Bitcoin Forum

MCXNow, Crypsy, BTCT, BTC-E?

I'm conducting a survey to determine the actual profitability of the popular exchanges.

Does anyone have any idea of what the volume is for these exchanges? What these exchanges make weekly or monthly and how we could find out?

in theory they make huge amount of money per day 0.2% fee for BTC if the volumen is BIG for example the volumen today is 5800 btc for BTC/USD market from that they make like 12 BTC only from that pair..i rememmber in november when the first big pump of 1100 usd per bitcoin they make 400k usd in 1 day only from fees

FEES = BIGGGG MONEY

You seem to be a bit confused. MCXNow is pure scam. Cryptsy and BTC-e are arguably functional altcoin marketplaces, and the latter attempts to offer a fiat exchange. BTCT was a wannabe stock exchange that has long since shut down.

What are you trying to find out, exactly?

They are making lots of money, but on the other hand they are the main target of government and hacker. Good luck keeping your money safe..

+- 2% ... I wondering how much profit EBS, Reuters, interbank, Eurex and ... also .. for stock NASDAQ et All ;D and the data they sell ....

I still waiting for a proper opensource exchange ... Sounds like butter coin will follow bex.io steps .. you going to be like a broker guess not exactly exchange ... an exchange holds far more valuable information ...

Gox is looking pretty profitable right now!

Pretty amazing if your name is Ukyo / Jon Montroll, and you treat all of your customers' deposits as going into your own personal wallet.  Not to mention the other exchanges that vanished suddenly.

To be serious though, I'd imagine the profits are massive. If you get big, you'd have to spend a lot on hardware, and you should be spending tons on security analysis and other good developers, but even after those costs are taken away, it has to be wildly profitable.

True, but some says the volume figures are fake...

Assuming the volume numbers given by Cryptsy's own API are accurate, in the last 24 hours they have made about 6BTC on fees (0.2% of 3043).

BTC-e reports 10,000 BTC trade volume for last 24h in BTC/USD market alone (~20BTC in fees).

Nobody releases audited numbers, so you don't know.

In theory, running a large Bitcoin exchange should be reliably profitable. In practice, over half of all Bitcoin exchanges have gone bust.

There's an enormous temptation in financial services companies to speculate with the customer's money. This was a major cause of the 2008 financial collapse. In the Bitcoin world, with no audits, it's probably common.

From Cryptostocks.com (https://cryptostocks.com/announcements/585)

From dividends section: Period = 1 week
Dividend Payout 01/25
Collected Fees This Period:  (Jan 17 - Jan 23)

BTC Fees: 335.28 btc
LTC Fees: 1100.02 ltc @ 0.0266 =  29.26 btc
XPM Fees: 163.86 xpm @ 0.00357 =  0.585 btc

Total Fees Collected:  365.125 btc

Extremely profitable that's why it is so insane that mt gox has not gone through any effort to fix their issue or even offer competent customer relations.

Gox probably borrowed a lot of their customers coins early on without permission and the price jumped and they could not catch up buying back. Just my opinion.

If it's a Registered MSB in the USA, then it costs a mint just to get started.   Would be to high of a risk investment for me personally.  But no risk no reward.

Well now it would be a high risk investment unless your exchange service brings something new or a new level of security.

They make huge amounts of money, but you should also see the opposite side. Hosting fee, support fees, downtimes and all. Its a high risk, there are hacks all the time. You also have to contribute the security needed, and developers...
But yea they do make a lot of money.

If you were to multiply their average daily trading volume by ~.5% then you will calculate their revenue.

To calculate their costs is more complicated. They need to pay for support (likely their biggest expense), network access, cloud computing, AML/KYC staff.

Mintpal makes half a milion USD per month, according to their volume and fees.

exchanges are most profitable if they steal their customers money and dont get caught

Apart from fees, exchanges receive nice income from votes too. In order to get new altcoins listed on exchanges, they go through a voting system where people vote by sending bitcoin to the exchange.

What about their costs and expenses?

Low compare to the fee they get.

you can observe the volume on sites themselves , and on sites like bitcoinwisdom.
Judging on the fact that most of the time exchanges have multi-milion traffic, their profit is huge.
and not just huge, but large enough that they can influence the price by keeping the profits in bitcoin or selling it for fiat.
funny when u think about it.

Should be glad there are now more exchanges vs MtGox monopoly a year ago.

Exchanges likely wish to keep as much money in bitcon as possible as if they pressure the price of bitcoin then trading volume would generally decrease, meaning less profits.

Exchanges likely have more expenses then you think.

