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The Crypto Exchange Business: An Insight Beyond The Top Global Exchanges

The majority of the coverage in the cryptocurrency media when it comes to exchanges concerns itself with the top 20 global exchanges. We’ve decided to take a closer look at exchanges outside that initial tier to get their perspective on the market. To gain this insight, we interviewed Peter Nagle, co-founder of Irish cryptocurrency exchange, Bitcove and Phuong Nguyen, co-founder of P2P cryptocurrency escrow marketplace, Remitano which has its origins in Vietnam but trades across many international markets.

Bitcove & Remitano
Both companies were established in 2014 with the founders of Bitcove having operated a Litecoin (LTC) brokerage service as a precursor to the current business. Remitano emerged as a consequence of the founders discovering Bitcoin and realizing the potential it had in terms of facilitating international money transfers. At the time, it was incredibly difficult to send money internationally to/from their home country, Vietnam, and they saw Bitcoin as an improved method to reduce the friction in the money transfer process.

The companies differ quite a bit in terms of the markets they serve and the nature of the service offering. Bitcove operates within the Irish market albeit that it is intent on expanding with plans afoot to launch a business in the South African market within the next few months. Their model is similar to what you would find with many crypto exchanges with the exception that they don’t hold cryptocurrency on account for customers. Crypto is dispensed directly to customers digital wallets.

Remitano’s service offering differs from the classic exchange model in that essentially they provide a marketplace which brings buyer and seller together, offering an escrow service to facilitate the trade between the two parties. Although its origins stem from Vietnam, their business is spread internationally with Vietnam, Malaysia and Nigeria representing their biggest markets.

Client Base
In terms of the nature of the client base, Bitcove has catered for small retail investors, enthusiasts and those completely new to cryptocurrency. As Peter explained:

“When we first started off, clients’ knowledge of cryptocurrencies was very minimal. Today, people come to us and they have more of a grounding in what Bitcoin is.”

He goes on to clarify that there was a lot of distrust and misunderstanding with regard to cryptocurrency initially, but he’s seeing a transition in that crypto now holds more credibility for people. They’ve moved past that initial skepticism and are now keen to evaluate what represents value in terms of unit price. Furthermore, they want to figure out the logistics involved in safely purchasing, storing and transacting cryptocurrency. Bitcove are seeing that the vast majority of trade is speculative in nature or for investment purposes albeit that there are modest signs of growth emerging in terms of transactional day to day use.

Phuong’s experience with Remitano is quite different. Their clients are much more likely to have a need for cryptocurrency to pay for goods and services and to remit money to friends, family and acquaintances. It’s likely that the causation is regional with some parts of the World having more of an immediate use case for transactional use of crypto than others. Furthermore, as Phuong explains:

“Our original vision was to enable people to remit money as reflected in the name of the business – Remitano. As an example, a very common use case we find in Nigeria – people there buy Bitcoin and send it over to a friend in Ghana where that friend cashes it out to FIAT. We see that replicated internally – within Malaysia. In our other markets too, people are using it to pay for goods and services. This happens a lot on our platform.”

That experience is borne out by Peter’s identification of South Africa as the next market Bitcove intends to launch in. It’s not that he doesn’t see growth potential in Bitcove’s home market – simply that some countries have a more immediate need for crypto for use on a day to day basis, particularly in Africa and South East Asia.

Competitive Challenges
I put it to both founders that they must find it difficult to compete with the top 10-20 global exchanges. In Peter’s case, he felt that Bitcove’s business was largely untouched by the activities of the largest exchanges on the basis that they are more geared towards day and swing traders, whereas Bitcove offers a personalized service to customers in a market where people like to work with local service providers.

Phuong stated: “I wouldn’t say that Remitano is small, certainly in Vietnam, Nigeria and Malaysia we are the dominant player. As a P2P escrow marketplace, our service is also completely different to that of the likes of Binance, Bittrex or Poloniex.”

Many exchanges worldwide have had problems securing banking facilitates. It appears that both companies have had positive and negative experiences in this respect. There’s an irony in Bitcove experiencing banking issues given that they were selected as participants in a start-up programme in 2015 facilitated by the Bank of Ireland. Yet that same bank – alongside Permanent TSB and Allied Irish Banks (AIB) closed their accounts on the basis that they don’t facilitate cryptocurrency based businesses despite knowing the nature of Bitcove’s business from the outset.

Bitcove overcame this issue by partnering with MisterTango – an innovative bank based in Lithuania. Whilst this can sometimes mean transfers taking a little longer, Bitcove have taken the innovative approach of locking in the crypto sales price at the point of the customer placing the order whilst funds follow through via bank transfer.

Remitano can reflect on an experience with banking in several international markets. With that, Phuong believes that it’s simply a case that they collaborate with banks when they are crypto friendly. This usually results in benefits for the bank as regular Remitano customers will tend to switch to that bank in order to speed up transfers and reduce transfer fees. Where cooperation with local banks is not possible, they stick with a clear crypto escrow model – cutting out a need to have funds transferred through their accounts. He reflects on one instance in one particular market where Remitano had the cooperation of a local bank only for the central bank to step in and advise that bank against working with them.

Clearly, there continue to be challenges for exchanges when it comes to banking albeit that there are some signs of a change of tact from the conventional banking world – together with more effective enforcement of anti-competitive practice regulations by national authorities.

Peter explained that in the Irish context, there is no regulatory framework. For a small exchange like Bitcove, it feels it has to err on the side of caution and do its best to interpret the existing laws with regard to money laundering and follow best practices as best it can. He suggested that the Irish authorities should establish a working group which could strive towards putting a regulatory sandbox in place as a precursor to the implementation of an actual regulatory framework. In his view, there is no doubt that proper regulation would be beneficial to those operating in the space and remove uncertainty.

The majority of the markets that Remitano currently operate in are unregulated. Phuong’s view is that regulation is less of a headache for them by comparison with traditional exchanges. It operates a P2P escrow model and so long as it does not supply directly, any potential regulatory burden is lessened.

The Future
Bitcove has been profitable since inception, and Peter foresees future growth in line with what he expects to be continued gradual adoption of cryptocurrency. The company recently installed its first crypto ATM. Initial results have been encouraging and they have plans to roll out more ATMs across the country. The South African business will launch within the next couple of months. For both Bitcove and cryptocurrency generally, Peter is confident that crypto is here to stay and that their business is on a firm footing to expand with it.

With Remitano, Phuong’s priority for the future is that the company remains relevant within the crypto-space, continuing to provide a service that people need. He stated:

We want to continue to structure our business to secure the position of the buyer and seller even further. Our focus is the quality of the product and the quality of protection that we bring to our sellers and buyers.”

It seems in both cases that outside of the largest global exchanges, there is room for others to provide a service. What they offer differs completely from the top 20 exchanges. It appears that needs in specific markets differ, and so long as there are exchanges capable of customizing their offering to meet those market needs, crypto exchange should not become the sole preserve of the largest global exchanges.



Disclosure: This article includes a client of an Espacio portfolio company