What makes Bitcoin exchanges tick
What makes Bitcoin exchanges tick
Exchanges provide trading services, mostly they trade currency but it can be a commodity as well. For providing this service they require fees and have their penny through it. Although it’s not as easy as it seems, especially when we’re talking about the cryptocurrency. This brand new market can bring you a good profit, but it’s very risky as well. That’s why many people have a lot of questions on how Bitcoin exchanges make a profit, what keeps them afloat and, by the way, why cryptocurrency.
The more you dwell on cryptocurrency and go into all the details of the mechanism underlying it, the more you understand how big the concept of cryptocurrency is. Although the financial system wasn’t really ready for such a phenomenon, it is so far believed to change the future of finances.
Have you noticed that sometimes different exchanges have way too different prices for Bitcoin in one window of time? The reason for this is a high volatility of cryptocurrency. Of course regular exchanges also have price gaps, but they are not as vast, so you’ll always use the services of an exchange with more profitable prices and ignore the rest. The Bitcoin market is behaving a bit differently. Bitcoin entrepreneurs use this price gap in order to make profit, it is called arbitrage. In this way the exchange with higher prices will also have its audience. Arbitrage is nearly impossible when you’re dealing with regular currencies because they are more stable. That’s how at first sight a nonplus turns out to be a profit.
In 2017, Bitcoin is believed to be one of the most invested industries. There is a reason for that, take a look at Bitcoin price in USD and the intensity of its growth and you’ll get it. If you have spare money and risk awareness, there is no doubt that you should invest in the cryptocurrency. Establishing a Bitcoin exchange is a Herculean task, incredibly risky and expensive. However there is a substantial reason why some still run the venture of setting up the cryptocurrency exchange business.
Bitcoin exchanges – the first step on exploring cryptocurrency
When a person has at least slightly figured out how Bitcoin works, the next question he has is “How can I buy them?” There is a plenty of ways of buying, selling and earning Bitcoins, but it’s a known fact that buying Bitcoins from the exchange is the easiest one. And that’s what newcomers do. So in most cases, exchange is a sort of a gate to the Bitcoin world for a newcomer. And since the crypto industry is only beginning to collect its audience, thereafter an essential part of which is novice, exchanges are certainly ensured with a considerable part of it.
Today almost every major exchange has a set of various services, not only the buy/sell opportunity, but also wallet integration, margin trading and so on. It plays into their hands, because, again, exchange is the first step of every newcomer. By providing him with different useful services, this exchange indemnifies itself from having their clients using rival ones. It may sound strange, but for most it is very convenient to “have all in one place”: buy, store, trade and sell BTC using the same website.
To sum things up, let’s review the main strategy. There’s a person who got things straight with Bitcoin and now is willing to buy some. He visits the exchanging website, goes through all the required procedures, eventually buys Bitcoins. If he decides to sell them, he needs to create a wallet. If there is one on this website there’s a 99% assurance that he will use it. The same happens when he decides to sell Bitcoins, or maybe try margin trading.
Hardships on the way. Is it a brake or a prompter?
Let’s figure out what are the hardships, but first, one clarification – we’re not talking about the difficulties of setting up a specific exchanging business, the issue is about the whole Crypto exchanging market.
The first issue that immediately comes to mind is an indefinite status of cryptocurrency in various countries. It is a problem, because it halts the development of the whole industry. Think of China, considering the fact that its government doesn’t accept Bitcoin as an official means of payment, the Chinese are still a target group of the blockchain. Most of mining is done in China (about 60%). There are plenty of ways to buy Bitcoin in China and a lot of exchanges established there.
Japan is also a good example, since Spring 2017 Bitcoin has officially been used there and this fact greatly affected the development of the whole market and, obviously, the exchange rate. Can you imagine how intensively the market will develop if China finally accepts it? Although, the acceptance is still an issue to Bitcoin, it’s not a brake and even a prompter, maybe it’s just the way things should go and there’s no need in hurrying them up.
A headache for the exchanges but definitely a prompter to the industry is the licensing and certifying of the business. Within years this process is getting harsher, displacing the unreliable players. The Bitcoin fever have already begun and everyone tries to conduct business in this sphere, resulting in diverse services that, unfortunately, not always correspond to an appropriate level of quality and, what’s more weighty, the level of security. So the necessity of strict standarts is extremely relevant. The CEO of CEX.IO has shared his thoughts on the nearest future of the Bitcoin exchange market, he said that the small-niche platforms wouldn’t be able to survive the strict regulation and what we’ll see is a purifying of the market, with only the top players remaining.
Bitcoin exchanges are getting ahead of the miners, who mine Bitcoins and then put them into circulation, thus the exchanges are those who feed the circulation. But, how they say in a famous movie: “With great power must also come great responsibility.” And that’s absolutely true about the exchanges, because they serve as a guide for newcomers, who have decided to enter the world of cryptocurrency.
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