The AML/KYC piece is probably one of their largest, if not their largest expenses. They need to hire people who are familiar with or train them to be familiar with identity documents from pretty much every country in the world. They need to have enough of this staff in order to look at identity documents from each of their customers.

Assuming AML/KYC compliance is around 15k USD a month. This is probably less than 1 week of trading fee for the main exchanges.
 

You still need to consider things like DDOS protection, leasing servers, customer service/support and the like

They quietly make big money, just like pokerstars who takes a rake off of each pot that is played in poker. 

They ought to be profitable, yet over half have failed.

Want to elaborate a little on this?

I don't know about the other exchanges, but monthly revenue for BTC-E is somewhere in the range of BTC2,000. That means around $1.2 million per month and $15 million per year. Don't know the net income.

They generally take 5% of the pot up to $3 USD.

They've dealt almost 100 billion hands so you can imagine how much money they've made.

They actually just sold the company for 5 billion.

That is huge profit for an exchange. No wonder no major exchange want to offer equity.

Offering equity would, in itself create huge amounts of additional expenses (shareholder relations, reporting, and the like) and most exchanges would not likely be able to fetch a valuation that could account for taking on those additional expenses. 

The day we will truly see how profitable an exchange really is, is when one is bought out. When we see how much it sells for, we can tell how profitable it really is..

all about the transaction the more transactions you do in the exchanger, the greater benefit you because exchangers only take advantage of the difference in value buying and selling coin

With no regulations and no auditing, exchanges could make lots of money besides the fees that they charge.

For instance, by delaying the trade logs for a couple of seconds, they can intercept client trades and "steal" some of their money.  Suppose that the lowest ask is 500$/BTC and the highest bid is 480$/BTC. Supose that Alice posts a sell offer of 1 BTC at 485. One second later Bob, who still cannot see Alice's offer, posts a bid for 1 BTC at 495.  Normally Bob's bid would be filled with Alice's offer, and he would save 10$.  But the exchange operator sees the two crossed orders, and inserts between them a buy order of 1 BTC at 485 (that takes Alice's coin), and a sell offer of 1 BTC at 495 (that fills Bob's bid).  The two transactions show up in the log and everything seems normal, and both Alice and Bob are happy that their orders got filled so promptly -- but the 10$ now goes to the exchange, instead of Bob.

Similarly, if two exchanges agree to show their order books to each other, a couple of seconds before they are posted to the public, they can exploit all opportunities for arbitrage between them.  Any client who tries to do arbitrage will then find that the prices have always shifted against him between the time that he places an order and the time that it gets executed.

There must be many other tricks, even more profitable than these, that exchange operators can pull.  I suppose that zero-fee exchanges, like Huobi and OKCoin, get their revenue from such insider trading.  Iam told that such tricks are totally illegal for regulated stock and currency exchanges.

Obviously, any money that the exchanges make, from fees or otherwise, must come out of their clients' pockets.

Easy for an experience trader to detect this, as they watch the price on multiple exchanges at the same time.

Mostly these sites are badly managed, we have seen it with Gox and more will unfortunately follow...

How exactly?  To the people watching the logs, those insider trades would be indistinguishable from normal trades.

Without the insider trades, an outsider would occasionally see a difference in price lasting long enough for him to exploit.  With insider trades, there would be fewer such opportunities; and when one appears, before the client can execute his trade there would appear another trade exploiting the difference and eliminating it.

Specifically, for example: the outsider sees that on exchange A the highest bid is 450$, on exchange B the lowest ask is 440$. He submits a buy order on B for 440$, but before it gets executed, someone else buys that offer; his own order just lands on the book, unfilled, while the lowest ask on B has jumped to 455$.  How can he tell that the buy that succeeded was insider arbitrage, rather than a normal trade at B, or A-B arbitrage by a luckier competitor?

I seem to recall the guy who owns mcxnow in chat saying he made about $30,000 profit per month.  He would make more but spends alot to keep the site running smooth/new features etc.  This was before he scammed people with the fee shares. Im assuming he now makes less money.

They are hella profitable even when fee is lower than 1% fees have always been big (bigest?) bussnies for every company/service.
They could make way more if they could keep their exchange funcional and safe and most of the time regular income is way better than one time big income.

Insider arbitrage is fine in my book. They are providing liquidity and market participants are benefiting by having their order filled at limit price.

The cost of moving money from one exchange to another exchange isn't free nor cheap nor convenient. If the exchange is providing this service because they can move larger quantity of money at fix cost, then they are adding benefit to both the exchange and all users on the exchange.

 

I wish there were a poll in the survey

I wouldn't even call it insider arbitrage myself. It would really just be exchange operators not needing to wait for confirmations when depositing btc into their own exchange.

