily I haven't been burned by not being able to submit a trade, but I did miss numerous positions that would have been winners simply because I was unable to enter into a position.  With the levels of volatility that have been present in the market recently, and delay or lag by an exchange can be absolutely devastating to traders. If there is one thing that cryptocurrency traders don't like, it is being held back by a slow or unresponsive site.

It may not seem like it but Cryptocurrency exchanges are complete cash cows, and are seeing higher profits and revenues than ever.

Over the past month Poloniex has seen higher levels of volume than ever before, and were really unprepared for the excess traffic to the platform. If both traders are 'low-level' traders who are trading under 600 BTC in a 30 day period, Poloniex brings in .4% (or 40 basis points) per trade. Even if one or both of the traders had a higher trading teir status, it is very unlikely that Poloniex recieves anything less than 15-20 basis points per trade. Not only do they get a direct cut of all currencies traded on the platform, but they also recieve 15% of the profit that lenders earn on the lending market. Over the past week Poloniex has been consistently achieving daily volumes exceeding 250,000 BTC, and when we consider that they are guaranteed to receive on average .2% of that volume, then it becomes clear just how lucrative and profitable the industry is. 

Individuals and traders who have been on Poloniex for some time are likely to give Poloniex a bit of time to recover from its recent delays and poor performance, but traders are not going to wait around forever. Although there currently are no exchanges that can compete on the same level as Poloniex in terms of volume on the order books, vokume, and tight spreads. Bitrex would likely be a fine solution for small traders or those looking to enter into a long term buy and hold position on a currency, it simply could not currently support the volume and trade capacity that high value and high level traders need. 

To be completely honest, I have very little experience with any other altcoin exchanges other than Poloniex, simply because I have never had any reason to. I assume that there are many other traders who have really only exclusively traded on Poloniex, but that may be changing soon if nothing changes. I know that the rise in activity on the site came rather quickly, but I would have thought and hoped that Poloniex had a more scale-able bandwidth solution in place. I have always been very impressed with Poloniex, but I would likely not remain loyal if the site doesn't improve or there was another reasonable option.

 Establishment of a legal and licensed cryptocurrency exchange is not an easy or quick task, which will make it much harder for new firms to enter the industry. 

I know that there are many small exchanges, exchanges in other countries,  and other options available to traders, but the fact of the matter is that the high volume and high value traders prioritize safety and security very highly. While I heard rumors of Poloniex attempting to pull an 'exit scam' in the past, the fact is that they are a licensed exchange within the United States and couldn't pull something like that the same way a small and unlicensed exchange could. This is not to say that they theoretically couldn't pull an exit scam, but rather they would be unsuccessful and caught immediately. This is not the case for many other exchanges, and that is a major deterring factor for high value and volume investors. 

Any firms or individuals who want to establish a cryptocurrency exchange to compete with Poloniex will need a very large amount of initial capital and time to have the possibility to become a licensed exchange. The government is very hesitant when it comes to cryptocurrency businesses, and the industry of cryptocurrency exchanges likely receive some of the most scrutiny. While I agree and understand that firms wishing to handle and facilitate high value trading need to be reliable and trustworthy, the length and complexity of the licensing process make it very difficult for new firms to be able to enter the market to provide any competition. 

Although cryptocurrency is generally not an investment that institutions and major firms make, a cryptocurrency exchange seems like it could be an excellent investment for large firms wishing to get their feet wet in the industry and  receive a steady revenue stream from it. Exchanges really don't have any need to keep their earnings in cryptocurrency, and could easily have all of their fees and other earnings instantly converted to their desired fiat currency. There really isn't much different between operating a cryptocurrency exchange verses any other investment platform, besides for the fact that cryptocurrency exchanges are likely much more profitable currently. 

I really hope that you enjoyed this post, and as always I urge you to leave any feedback, questions, comments, or discussions below. Thanks for reading!

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