Who will profit from the Bitcoin boom?

May 31, 2021 Blockchain

Since the end of last year, Bitcoin has been setting new all-time highs in its soaring market, which has also caused a lot of money and attention to flock to the market.

Tesla announced that it purchased $1.5 billion in bitcoin in January of this year, and as the price of bitcoin rose to a recent high of $58,000 at one point, Tesla made more than $1 billion in profits from its bitcoin purchases, more than the $720 million Tesla made in profits for all of last year.

Just last week, tech giant Amazon's cloud technology provider AWS announced full implementation of Ether on its blockchain hosting service Amazon Managed Blockchain (AMB), becoming an example of how blockchain and cloud computing technologies can be combined.

Cathie Wood is keeping the faith, even in the face of Bitcoin's massive plunge that Bitcoin has the potential to reach trillions of dollars in market cap and will remain around $400,000 for a long time.
 
And Bill Gates, who was a fierce critic of bitcoin in 2018, also said in a recent interview that his attitude toward bitcoin has shifted from negative to neutral, with Gates saying he doesn't hold bitcoin, but won't short it either.
 
In the U.S. stock market, both technology companies that directly own blockchain businesses and companies that directly hold bitcoin assets have also become popular targets, with stocks soaring.
 
Compared to the bitcoin boom more than two years ago, institutions, large companies, and business leaders are taking a keen interest in crypto-assets and are starting to allocate real money to crypto assets in this rising wave.
 
Bitcoin is not the only crypto asset that is getting a boost. As of March 4, the top two cryptocurrencies on CoinMarketCap in terms of total market capitalization are BTC and ETH, with ADA and BNB in third and fourth place, respectively.

In terms of recent gains, BNB, the fourth largest crypto asset in terms of market capitalization, has shown strong explosive power, with a 545% gain this year based on March 4 prices ($241). The difference between its market capitalization and that of ADA, which is currently ranked third, is very small, both being around 250 billion yuan, and BNB was once in third place.

It goes without saying that Bitcoin is the number one digital currency, the second-ranked ETH and ADA are both public chain tokens representing technology streams, while BNB is the top-ranked exchange token (launched by Binance).

 

Bitcoin brokerage firms that make a solid profit
An important signal for the start of the A-share bull market was the overall move higher in the brokerage sector. Hong Kong stocks were generally considered undervalued in early 2021, and the influx of global capital also directly pushed up the share prices of HKEx, as well as Internet brokerage firms such as Futura and Tiger. Binance, which functions as a brokerage and exchange in the crypto asset world, has naturally become a direct beneficiary of the bitcoin bull market.
 
Similar to the profit model of brokerage firms, investors are charged a certain transaction rate for opening an account with a bitcoin broker to buy bitcoin, generally between 0.1 to 0.2% for spot transactions. In addition, investors can also borrow funds at brokerage firms to add leverage or use futures trading, incurring a certain transaction rate in the process as well.
 
Founded in July 2017, Binance is currently the world's number one digital asset exchange. Zhao Changpeng, chief executive officer of Binance, said in early December 2020 that Binance will likely earn between $800 million and $1 billion this year, as market uncertainty drives interest – and trading – in cryptos.
 
The data shows that CICC will achieve a net profit of $6.828 billion to $7.552 billion in 2020, and according to the data revealed by CZ, the annual net profit of Binance is already at the same level as CICC, and the boom of crypto-asset trading is evident.

It is worth noting that the price of bitcoin had not yet exceeded $20,000 at the time CZ made its announcement, but as the price of the currency continues to break new highs and the crypto asset market is hot, the performance of the exchange represented by Binance is expected to continue to rise high during the year. 
 
Bitcoin brokers have become a new force to be reckoned with in the global financial market.
 
 

The curtain of the era of crypto assets has just been opened

On February 25, the S-1 document submitted by cryptocurrency exchange Coinbase was approved by the SEC, and Coinbase will be listed directly on NASDAQ, which means it will become the first publicly listed cryptocurrency exchange in the world, making it one of the most talked-about events in the whole industry recently.
 
