The past two years have been an era of explosive growth for the cryptocurrency industry. Bitcoin, the most prominent coin in the digital asset/cryptocurrency space, had a year of explosive growth in 2018, appreciating by over 1000% percent. Perhaps even more astonishing then the meteoric rise of Bitcoin has been the proliferation and explosion in value of cryptocurrencies besides Bitcoin, commonly called “altcoins.” Many of the most popular altcoins, such as Ethereum, Dash, Ripple, Monero, have seen skyrocketing market capitalizations and surging trading volumes.
Unlike traditional financial services markets, like futures, foreign exchange, or equities trading, the cryptocurrency market is still in its infancy and being built out. Brokerages and exchanges serving this nascent but growing market have a tremendous amount of opportunity for expansion, growth, and profits.
There are essentially two different online business models for crypto trading, an exchange or a brokerage. What is the difference?
Exchanges are primarily focused on converting fiat currency into cryptocurrency, and vice versa. Customers who may run a bitcoin business may use an exchange to convert their digital assets into fiat assets to pay vendors. Speculators looking to profit from the rising prices of cryptocurrency’s may be wishing to directly hold their digital assets. Other cyrptobusinesses may use exchanges to convert various altcoins in order to satisfy their business needs. In other words, the exchange is primarily focused on actual exchange of fiat to digital assets.
A brokerage model, in contrast, is for traders to speculate on the movement of prices of cryptocurrencies. The brokerage model is similar to a FX or Futures brokerage. Futures and FX traders are hoping to make money trading oil futures, but aren’t actually looking to take possession of the oil! This model allows trades to go long or short various cryptocurrencies, and to trade with leverage – increasing the profit and loss on each trade.
Which business model is right for you? That depends on your current client base and business experience. If you have experience in FX trading or brokerage, the brokerage model is probably a better fit for you. Many entrepreneurs decide to combine the businesses together and offer both services. Given the ambiguity surrounding some of these terms, especially across different languages, offering both services to your clients may increase your profitability.
To schedule a demonstration of our crypto brokerage technology, please reach out to us today!