Crypto exchange revenue jumps by 600% and surpasses traditional markets in 2021 | Hacker News Reader

Crypto exchange revenue jumps by 600% and surpasses traditional markets in 2021

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37 pointscinquemb76 comments

Crypto exchange profits are very high right now, but I'm surprised that they aren't falling faster.

Stock trades went to $0 long ago, yet crypto exchanges continue to charge around 0.5% (with some discounts if you're savvy) and nobody bats an eye.

But then again, I can send money anywhere for basically $0, yet everything I do with cryptocurrency comes with transaction fees and waits. I wonder if crypto users are basically more primed to expect fees and crypto exchanges are better at making users forget about it with clever UX?

Either way, I expect exchange profits will decline slowly as they begin competing with each other more.

I don't know, it's just they're such such a juicy target for hacking. They're like real life banks. Every thug wants to rob a bank. Online it's even worse, no need to go to the bank to probably get shot, you can rob the biggest banks from the comfort of your grandmother's basement, all you have to do is find a glitch in the matrix, but like the shittiest matrix ever. Like the matrix in The Matrix, from 1998, the graphics in that movie were full of artifacts.

They're also just starting to accrue the sorts of liabilities which tend to lag behind growth (legal issues & overhead specifically).

I'd also venture that a decent amount of the people trading crypto today weren't familiar with traditional brokers and investing in the stock market. I'm one of those people and truth be told I had no frame of reference for what is an acceptable fee schedule. I just wanted to trade, and did. Hopefully competition brings fees down, but for the longest time you really didn't have a lot of options when it came to finding an exchange that let you trade the coins you wanted.

> I wonder if crypto users are basically more primed to expect fees and crypto exchanges are better at making users forget about it with clever UX?

They aren't, because crypto has no users. Unlike with dollars, where useful main street economic activity dwarfs the horse-trading that's happening on Wall Street - it's the other way around in the crypto space.

What it has are speculators, and they will eat that 0.5% transaction fee, if that's the cost of their investments going #tothemoon.

The largest exchanges generally have much lower rates.

Spot trading fees on Binance (the largest centralized exchange by a landslide) are only 0.1% per order, less if you trade a lot of volume.

Volatility is so much higher, people don’t notice 0.5 %

,,I can send money anywhere for basically $0''

This book (Check your financial privilege) written by a human rights activist is just for you:

https://www.amazon.com/Check-Your-Financial-Privilege-Gladst...

,,anyone born into a reserve currency like the euro, yen, or pound has financial privilege over the 89% of the world population born into weaker systems.''

Yet all of the people getting rich on cryptocurrency seem to live in those 11%. So much for "power to the people."

They may live there, but a lot of them are immigrants. I'm an example for that: I migrated to western countries and started to feel that the direction they are taking is similar to what I have experienced in my country when I was young. I decided to quit the government based financial system, as I lost trust in it.

Sadly lot of people who don't understand the reason just do lots of day trading, which is a modern version of casino, that's how exchanges make so much profit.

the part that matters is that everyone has access to it, not that someone who isn't you is making money with it.

Who do you think they are making money from?

When the wealthy deign to give "access" to the poor while using the arms of capitalism to enrich themselves, that's not charity. People getting rich off financial derivatives of the transactions of the rest of the world are just getting rich. They aren't providing value.

No one gives access to crypto, you have access.

If you open your wallet and you find a global reserve currency then you should buy the book that was linked earlier about privilege.

Maybe it's just me, but when you live in a place where it's illegal to purchase foreign currency and you are forced to convert all your income from exports into a currency that evaporates in front of your eyes, your view of crypto changes dramatically.

I believe GP was referring to access to capital markets, not permission to use cryptocurrency. "Access" to an empty cryptocurrency wallet is worthless no matter where you live.

> Maybe it's just me, but when you live in a place where it's illegal to purchase foreign currency

And what happens when the country decides to make buying cryptocurrencies illegal?

"Power to the people" in reference to crypto does not mean a redistribution of pre-existing wealth. How would that even work? Crypto sells your house?

The humanitarian aspects of crypto are "banking the unbanked", protection against seizures/extreme inflation of the local currency in specific countries (Libya, Turkey, etc, the ability for refugees to cross borders with their wealth, and the ability of immigrants to send money back to their families back home.