As long as exchange operators are not doing anything to depress/increase the price of bitcoin on their specific exchange in the way of news/policies this would be fine. 

Any money that the arbitrager makes comes out of other clients' pockets.  So if the exchange owners do arbitrage and collude to peek at each other's books before other clients, they are taking unfair advantage of them.

An arbitrager essentially merges the order book of some other exchange A into the exchange B where you are trading.  However, while doing so, he raises some of the asks and lowers some of the bids; in such a way that, when you trade into those "transported" orders, you pay more or earn less than you would if you were trading on exchange A.  These differences are pocketed by the arbitrager.

Arbitrage does not require moving national money across exchanges.  If one has suitable reserves or money and coins on each exchange, one can keep all four accounts balanced (and steadily increasing) by moving bitcoins only between the exchanges and adjusting the amounts bought and sold on each side.  Moreover, such rebalancing is necessary only if the traders are grossly unbalanced, e.g. if the price is steadily rising and one exchange is consistently behind the other.  If the price is going up and down at random, one expects that the accounts will tend to stay nearly balanced just by statistical cancellation.

I think it was just MtGox that was especially badly managed. Other exchanges have not had anywhere near the levels of problems that gox had

PS. I must point out that I am not a trader, so figuring out ways in which exchange owners could cheat on their clients is merely a curious puzzle for me.  Exchange owners have much stronger motivations, so they surely will find much "better "solutions to that puzzle.

One way to find such solutions in to read the laws and SEC regulations that apply to the operation of ordinary stock exchanges.  Every practice that is prohibited by them must be a proven way to unfairly take money from customers; so one can bet that the bitcoin exchange owners are doing it.  ;)

Meeting market demand while at the same time making some profit is not the same as front running or queue jumping order book. The order on order book uses limit order, so customers are not paying higher price than they want.

Normally, some exchange will have consistently lower price or higher price due to trust, deposit fee, trading fee, and etc. So keeping account balance on two or more exchanges at the same time isn't really possible.


To cheat on customers, there are other simple way. Such as artificially crediting their own account with bitcoin or fiat and do directional bet using customer money.

Right now I don't think that will be a good idea. 99% of the world population don't know about Bitcoin. The exchange rate and adoption will increase logarithmically in the coming few years. Once that happens, they can list the exchanges in NASDAQ or some other stock market.

Self defeating to be listed on stock exchange.

Hoarding will kill the adaptation and usage. And people can choose another coin for usage.

It does not matter if a currency is listed on a stockmarket.

Once citizens of emerging markets start to use bitcoin then it can reach it's potential.

Why would citizen of emerging market will choose bitcoin vs their own currency?

sure that big exchanges will very profitable
since many of traders trading there, and they get coin from trading fee
i am interested from where chinese exchange who doesn't add trading fee get income?
maybe because their national currency was inflated
inflation will make they choose bitcoin instead their own currency

The profit of the exchanges is easily calculated by their daily volume, and as every exchange take only a little part of every trade as fee, you can deduct that from the whole volume.
Regards

ANXPRO (http://bit.ly/UxeAkD)

Bitcoin price just fell 30$ (5%) in the last 24 hours. 

Can we please stop this nonsense of bitcoin being a hedge against inflation?  It is deceptive advertising...

Let's save that claim for the future, if and when there will be no more risk of the price drpping again like that.

That is the MINIMUM revenue (profit is revenue minus expenses, harder to guess).
Bitcoin exchanges can profit in many other ways, that are illegal for stock exchanges.
The Chinese exchanges have zero trading fees, but seem to be very profitable.

This would be the higher end of the revenue potential for most exchanges. Most major exchanges do not charge fees above cost for "bank" related fees.

What makes you say that chinese exchanges are profitable? Couldn't they simply be well funded?

For one thing, the fact that there are many of them.  Entrepreneurs do not rush to open businesses that are not profitable. ;)

For another, that they have large fancy offices in prime locations, with many staff (Huobi had 50, IIRC). Either Huobi or OKCoin moved to larger offices some months ago.

Finally, they are indeed well-funded, but why would anyone invest in them (10 million US$ just in one of them, IIRC) if they were not profitable?

There are many laws that strictly forbid operators of ordinary stock exchanges from profiting by exploiting their privileged position -- namely, their knowledge of the order book before it is posted to the public -- to trade against their clients.  Those laws do not apply to bitcoin exchanges.  Why would the owners not do those things, if they are legal for them?

They can do anything they want. When the exchange is not regulated by the government, it will be regulated by their customers.

Push things too far and all their customers will take their money elsewhere.

But there isn t much choice for the "elsewhere", especially if all of them are abusing their position.

If "customer regulation" was enough, there would have been no need for government regulation.

