As the popularity of cryptocurrencies continue to ramp up, so too does the demand for platforms to facilitate trading. As of October of last year, the total 24-hour trading volume of these platforms was $112 billion… that’s nothing to snicker at. And we’re seeing fintech companies partner with crypto companies to widen their offerings to customers… like in July of last year, when Visa made the announcement of partnerships with dozens of crypto companies, such as FTX, Coinbase, and BlockFi.
What we’re looking at here is a space rife with opportunities, and significant funds are being raised for these exchanges by venture capital firms. As of now, there are about 600 cryptocurrency exchanges operational worldwide. Some key players in the space to know include BlockFi, Coinmama, eToro, Coinbase, Binance, Kraken, Bitstamp, Coincheck, FTX, and AirSwap, Crypto.com, Gemini, KuCoin, Bitstamp, and Bittrex.
How It Works
At its most basic, a crypto exchange is a marketplace for cryptocurrencies that connects buyers and sellers. Users can create an account to buy, sell, and speculate on the crypto market… some have more bells and whistles than others. On some, there are advanced features like futures trading, margin accounts, crypto staking, crypto loans, and crypto education. There are two main categories of exchanges: centralized and decentralized.
Centralized exchanges are managed by a single organization and are easy to navigate, so they are great for beginners. However, they have drawn some ire from the community because they seemingly violate the first rule of crypto (anonymity) by collecting data about customers, such as their identity, in what’s known as Know Your Customer (KYC) rules.
While advocates of KYC point out it’s necessity in the combat of fraud and money laundering, proponents of complete anonymity argue that it’s a control mechanism and makes insider trading and the manipulation of the market easier by shutting some people out, gatekeeping the space, and making it hard to participate at all.
Additionally, hacks of these exchanges are a problem. This is because, unless a user moves their crypto to an offline, cold wallet, actual assets are held by the exchange itself. This makes assets vulnerable to theft through hacking. The saying in the crypto space is: if you don’t have it on cold storage, you don’t own it… consider it already gone.
Next, there are decentralized exchanges. These exchanges distribute responsibility for facilitating and verifying crypto trades to anyone willing to join. The argument here is that this helps increase accountability and transparency and ensures that the exchange can keep running, regardless of what happens to the company that created it. However, there is a tradeoff.
These exchanges are not easy to use, so there is a barrier to entry for newcomers, both from interface and currency conversion, as it’s not always possible to use fiat to exchange for crypto. So, you must either already own the currency or use a centralized exchange to acquire crypto, then migrate it to the decentralized exchange. And, since users engage in direct, peer-to-peer trades, it can take time to find buyers and sellers may have to make adjustments on those trades based on certain factors.
Deals To Watch
Last year we saw crypto exchange heavyweight Coinbase delight investors with a highly successful IPO, exceeding a market cap of $100 billion the day of the event… crypto exchanges are busy bees these days, and demand is only soaring higher, despite the choppy waters of the market. On our radar are three companies in this space preparing for IPOs: MaiCoin, Binance.US, and Blockchain.com.
MaiCoin is a Taiwanese crypto exchange founded in 2014. The company is reportedly completing a Series C funding round in preparation of a debut on the NASDAQ… although, a firm date has not yet been set. The funding could be valued at around $400 million. The company’s IPO would be a rare accomplishment as only a few companies based in Taiwan have done so in the U.S. recently, so it’s worth mentioning. The exchange expects trading revenue to increase more than 70% annually through the next three years.
Binance.US, launched in 2019 and headquartered in San Francisco, is one of the largest digital asset exchanges by trading volume in the U.S. In preparation for an IPO, the firm raised over $200 million in first seed round funds, putting its pre-money valuation at $4.5 billion. Among the company’s investors are Circle Ventures, Foundation Capital, and RRE Ventures. No firm date has been set yet for the IPO.
Blockchain.com is a startup exchange and financial service provider, and competitor to crypto exchange giant Coinbase. The company, which was founded in 2011, allows people to buy and store digital assets like Bitcoin and Litecoin. The company is now in talks with U.S. banks regarding an IPO at some point this year and is valued at around $14 billion following a funding round with global venture capital firms that raised $200 million.
It might be argued that the type of person who would play the crypto game at this time is perfectly happy wading in high levels of risk, it’s invigorating… but could it be that those paying attention are just early seeing the potential in this space, so the risk is worth it? Watch my Buy List to see if any of these exchanges make moves that prove them worthy of our investments, and we’ll keep bringing you the latest in the world of IPOs.