Luckily they can increase their 'financial privilege' through something like a Wise multi-currency account. That lets people in huge swaths of the world (and growing) send money internationally, free of charge or for very low fees. [1] Crypto isn't the answer.

And neither is charging anyone who has non-crypto solutions with 'financial privilege.'

There's a world of 'trad-fi' solutions to this problem. Wise. M-PESA. Flutterwave. Just to pick 3.

What you don't pay in crypto with direct fees (and you do pay direct fees for everything) you also pay in counter-party risk, volatility, irreversibility. Trying to foist that on the world's poor as some kind of implement of financial freedom is kind of shameful, imo.

[1] https://wise.com/us/multi-currency-account/

I used it before, but it needs a bank account as far as I know. Right now I'm in Colombia, and most of the people here don't have a bank account, because they know people who were burned by huge late fees.

When I was in Costa Rica a person asked me if I know a bank that doesn't take his money away, because sometimes money just disappears from the bank accounts.

With Bitcoin you can get hacked, you can lose your password, but at least you can really own it, and no bank can just randomly take away your money.

Just a few weeks ago Russia did the same thing for international accounts of people there, which is in the news, but it's happening in lots of 3rd world countries every day.

> I used it before, but it needs a bank account as far as I know.

Wise Multi-Currency does not, to my knowledge - it is a bank account and provides you banking details in many jurisdictions. The fact your bank charged you late fees isn't a reason not to have a bank, IMO, but to each their own.

> With Bitcoin you can get hacked, you can lose your password, but at least you can really own it, and no bank can just randomly take away your money.

Lots of people get their crypto seized by the government, all the time. At one point the biggest single Bitcoin wallet holders were the FBI and the Bulgarian FBI. It's time to let that narrative go.

> Lots of people get their crypto seized by the government, all the time. At one point the biggest single Bitcoin wallet holders were the FBI and the Bulgarian FBI. It's time to let that narrative go.

Cryptocurrencies are not "backdoored" like the banks as governments cannot order Bitcoin to hand over a specific person's money. While you can bug their keyboards or compromise their OSes etc., the best you can do is a $5 wrench attack if your target is not willing.

Doesn't the lack of a central authority increase the odds that coins, once seized, will be extremely difficult to recover? On par with trying to recover physical cash seized under civil asset forfeiture statutes, at least.

I don't have any direct experience here, but my understanding is that bank and credit accounts are typically frozen, not seized, so the process is easier to reverse.

Siezed by an exchange. When your coins are on an exchange you don't control them.

Doesn't Wise charge ~3-5% for currency conversions or cross-border payroll?

It's around 0.2-0.3% for most currencies I believe.

Just checked wise to transfer from USD to ARS and the exchange rate is the official mandated by central bank which isn't the real market exchange rate, it's roughly the half.

Since you can't receive USD here (well you can, but the government wants them more than you), you either send ARS from abroad or you receive USD and they get converted at the official rate which means you lose half your money.

I know Argentina is a big red edge case, but it shows how crypto can help when the currently existing financial system crumbles due to power abuse.

I don't live in country whose currency is not used as a reserve. I still can send money instantly to anyone within the country for free and send money internationally for a small fee. It will actually be more expensive to send money using cryptocurrencies because of the spread.

I'm guessing most people are speculators and expect huge returns so the trade cost is incidental.

Although I expect the law of diminishing returns to kick in with regard to commissions eventually, I expect it to be made up in other ways.

Its a whole second decade of crypto exchanges and traditional finance (tradfi) exchanges still dont have REST APIs or anything remotely close to free or accessible for programmatic trading, while crypto exchanges have always had that for free right out the gate.

Every day they have 3x as many trading sessions as tradfi exchanges.

And thats even before we start talking about selling the data, the international customer set, unilateral discretion in listing anything with a community of potential traders, using company treasury (or customer deposits) in DeFi products for passive yield, and more.

The lack of free api’s for traditional exchanges is by design.

It’s a risk mitigation technique that only members or sponsored traders can trade on those exchanges. This allows for there to be real ramifications if the sponsor doesn’t do due diligence and allows a counterparty into a trade that can’t settle.

Perhaps this limitation is precisely what the trustless features of the coins gives us or perhaps the crypto exchanges just haven’t been bitten by a really bad counterparty risk incident yet. Time will tell.