One problem is that many of those exploits are nearly impossible to detect by looking at the trade logs.  Their only effect is to make all ordinary clients less lucky.  E.g., the ordinary trader who posts a sell order will have it filled by a buy order at his ask price; whereas, if the exchange were honest, there would have been a buy order at a higher price waiting for it.

Last May, the five largest Chinese exchanges, apparently scared by some government pressure, released a joint note  pledging (among other things) to end leverage trading and put a fee on high-frequency robot trading.  I read between the lines that they were caught doing some dirty tricks (which depend on fast-acting robots), and were scared enough to stop, or cut back on them.

I would even guess that those dirty tricks were responsible for the general downward price trend from February to April, as ordinary Chinese traders were disappointed with their "bad luck" and cashed out, one by one. Indeed, that "five-exchanges" note coincided with the end of the downward trend and a month of steady price.

big exchanges earn so much that they could define bitcoin price only by keeping their profits in bitcoin/fiat.

im not quite sure what they do with their profits, but imagine the price if all of them keep fee profit in btc...

Their revenue may be big but they have huge costs which are mostly dealt with in USD so they have to be net sellets of BTC

China has a lot of excess capacity in many ways, mostly in commercial real estate but in other ways as well.

The fact that they have offices in prime locations with a lot of staff could mean they are well funded.

I would find it plausible that Chinese exchanges were trading using their own funds for profit and were making a lot of money. I would also say that this practice can be extremely risky and would make holding funds at these exchanges risky as well.

They could potentially pay some of their expenses in BTC

This recent interview with Bobby Lee (CEO of BTC-China) is quite relevant to this question:
https://bitcointalk.org/index.php?topic=178336.msg7510644#msg7510644

I have yet to see local trade being done using bitcoin due to economic incentive. If you know any country with population that use bitcoin on everyday transaction, please kindly share the news.

Many countries have small businesses that take Bitcoin.  Withing 15 miles of my house there are 67 Bitcoin businesses.  The large companies are the holdouts.

Do they take bitcoins, or do they take dollars from BitPay-like companies (that sell your coins and give the dollars to the merchant)?

What is the daily volume on bitcoin transaction?

How do you define "local trade"?

Almost every (if not every) business that accepts bitcoin does so because of economic reasons

For exchange volumes: http://markets.blockchain.info/ The 24 hour volumes in USD will display at the top for the major exchanges.

Where do you live? I think you are making up the number and pulling off data from your ass.

It sounds like they may be using customer funds to trade. This is very risky and unethical as it is not the exchanges money to be risking like this, especially without disclosure.

I have noticed some annoying inconsistencies in Bitstamp's trade log, as reported by BitcoinWisdom (in the lower right sub-window of the clart).  Some past entries of the log change quite a bit when the chart is hard-reloaded. More details here (https://bitcointalk.org/index.php?topic=190722.msg7540413#msg7540413).  Note, for example, that in this section of the logs one trade for 0.036 BTC became 0.34 BTC after reloading the chart.

The problem seems limited to Bitstamp.  BitcoinWisdom's owner says that Bitstamp's chart data API does not provide the trade type ("buy" vs "sell") so he has to guess it somehow; and the entries also have some timestamp/order problems that explain why the ordering and timestamps change after reloading. I don't understand yet how those shortcomings of their API could cause the BTC amounts to vary, as noted above. Anyway, they should fix those bugs, otherwise clients who notice those retroactive changes may get the wrong (or right?) ideas.

If the Shrem Karpeles & Friends Foundation (aka Bitcoin Foundation) was worried about building public trust, they would define minimum transparency standards for exchanges, including full and immediate disclosure of the complete history of bid/ask orders and all trades, accurately ordered and timestamped; and they would monitor exchanges for compliance.  But if pigs had wings...

One thing that would improve transparency a lot would be to attach a scrambled client ID to each bid/ask submission, and the two IDs to each trade.  That would not reveal the identity of the clients, but would allow other clients to check the logs for suspicious behavior by other clients or by the exchange owners.  (Professional auditors could later certify, under NDA, that those IDs are mapped to the actual clients in 1-1 fashion.)

This would get a lot of people to stay away from exchanges, at least people who plan on buying/selling large amounts. If it was clear that scrambled id "1234" was buying large amount of bitcoin then other traders could also buy expecting the large buyer to further drive up the price. The result would be that this large trader essentially pays a higher price then if several small traders bought the same amount at the same time

Yes, many traders would not like even that limited increment in transparency. But others may like it, if it makes them feel more confident about the exchange.  Exchanges with and without unique client codes could coexist, so that clients could choose.   That is something that the market (or should it be the meta-market?  :D) seems capable of deciding.

