What is the size of the Crypto Market?
Googling this question results in various types of answers, none of which truly satisfied me. The organic answers are mostly around market caps for crypto or numbers of wallets in the market. What I really wanted to know is how much wealth is the market generating for the companies operating in this industry. More specifically, and excluding appreciation of crypto assets, I wanted to know how much are companies in the space earning in Revenues and Fees.
Since I couldn’t find an answer that satisfied me, I decided to calculate some on my own, understanding that this is back-of-the-envelope, prone to change with market swings, and based on macro assumptions. This is an attempt to get a quick understanding of the order of magnitude of the different major revenue streams being generated in the cryptocurrency market, starting with Trading- the buying and selling of crypto which composes the bulk of the market today.
Centralized Exchanges: US$ 12.8 BILLION
Fun fact: the vast majority of crypto activity happens “off-chain”, that means in the hands of custodian exchanges / market makers and not in transactions on the Blockchain. If a fraction of these transactions were to happen “on-chain”, the Bitcoin network would have been overwhelmed already.
Using data from CoinMarketCap we can observe that 24hr trading volumes for the market, as of July 12, have been around the US$ 70 billion mark. If we take in consideration the assertions that most of the trading volume in these exchanges is fake (86% to 95%), according to recent reports from The Block and Bitwise, we get to a number closer to a US$ 7 billion daily volume traded in exchanges.
US$ 7 billion generates approximately US$ 35MM in daily trading commissions (average of 0.5% commission between maker and taker fees), which is the equivalent of US$ 12.8 billion per year.
OTC (Over The Counter): US$ 7.7 BILLION
OTC trades happen via a broker that connects two parties who want to do a high volume trades. Collecting data on these markets is hard as they are self-reported and not readily available and fee structures may vary from trade to trade based on what the broker is able to get in terms of spread. The biggest players here are Circle, which moved US$ 24 billion in 2018, Genesis Trading, and Octagon Strategy.
In April 2018, Bloomberg reported that the daily OTC market was anywhere between US$ 250 million and US$ 30 billion per day. Bravecoin reported that same month that the daily OTC volumes were three times the size of exchanges volumes. Given that we estimated above that real daily crypto volumes on exchanges are close to US$ 7 billion, using Bravecoin’s 3x assessment, that would put daily volumes at around US$ 21 billion. If we assume 10 basis points as a reasonable spread to broker these large blocks, this would imply yearly trading revenues of US$ 7.7 billion for OTC brokers.
Decentralized Exchanges: US$ 4.8 MILLION
Decentralized exchanges are networks that facilitate direct swapping of assets between users using peer to peer smart contracts to. Decentralized Exchanges (or DEXes) were becoming increasingly popular but had a slowdown in volume in 2019.
Using DEX Watch as our primary source, we observe that approximately 40,000 ETH have been trading per day across the major DEX platforms like IDEX and Kyber. With Ethereum price at around US$ 220, this means that approximately US$ 8.8 million trade per day, or US$ 3.2 billion on an annualized basis. Commissions in DEXes are lower — on average 0.15% between maker and taker fees. Therefore we estimate that the DEX market generates around US$ 4.8 million per year in revenues. I may be off by quite a bit, but the reality is that this market is still orders of magnitude behind traditional centralized exchanges.
The total market size in terms of yearly revenues for the crypto market is around US$ 20 billion taking into consideration the highest grossing sources of trading — OTC and Exchanges. There are other areas that are interesting to analyze, but which, I would estimate wouldn’t add more than US$ 500MM in yearly revenues to the overall pie. These other revenue streams include.
- Crypto Credit & Lending (margin lending, derivatives, custodial credit, non-custodial protocols, and token-based platforms)
- Blockchain Consulting / Consortia / Advisory
- Tokenization (real estate, equities, assets)
- Stable Coin Issuance
- Legal & regulatory advisory
- M&A advisory
Feel free to message me on Twitter @adovalle or comment below if you have any thoughts, critiques or additions to these market sizing numbers.