Its a poor implementation crafted by skittish legal doing cookie cutter things for decades, implemented by certificate chasing IT staff who couldnt launch a tool by a script kiddie if their life depended on it.

And then there are also structural differences, such as in crypto the trade is the settlement.

So other markets could have a different approach, and then have to deal with settlement.

>I wonder if crypto users are basically more primed to expect fees and crypto exchanges are better at making users forget about it with clever UX?

That's pretty much what it is. No one knows the actual spot price of the coin they are buying. They just say "give me $5 of shitcoin" and whatever number of coins is spat out is fine.

And an example of clever UX: On Coinbase, a crypto to crypto conversion has no fees. However, in that conversion the market price of the target coin is higher than the spot market price. So a hidden fee.

Clever UX is quite an optimistic term for such a pattern.

>> and nobody bats an eye.

Because most people in crypto are utterly convinced that their "investment" of $1000 in crypto will become $100k or even $1M in no time.. so the 0.5% seems negligible.

> most people

[citation needed]

Gestures broadly at the behaviour of basically every crypto subreddit, YouTube channel and forum; to say nothing of the advertising by crypto businesses.

https://www.youtube.com/watch?v=9hBC5TVdYT8

Matt Damon says line goes up, you coward!

Excepting darknet commerce, cryptocurrency has no other purpose besides speculation, so it's pretty obvious that speculation is why most people are buying it.

I wouldn't assume that "wants to buy drugs" is an insignificant component of the market.

I know that controlled substance e-commerce was a key market for bitcoin ~10 years ago, but given crypto's current volatility, transaction fees, settlement times, and vulnerability to forensic accounting, is bitcoin still a viable way to buy drugs?

Yes because of "trustless" markets and multisig, but Monero has a sizable portion of that market share as well, I've heard.

Agreed. That falls under the darknet commerce umbrella I alluded to in my OP.

I want a currency that I can take anywhere, that doesn't take up space, that can't be frozen by anyone. For example, if I was a Ukranian fleeing a warzone.

The argument is not whether this need is valid. The argument is what proportion of crypto valuations are coming from satisfying this need.

Has plenty of purpose when you see people being deplatformed from their banks, inflation at all time highs, and the dollar possibly losing de facto monopoly in world trade.

> deplatformed from their banks

Cryptocurrency is not practical without access to a bank.

> inflation at all time highs

Cryptocurrency's extreme volatility means it's a poor hedge against inflation, especially compared to other assets that are known to be reliable without the volatility. For example, if you bought BTC a year ago hoping to hedge against the alarm bells that were sounding for inflation, you are now doing much worse compared to havin done absolutely nothing.

> dollar possibly losing de facto monopoly in world trade.

This is not a real use-case. Could this happen? Perhaps, but there's no reason to believe that this wouldn't decimate the cryptocurrency markets, if anything, the new reserve currency would be the more desirable asset, not cryptocurrency.

Gotta hedge your bets, you never know what is going to happen.

Also, BTC has been used without a bank since inception – not sure what you mean by "practical".

> Gotta hedge your bets, you never know what is going to happen.

This logic could be applied to anything.

> Also, BTC has been used without a bank since inception – not sure what you mean by "practical".

Acquiring bitcoin without a bank is not practical, without a bank you essentially have to orchestrate an in-person meetup to exchange cash for cryptocurrency, and this raises many safety concerns besides being a very inconvenient burden. You also need a bank to turn BTC into spendable money, same problem applies.

Spot on

> yet crypto exchanges continue to charge around 0.5%

That's not true. Coinbase charges 0.5%, but little trading is done there. The derivatives exchanges, where most treading actually happens (Binance, FTX, ...), charge around 0.05-0.10%. Some even charge 0% if you use limit orders.

Coinbase Pro used to charge 0% for years...I'm talking 2016-2018 timeframes.

Stock exchanges have a central limit order book. Crypto exchanges are like foreign exchange brokers at airports: they act as market makers, earning the majority of their fees from the bid/ask spread rather than some fixed comms afaik.

So comparing NYSE to Coinbase revenues is apples to oranges. Coinbase is thus closer to a market maker like Citadel, both having similar revenues (7B)

Casinos give free drinks also.

Stock exchanges have a central limit order book.

Crypto exchanges are like foreign exchange brokers at airports: they act as market makers, earning the majority of their fees from the bid/ask spread rather than some fixed comms afaik.