But I don't think that they would be necessarily inconvenient, even for big traders.   In your example, other traders would not know whether the buying whale has a preset max price, or how much he intends to buy; or whether the small traders will keep on buying too.  And such a buying whale would be sharing the market with many other traders -- including big selling whales, for which the same reasoning would lead to the opposite effect.

Moreover, it is a zero-sum game (in the short run at least), so any change in the rules will have no net effect on profits when averaged over all traders.  To evaluate such a change one must use other criteria, e.g. whether it seems more "fair" to traders and thus avoids them blaming the exchange for heir bad luck.

this would defeat the purpose of having client codes as it was said previously that they would be installed to make sure no one is doing anything nefarious and a criminal could simply use an exchange that does not use these client codes

If a whale is buying a lot of bitcoin they will need to do it gradually, over time (over hours or possibly even days for very big whales). The whale will likely drive up the price regardless if others know that he is buying so his maximum price is likely somewhat above the price when he is just starting to buy or else he would never get his order filled.

There would be no reason for other small traders to stop buying as a whale buying would not stop them. All things being equal they would continue to buy.

Unless both whales are trading at the same time then this would not be the case.

The intended purpose of the unique client code idea was not to prevent criminal use of bitcoins by clients,  but to prevent certain unethical behavior by the exchange, possibly with complicity of some privileged clients.  (Of course it woudl only work  if the uiqueness of the codes was certified by independent, reputable auditors.)

Unique client codes would  also immensely improve our knowledge of the market.  For instance we could tell how many coins have been bought for each given price and not sold yet; that would provide an estimate of long-range liquidity that may be much more rreliable than the order book.  We could tell whether the market is concentrating or distributing bitcoin ownership.  How many active traders there are in each exchange.  And much more.

This is not something that even our stock market in the US has. In general most people (IMO) trust stock market exchanges and have confidence in the market.

What kind of behavior by exchanges do you think this would stop/allow to be discovered? If you are talking about an exchange trading for it's own account, then there is really nothing wrong with this as long as they are using their own money. If you are talking about an exchange having enough reserves then the exchange could simply have their books audited by an outside auditor   

That is because stock exchanges are strictly regulated and audited by the SEC, and many unethical tricks are crimes with stiff sentences.   I was assuming that bitcoin exchanges would remain free from such regulations for a while still.  If they are to be regulated the same way as stock exchanges, then the UCCs may add little to public confidence (but would still be very useful for market analysis).

That is actually very wrong.  The exchange knows the client orders before other clients, so it can scoop up good trades that otherwise would have been exploited by them.  (I believe this is what is called front-running, yes?).  Any money that the exchange makes this way comes from the pockets of their clients, but they would not notice it -- they would just have less luck than they would in an honest exchange, and as a whole they would lose more money than just the trading fees.

I suspect that all exchanges are doing this (and/or other dirty tricks). If something is not illegal, cannot be detected, and is extremely profitable, why would a businessman not do it?

A standard audit of the books and accounts would not detect this.  But with certfied UCCs in the logs, people will notice that one client (or a few "friends of the house") will have extra luck and will always seem to know juicy orders beforehand.

Would you prefer that exchanges be regulated like this? Having unethical tricks be crimes would deter exchanges more then simply opening their trading logs like this. IMO people would still utilize an exchange if it was well known that it was doing unethical things that didn't put their money in question nor were illegal. It was no secret that gox was having money problems (the extent of them were not known), and that it had many security breaches but they were the largest exchange for a long time after Bitstamp and BTC-e started seriously competed with them, and when they were de-throned as the largest exchange they still had a lot of trading volume by any measure. IMO money and security problems is worse then an exchange having unethical practices. 
Yes an exchange does know their customer's orders before they do, and they also know when there will be large buy orders in the near future (when they receive fiat deposits people who make the deposits will generally buy bitcoin). For all customers the time that they have to front run their customers would be seconds at best. The only type of customer that this could protect would be the whales (other orders would simply not be large enough to move the market) and the possible person who could front run would go from being the exchange to other market participants.
A businessman would not do it because it would be unethical. Even if there is no way for the public to audit certain things, there is also the risk that someone would leak certain information. Most employers tell their employees to act in a way so that they would not be ashamed if what they did appeared on the front page of the newspaper.

What makes you think that all exchanges are front-running their clients?
What would prevent the "friends of the house" from creating multiple accounts and only using each account for one trade? I would think it would be the expected behavior for most accounts to only have one buy or one sell transaction then become dormant as people would cash out of their bitcoin or buy bitcoin as an investment in one lump sum. 

