There’s Something About ‘Exchange Tokens’…
If you’re interested in cryptocurrency investing then you are in luck as there is no shortage of cryptocurrencies to choose from.
In the last decade, the cryptocurrency industry has exploded from a single (bit)coin to now over 10,000 different cryptocurrencies. With all these choices and new coins added daily, the crypto investor is faced with an important question — Where do you start and how do you find the best investment?
One method would be to look for trends or patterns that exist within the top 100 cryptocurrencies by market capitalization and then extend those patterns to emerging coins.
For instance, an interesting anomaly that exists within the Top 100 cryptocurrencies is the seemingly disproportionate number of exchange tokens that have reached impressive market rankings (such as the Binance coin, Huobi token, and KuCoin).
A Closer Look at Market Sectors
Is this an anomaly or trend? To get a better idea and for comparative purposes, let’s look at the market as a whole. Exchange tokens are just one sector within the ever-increasing cryptocurrency market that contains a multitude of different sectors. By some estimates, there are over 20 different definable sectors within the cryptocurrency market including:
- Financial Services (4.23%)
- Exchange (3.55%)
- DeFi (3.44%)
- Oracle (1.05%)
- Business Services (0.9%)
- Marketplace (0.45%)
- Gaming (0.36%)
- Computer (0.35%)
- Virtual Reality (0.3%)
- Advertising (0.28%)
- Entertainment (0.27%)
- IoT (0.26%)
- eCommerce (0.19%)
- Storage (0.16%)
- Social (0.16%)
- Meme (0.13%)
- Communication (0.10%)
- Debit Cards (0.09%)
- Identity (0.05%)
- Gambling (0.04%)
- Healthcare (0.03%)
Although this is not an exhaustive list, it does give us a sense of the makeup of the cryptocurrency market. Fortunately, we don’t have to compile this data as it has already been provided for by the team at Cryptoslate. According to them, exchange tokens make up 3.55% of the market and there are 228 exchange tokens in this sector.
With over $11.87 billion in market capitalisation, exchange tokens are one of the largest sectors within the market with seemingly incredible growth potential (see Binance) and certainly worthy of further investigation.
What Are Exchange Tokens?
Exchange tokens are typically created for use as a transactional currency — that is, to be used to buy and sell other cryptocurrencies on the exchange. An exchange token may be one of many transactional currencies used by the exchange.
In the early days, Bitcoin was the only transactional currency used by exchanges. Today exchanges offer a multitude of different currencies to trade from including Ethereum, Litecoin, Tether and of course their own exchange currency.
Exchange coins make up a decent percentage of the altcoin market and given recent success with the Binance coin — Is there something about exchange tokens that make them so popular (and profitable)?
The Binance Story:
For investors who purchased the Binance coin soon after it was released on July 7, 2017 (trading as low as $0.10) would have had the opportunity to sell the coin just two years later at a peak of $39.57 (June 22, 2019). According to Coinmarketcap, the Binance coin has achieved an ROI of over 9,000%.
Today, Binance is ranked as the 7 largest cryptocurrency in the world (by market capitalisation) and the exchange is only 3 years.
Is Binance an anomaly or do exchanges coins by virtue of their function offer an incredible opportunity?
Let’s take a closer look…
It may seem obvious, but exchange tokens are the perfect use case for a cryptocurrency and as a byproduct of this function has the potential to offer tremendous additional benefits to the parties involved, as has been seen with the BNB coin.
Taking a closer look at Binance, the exchange was founded in early 2017 and raised $15 million in ICO funding for the BNB token. Within the next 6-months the token was ranked as one of the top cryptocurrency exchanges in the world. Within it’s first year the exchange grew to over ten million users and earned an estimated billion dollars of profit.
How was this possible?
It was from July of 2017 until December of the same year that the price of Bitcoin went from $2,500 to almost over $20,000. This was a period of mass market demand on both the investor and project side. It was during this time many people first heard the word bitcoin.
Market Demand
Over the last decade (that cryptocurrencies have existed), there has been no better time to start an exchange than during early 2017. This certainly had a large role to play in the initial success of Binance. However, Binance success wasn’t simply a matter of good timing. Behind the coin stood a robust platform backed by a top notch team of experts.
Product Market Fit
Like any good start-up, after defining your audience, the next step is finding product market fit. For Binance this was matching up the needs of two groups of users, the investors and the projects interested in on-boarding. For both audiences, Binance excelled in their offering.
The platform itself is user friendly, stable and claims to have the ability to support an incredible 20 million users.
It’s not just a simple matter of your build it and they will come. The type of growth we have seen with Binance was also made possible with the excellent leadership of the executive team and management behind the project.
Team & Executive Management
The executive team behind Binance are no strangers to crypto exchanges. Changpend Zhao the founder and CEO of Binance had already built high-frequency trading systems back in 2005 (Fusion Systems) and worked as CTO at OKCoin before launching Binance. He was joined with CTO Roger Wang who also worked for OKCoin. Yi He (co-founder), also with experience from OKCoin, joined the team responsible for the marketing and branding for Binance.
Marketing, Branding & Advertising
It could be said that the continued growth seen by Binance is to a large extent due to their ability to reinvest their profits into the company and community.
The company allocates 50% of its funds towards branding and marketing which includes education projects and programs to support cryptocurrency projects and entrepreneurs in the space.
Ecosystem & Community
The continued success of any exchange is their ability to attract and support the onboarding and development of new quality projects. Binance has taken this one step further by helping to incubate and foster some of the best upcoming projects with its Binance Labs program.
Binance Labs was created to incubate, invest, and empower upcoming blockchain and cryptocurrency entrepreneurs and communities. By helping others, they are also helping to secure their own success.
What is the Next Binance…
There is certainly something about exchange coins. As this article is penned, Binance is ranked as the 7th largest cryptocurrency with market capitalization of over $3.3 billion.
Not bad for a company that is only 3 years old!
Whether Binance is seen as an anomaly or not, what this company has done is shown the cryptocurrency community the potential of what’s possible. What’s possible is made possible by the people and community supporting it.
However you define the success of Binance, it may just simply be a matter of success from good business, good team, hard work, and solid principles. As for the next Binance, will likely also share these same characteristics.
Trade safe,
Richard
