The Few Options We Have At Investing In Exchanges
For months, I have been looking for some way to invest in cryptocurrency exchanges. The way they are positioned allows for more “riskless” profit, even if cryptocurrencies go back into a bull market. They collect fees on the way up and the way down, which is a lot less risky and makes for a good hedge against cryptocurrencies crashing again.
The issue is that for many reasons (regulation, capital requirements, location) there aren’t many good options to invest in cryptocurrency exchanges.
Judging the Risks
Frankly, the biggest risk I see with investing in a cryptocurrency exchange is that it gets hacked. We’ve seen this happen in the past few years (Mt. Gox) and several even just this year (Cryptopia and Binance). This doesn’t even account for the fiduciary mismanagement that has occurred with QuadrigaCX and Bitfinex.
So I’m not saying investing in cryptocurrency exchanges is riskless, it just follows a different profile. The risk is in the business management rather than in the flow of funds from institutions and how the macroeconomic climate is.
One thing I’m curious about is if there is a greater or lower likelihood of an exchange being hacked once it has already been hacked. For example, Binance was recently hacked, but will survive because of the war chest they keep on hand to reimburse customers in this exact situation. Does that make them safer now?
I see two sides to this. Either the fact they’ve been hacked will attract more hackers, or they become even more vigilant and learn from their lessons. It is hard to really judge, and it’s not like we have a ton of investing options anyways, but a question that I think is worth asking.
Binance and Kraken
Binance is unique because we can actually invest in the exchange by buying its proprietary coin, BNB. The good news is Binance does seem to be at the forefront of a lot of technology and cryptocurrency trends in the industry. Even with the way they handled the hack, it seemed like they had learned from the mistakes of other exchanges and will be around for a long time.
The BNB coin is tied to the trading fees they earn and naturally would go up if demand were to increase for trading on the exchange. This makes them a very appealing investment. However, it would be nice if there were more exchanges we could get exposure to.
One such exchange is Kraken, a large Canadian exchange that is currently doing an equity sale. The sale is only available to vetted investors and is being done through Cayman Islands-based platform BnkToTheFuture.
Kraken allows any Kraken user making a minimum purchase of $1,000 to invest in them, and able to raise about 65% their financing goal of $10 million in just a few days. In recent news they announce they were paying 250 of their 800 employees in Bitcoin. This was in response to Peter Schiff, a famous Bitcoin bear and gold bull, stating that no one would ever agree to get paid in Bitcoin. Kraken also hilariously stated that an employee of theirs who accepted Bitcoin as salary in 2012 ended up retiring in 2013.
This says more about Kraken’s culture and the widespread adoption of Bitcoin than it does about whether we should be investing in Kraken. Even if you don’t invest in Kraken, it could be worth looking around on BnkToTheFuture for more good deals that are out of the limelight.
Featured image courtesy of Shutterstock. Chart via CoinMarketCap.