That is why there are so many scams in bitcoinland...  Most bitcoiners aparently expect from exchanges and bitcoin ventures only the same level of business ethics that they expect from a drugs dealer...  :P

But an exchange that does unethical things will of course "put the clients' money in question", at the very least by spoiling their "luck" at trades.

An exchange that uses a dirty trick against some other client may next use a different dirty trick on you.  That is why one should not tolerate ANY unethical behavior from  them, against ANYONE.  If clients don't mind other clients being scammed, the exchange will have no reason not to scam them, one by one.

That is plenty of time to take advantage of the clients, big or small, even without any fancy psychological heuristics.

Say for example that the current spread is 600$ -- 610$.  At 10:45:00 Alice places a buy order for 10 BTC at 605$.  At 10:45:03, before Alice's bid gets posted to the world, Bob places a sell order for 10 BTC at 600$.   Carl, the exchange owner, then inserts between the two orders his own sell order for 10 BTC at 605$, and his own buy order for 10 BTC at 601$.  Only then he posts the trades to the world, namely

  10:45:01 sell 10 BTC at 605$
  10:45:03 sell 10 BTC at 601$

The first trasaction being from Carl to Alice, the second one from Bob to Carl.  Both Alice and Bob will be happy with the liquidity and the result, but Bob will get only 6010$ for his coins.  Whereas in a honest exchange the only transaction would be

  10:45:03 sell 10 BTC at 605$

from Bob to Alice. In this case Bob would get 6050 for the coins.  The 40$ that Bob failed to earn in the first case are pocketed by Carl.

Certainly many other such tricks are possible, e.g. when a client places a single buy order to scoop up N sell orders at different prices, Carl can run ahead and buy the N-1 lowest sells, then place a single sell order just below the last one.  Or whatever.

That does not seem to bother the typical bitcoin scammer.  I don't know if Danny Brewster got front page coverage anywhere, even in Cyprus; and he obviously did not get much worried about it.  The dozens (hundreds by now?) of lesser bitcoin scammers got no coverage even in the "bitcoin media".

As I said, one would still require a trusted audit to certify that clients are real and that each client got a single client code.  The dirty tricks that I imagine are happening would be thousands of small "thefts of good luck" per day, as illustrated above, that could not be masked by using a few friendly clients in place of Carl.

APSJEX.com offer: The fee for input/withdrawal of BTC – 0%; Trading Fee as low as – 0.2%; Minimal round lot – no minimal amount; Maximum withdrawable sum – unlimited; Bank fee for money transfers – 1.7%;

Let me answer that in one word: Argentina.

Argentina actually has a lot of foreign currency reserves. They have much more then they need to pay back their holdout creditors, they simply do not want to pay them as they have a history of being a deadbeat nation

Please stop that nonsense.  Bitcoin is not a viable hedge against inflation, not even in Argentina.  Pushing it on Argentinians as such is a scam, pure and simple.  Have people forgotten Neo & Bee already?  >:(

Most, if not all largish (and bigger) traders would not like this. It would allow for people to have more information about who has how much coin.

If for example every time that trader "x" bought 200BTC within two hours there was 200BTC(+-5BTC) moved on the blockchain and some of the time the input address(es) were known exchange addresses. An attacker could then trace those coins to his identity.

Yes. When a country is in trouble, people worry about how to take care of their family. Security, food and medical kits probably worth more to them than bitcoin.

Bitcoin is by concept a deflationary currency. Deflation is the opposite of inflation. When inflation rises, assets that are deflationary will rise, but will still be able to purchase the same amount of goods/services

Concept is not reality.

How much did 1 BTC buy on November 28, how much did it buy on January 18, How much now, how much on May 10?  And how much will it buy next month, next year?

Now compare that with gold, stock, or even the Argentinian peso...

Until there are concrete reasons to believe that it value cannot fall as much again, bitcoin cannot be considered a hedge against inflation; and "selling" it as such is scamming. 

Inactive accounts with tiny amounts in them, fees, tiny deposits etc make exchanges a very large amount of money. Though, there are a lot of legal complications so setting up an exchange definitely is not an easy task

You cannot use short, specific time periods to compare buying ability. When you do that you can easily pick and choose periods that make the data work in your favor.

The point is that there have been periods when the purchasing power of 1 BTC dropped by more than 50%.

There is no reason to believe that it cannot drop another 50% or more from its current price, at any time.  There is no reason to believe that it will not stay low forever, if and when it drops.  Bitcoin enthusiasts hope that it won't, but cannot say why it would not.

So how could one honestly advise people to exchange their pesos for bitcoins?

