Why invest in crypto and what are the potential rewards?

Even those who are not interested in cryptocurrencies have heard about them today: "Bitcoin has risen in price by 100%”, "Bitcoin has fallen in price by 30%", "Elon Musk called cryptocurrencies the best investment," "Elon Musk opposed bitcoin because of its energy consumption" and so on. Cryptocurrencies and blockchain have become two "hot" topics with the coronavirus. Investors rushed to the crypto market. Only some people are ready to invest in Bitcoin, but you can invest in the crypto market in another way - by buying shares of a crypto exchange company. How to do this and what advantages and disadvantages such an investment has, says Andrey Berezin, managing partner of the Raison Asset Management investment company.

What is a crypto exchange, and how many are there on the market

A crypto exchange is an exchange where you can buy and sell cryptocurrencies: bitcoin (BTC), Ethereum (ETH), XRP, DogeCoin, which is popular today, and so on. There are more than 5,000 cryptocurrencies today and more than 300 exchanges. As in any business, the main focus is on the market leaders — the top 5 regarding trading volume are Binance, Huobi Global, Coinbase, Kraken, and Bitfinex. Binance users, for example, buy and sell cryptocurrency worth $64 billion per day — in terms of a year, this is more than the revenues of Russia's federal budget.

What crypto exchanges earn

Today, crypto exchanges earn mainly on commissions from the purchase and sale of cryptocurrencies and on the storage of cryptocurrencies by institutional investors (investment funds and management companies). The more transactions are made, the more significant the amount, the greater the profit. That is why volatility benefits crypto exchanges: jumps in cryptocurrency quotes up and down. When bitcoin rises in price by 30% in a day and then sharply falls by 20%, the owners of crypto exchanges "rub their hands." However, it is still more profitable for them to increase the value of cryptocurrencies since it attracts new investors and traders. Last year — from April 2020 to April 2021 — bitcoin, Ethereum, and other cryptocurrencies rose in price on a record, directly affecting crypto exchanges' revenue and net profit. On May 13, the Coinbase crypto exchange published financial statements for the first quarter 2021. The figures are impressive: the company's net profit in the first quarter was 24 times higher than the exact figure for the first quarter of 2020.

Why invest in Crypto Exchanges: the potential for profitability

Investors usually evaluate the potential of a public company based on its historical profitability, adjusted for future growth. This cannot be done in the case of crypto exchanges because this business is too young, but it is possible to assess the potential of the crypto market in general and its players in particular. It is worth explaining that the crypto market is not only cryptocurrencies but also smart contracts, decentralized applications (dApps), decentralized finance (DeFi), and “hype” non-interchangeable tokens (NFT). Cryptography and blockchain are vast industries that are just emerging and can radically change our lives in the coming decades.

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