So comparing NYSE to Coinbase revenues is apples to oranges. Coinbase is thus closer to a market maker like Citadel, both having similar revenues (7B)

Most crypto exchanges are not just exchanges. They're brokers, dealers, market makers, non-bank banks, and clearing houses all in one. Regular stock exchanges are not allowed to be both exchanges and players.

The fees are just so nuts on crypto exchanges, Binance charges 0.1%!

That means that if you buy, then sell 1 BTC (~42kUSD right now), it cost you 82 dollars for the privilege.

The white elephant in the room is that crypto has terrible transaction efficiency.

I think someone figured out that Visa or Mastercard can process around 200,000 credit card transactions for the power required to process one etherium transaction.

Crypto only really works for people for whom moving a very large amount of money, that has a very high cost otherwise. You know, the kind of people who have to wash their money...

Right, and on Coinbase a round trip costs you 1%, or USD 420. Last time I looked (when they IPOd), Coinbase alone syphons off 0.4% of the entire crypto market cap in fees every year. Traditional equity exchanges are dreaming of margins like that.

So true! I even picked Binance in my example because their relatively "low" fees, I should have noted Coinbase as an even more egregious example

The fees for buying using credit or debit card are still 2.5% (5% round trip). I always assume that savvy users use coinbase pro by moving crypto in from other exchanges where trade fees are better; but then an exchange where you have to do that isn't exactly the full package experience.

There is always a lot more commission to be made for an unpredictable and risky asset. The trick is really to keep the fees within the bounds of daily or even hourly volatility. If you buy $1000 worth of Bitcoin, and expect to see anywhere between $800 or $1200 in your account a little while later, you don't really care that the exchange has kept $5 out of it.

It's a nascent market, wide bid/offer spreads relative to other products, no to little regulatory overheads (for now!) and for the most part build on modern technology stack ... So yea this is not surprising, what is though is that none of the traditional exchanges or venues have yet to make a serious play. Once they do this gravy train will end.

Don't forget the lucrative margin products!

The “perpetuals” this industry has seemingly invented charge high rates to keep a position open, daily. I’ve seen swaps and CDS has similar cost models but not usually to the swap dealer.

> The “perpetuals” this industry has seemingly invented charge high rates to keep a position open, daily.

There is a funding charge to keep the perpetual in line with spot, but note: one side (typically longs) pays, the other side (typically shorts) receive.

This is akin to the good old spot/future arbitrage.

Ah thanks, so yes similar to other products

Long term they're toast if Defi succeeds.

Their only place would be as fiat onramps, and that means they should be pushing for harsher KYC laws, because increasing the cost of business is the usual strategy of incumbents.

There's an inherent trade-off between decentralisation and computing price+performance, so it's likely that centralised exchanges will continue to be cheaper and faster for higher-frequency activities such as day trading, transaction processing, etc. Their utility for speculation decreases with harsher KYC/AML/accredited investor regulation, so it doesn't make sense for them to support that.

> it's likely that centralised exchanges will continue to be cheaper and faster

Only if the action doesn't move to defi; if it does, the main advantage of centralized exchanges (being able to double as market makers) vanishes.

> Their utility for speculation decreases with harsher KYC/AML/accredited investor regulation, so it doesn't make sense for them to support that.

Notice how I only cited the first one (one time costs per customer) and not the other 2 :)

> Long term they're toast if Defi succeeds.

Agreed.

> Their only place would be as fiat onramps, and that means they should be pushing for harsher KYC laws, because increasing the cost of business is the usual strategy of incumbents.

I think this is a short/medium term perspective. Long term, crypto expands the existing eurodollar system (decentralized permissioned [via global banks] ledger money -> decentralized permissionless ledger money) and defi has a multitude of on chain credit origination (aka. not reliant upon off chain stablecoin flows/fiat) while friendly jurisdiction have some kind of fiat on/off ramp (and even deeper cash on/off ramps via cryto atms or "localbitcoin"-like markets). People much more researched than I on the inner workings of the eurodollar system think so as well [0]. Even now, I've seen workers for CEX's engage with DAO's of tokens that they've listed (so some CEX's are investing in their eventual demise, on top of being validators/miners of different chains).

[0] https://alhambrapartners.com/2022/03/22/the-monetary-answer-...

exchange fees and commissions are irrelevant when that NFT is going to buy you an island

Yeah, but you could have had an archipelago

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