Keeping one's wealth as cash or simple bank accounts (in pesos or any other currency) is not a good idea in any case, inflation or no inflation.  However, to escape infation one should pick an investment that can reasonably be expected to retain most of its real value, like real estate (if it is not in a bubble), or bonds that are automatically corrected for inflation.  Bitcoins simply cannot serve that purpose: logic says that its purchase power is unpredictable, and experience confirms that it can devaluate much faster than the peso.
 

You could pick two arbitrary points in time and could make a negative point about any currency or any investment. You are not going to find any financial unit of measurement that will go up in a straight line. Over long periods of time the purchasing power of bitcoin has increased.

Hm, when was the last 6-month period where the purchase power of the dollar fell 50%?  

The Brazilian real did that in 1996 (days after the reelection of the president whose only campaign point was its stability). Since then it has fallen gradually by another 30% perhaps.

Indeed, anyone who bought bitcoin at any time before November 1st, 2013 has seen about 1000% increase per year on average.

BUT those who bought after that moment have had a much mixed returns, from very good gains (if they bought in May, for example) to very bad losses (if they bought in January, or after mid-November).

So bitcoin is a good hedge against inflation only for those lucky ones who have a time machine in their attic that allows them to buy their coins in 2013 to sell now.  For those who are forced to buy now to sell in the future, it is not an investment: it is a gamble in a lottery with unknown prize and unknown odds.

Very practical analysis.

And yes, buying bitcoin is a gamble and not an investment.

It is generally best to look at long term results of any investments to get a good idea as to how it has performed. You should also be looking at several starting points at equal intervals, for example a 3, 6, 9 and 12 month rate, or a 1, 3, and 5 year rate of return.

I presume you are assuming that the profit that is garnered has no morals?

MXCNOW has shown (as an example) to not care about their users and profit supersedes anything else.

I'd say it is quite profitable. Most scams I would guess are profitable.

BTC-e as a long standing exchange is likely very profitable. I've had little issues with their platform but they seem to have a huge following of users that continue to use their exchange.

Profit does supersede everything else. When market crashed badly, the leverage position on btc-e loss will eventually need to pass to customers.

I would suspect that any leverage related losses would be passed onto customers on any exchange. I think an interesting new feature for the swaps market to also be able to restrict the borrower as to how much leverage they can use with your swap loan.

Key to getting such a nice fees is the trust, so you need to gain trust first, than you can go ahead and run the business. But be carefull, your government is looking after you and you might get banned/siezed/robbed soon.

Mcxnow and his admin realsolid is the perfect example of a not seriously business, an exchange runned by one person and probably a non trusted user.

Very profitable, but the risk of losing all the money due to hacker is pretty high.

Any reason lead to this believe?

I think it is safe to say that like most things crypto and has the potential to very lucrative but is also highly speculative.  I guess it can be considered a form of gambling.  The better the gamble the better their odds to win.

I have never even heard of MXCnow outside of this specific thread.

It is an exchange written in native language. And they are not accepting new customer.

You get interests on your deposits : "25% of all mcxNOW exchange fees go towards paying interest on deposits every 6 hours! "

It seems very risky

But you have a chance for scamming all your customers closing the exchange unexpectedly so indeed, stills being so profitable   :-X

This alone would likely not be risky as it would just be a tactic of the exchange to try to get more people to have coins on and trade on their exchange. IMO it does set a bad precedent of encouraging people to keep funds at an exchange. It also makes them a target to attackers as they know that the exchange has an elevated level of coins under it's control. 

0.48%/6h for Bitcoin means 2%/day or 77%/month ;)

You probably have near to 0.48% chance of losing all your BTC every 6hours ;D

I don't think that exchanges make quite that much money off of trading fees as a percentage of total balances. They might make that much off of each trade, but their entire customer balance does not turn over that quickly.

Yes, I suspected they were playing with the market.

I had a lot of friends who played Magic The Gathering and they were always scheming ways to stack their deck...

I would rather argue that gox probably was the subject of an attack several years ago but did not disclose it. They probably were trying to make the lost coins back via trade fees over the years but the price of bitcoin rose too far too fast, making this not something that could happen.

The fee is a legitimate way. - bitstamp, btc-e, lakebtc ...

But some exchanges choose to make a killing, so they gone far away.  - btc-gbl, mcxnow, hkcex ...

Or like some china exchanges, they make false information out to manipulate market price, euphemistically "chinese has controled the bitcoin price!" -  ;), ;), ;), ;), ...

Actually they disclosed that they had been attacked and lost BTC but they didn't say they lost a huge amount that was endangering the business

Gox had been the subject of several attacks over the years. The last malleability attack just went undetected for a long time so they were not able to disclose it. 