According to Tencent News, previously, Coinbase went live on the FTX exchange with equity pass transactions, currently priced at $408. Based on the 250 million Class A common shares disclosed in the prospectus, Coinbase is currently valued at more than $100 billion, which, combined with the 2020 net profit of $322 million disclosed in Coinbase's prospectus, means that it will be the first cryptocurrency exchange in the world to go public. Combined with the 2020 net profit of $322 million disclosed in Coinbase's prospectus, the P/E ratio is as high as 316 times, placing Coinbase in the top tier of global technology companies with a $100 billion valuation.
 
The listing of Coinbase means that the curtain of the era of crypto-asset trading has just been opened. On the one hand, the compliance of such underlying has been recognized by the market, and on the other hand, the high valuation also reflects the high expectations of the market on the future space of cryptocurrency trading.

Some industry insiders say that if Coinbase can successfully go public, it will bring the industry to a new stage of "compliance development" and more ordinary investors and institutions are expected to enter the market.
 
In addition, Robinhood, a U.S. retail trading platform, has recently been rumored to be moving forward with its March IPO, which may value the company at more than $20 billion. Although it is not a cryptocurrency exchange, Robinhood's popularity shows the growth potential of emerging exchanges.
 
In terms of business logic, traditional trading centers serve mainly brokerage firms and other institutions, with relatively manageable system pressure, while bitcoin exchanges have all users aggregated on the platform, and are trading 24/7, so the technical pressure and barriers to processing transactions are clearly higher.
 
In fact, many conservative investors may still have doubts about the long-term value of crypto assets. However, companies like Coinbase and Binance that have a large number of customers, a management team, and generate significant operating profits and cash flow will be more likely to be favored by this group of investors.
 
By the numbers, Coinan's profitability is even better than Coinbase's. Coinan's net profit in 2020 is around $800~1 billion and its net profit is $577 million in 2019, both significantly exceeding Coinbase's profit performance in the same period. The profitability gap is reflected in the fact that Coinbase is far larger in terms of user volume, transaction volume, and traffic due to the close proximity of profit sources.
 
 

Both an exchange and a technology company
Understanding the value of Binance from a brokerage perspective is only one aspect. As blockchain technology itself is still developing at a rapid pace, companies like  Binance and Coinbase are often both exchanges and fintech companies.
 
There is precedent for this, as Nasdaq, founded in the 1970s, was not only the world's first electronic exchange but has also expanded its trading technology over the years, providing iterative fintech services by selling cloud software products to banks, brokerages, and other markets, including in the first quarter of this year, Nasdaq will also complete its acquisition of software company Verafin which focuses on identifying financial fraud and currently has more than 2,000 financial institution customers.
 
Nasdaq's growth shows the business extensibility of brokerages and exchanges, and the same is true for the "Binances" in the midst of the blockchain and crypto-asset wave. The head public chain ETH is the second-largest digital currency after Bitcoin in terms of market capitalization, and the bottleneck of ETH's development is network congestion and high GAS fees, while  Binance's public chain BSC solves this problem well.

Because of its ability to effectively reduce transaction costs, Binance Smart Chain is considered to have become the most competitive rival to Ether, with new Defi projects choosing to launch directly on BSC and many older projects starting to migrate to BSC. At present, the head projects Cake and Venus on BSC ecosystem have taken turns to catch up with the old projects on ETH, and users have chosen to vote because of smoother speed and lower GAS fee.

In terms of business, the trading platform is only one of the business segments of Binance, which also includes Binance Labs, a venture capital and incubator function, Binance Launchpad, a crypto asset sales platform, Binance Academy for investor education, Binance Research Institute for industry research, etc., and is expected to build an ecological matrix around blockchain development of crypto assets in the future.
 
Of course, it cannot be denied that, as far as the current market situation is concerned, the value of the entire crypto asset market and related investment targets are highly correlated with the value of Bitcoin, and the trend of Bitcoin in the coming period is difficult to predict and there are relatively divergent opinions in the market.
 
Every wave of technology is accompanied by the rise and change of new business forces. Blockchain technology and crypto assets will likely create a number of new large technology companies, and there is still a lot of room for the development of bitcoin brokerages represented by Binance and Coinbase.

This is an article from WeChat official accounts Techfin Sight (ID: techfinsight), translated by Chris.