We have learned  nothing from the Mtgox disaster?
All Centralized Exchanger can be fucking hacked :-[

It is very important to use only dezentralized exchanger like http://bithalo.org/
http://blackhalo.info/

I think exchanges have a very high level of compliance costs as they need to verify the identity of everyone who opens an account, but everyone who opens an account may not actually do any trading or actually make a deposit.

I think that most exchanges barely break even.

This is not true, at least IMO. I would argue that exchanges can earn a fair rate of return for their owners and provide a safe place to trade bitcoin for their customers. I also think that the exchanges should provide incentives to their customers to not hold massive amounts of bitcoin on the exchange, as having massive amounts of bitcoin makes the exchanges a target for hackers.

The profit is very big

Example (BTC-E) :

24 hour volume : 1771 BTC
fee : 0,2%

24 hour fee : 1771 * 0,2% = 3.542

1 BTC = 615 USD
1 month fee : 3.542 * 30 * 615 USD = 65349 USD


Sorry, if my calculation is wrong  :-[

I see no mistake in the calculation; but that is the revenue, not profit.  Considering that they have to pay salaries an other expenses, the profit from fees may be ratehr modest.

But they also make money from withdrawal fees; and the may be trading against their clients, with the advantage of knowing the orders of all traders before each trader knows those of other traders. (AFAIK this is illegal in stock exchanges, but there are no regulations for bitcoin exchanges, so why wouldn't they do it?)

The most profitable exchanges are the one that run away with all the money (mtg).

I agree, I think that much of most exchanges' revenue is paid on salaries of their employees. I think that most exchanges need to have a lot of AML employees to verify their customers' identities and to monitor accounts for suspicious activity. 

That may not be a big item in the budget of that particular exchange, I suppose.  ;)

Are there companies that offer customer identity verification services for other businesses?

Don't forget owners who operate an exchange that turn scammer will have a permanent marker on their forehead.

There probably are but the exchanges still need to pay for this if they outsource it or if they do it in house.

In the case of BTC-e, it is not known whether the owners have foreheads.  :D

He was referring to the movie where the special forces team go into Germany and capture Naizis, they kill most of them, but they usually let one go, but before they do they use a knife to draw the nazi sign on their forehead, giving them a permanent scar

Oh.  But, as far as I know, that hasn't happened to a singe one of the many exchange-owners-turned-thieves.  AFAIK, the only such case where justice may be done was in China, where the police arrested the culprits.  Have there been any others?

And, last time I checked, no one knew who the owners of BTC-e were.  That may complicate the revenge plans a bit.

How do people find out who they are?

Hey, this is copy-paste of a post of mine!  A robot trying to bump his post count?

You forgot to include expense like their employees and servers and hosting.

Is it possible to see the difference between the bid and the offer for an order? That spread is going to the exchange. And their overhead is rather low and the transaction volume is high, so I'd guess there's plenty of profit for them. The benefit to us is that we need the service and the spread is very small per transaction...they make profit on the volume.

I haven't dealt much with the BTC exchanges so I don't know what data a user can actually see.

most exchanges offer information about the trade volume (and the trade volume for different time frames -> a day, a week, a month...)

I would speculate that exchanges could potentially sell this kind of data to subscribers some time in the future in a similar manner that exchanges like the NYSE and nasdaq sell their exchange data.

this could indeed be an additional stream of income for current/future exchanges.

At least for the exchange bitfinex there is a large website dedicated to all kinds of data:
bfxdata.com

Who is behind this website? If it is anyone other then bitfinex then the operator is likely taking advantage of bitfinex data (currently free) to somehow profit.

Exchanges get a lot of fast and easy cash so this cash flow help them even if they mis manage or lose money but who knows if they have enough to pay back all balances?

Altcoin exchanges are very very profitable for the people running it, because after 4-8 months, they get "hacked" and shut down. No questions asked :p

Yeah, it used to happen with bitcoin exchanges too, but bitcoiners cry too loudly whan that happens...  :P

I don't think this so much has to do with the profitability of the exchanges but rather the amount of coins stored on these types of exchanges. I think a lot of people like to trade altcoins in a "day trading" fashion and as a result keep their coins on the exchanges. This results there being more coins on the exchange then there really should be.

Still, even if only a 1/3 or so of the coins normally stored on an exchange would be there, they still would be "hacked" and it would still be profitable enough for those guys to run the "Long-cons".

The reason why most veteran users do not store coin on exchange. And there should be a no tolerance policy on "hacked" exchange.

Right now there is more like a "No hassle" policy. If someone gets hacked, the reaction is: "Shit happens, lets move on".

Do you guys remember inputs.io ??

NOTHING happend to the guy. And it was crystal clear that he stole those 4000 BTC + ~10000 BTC himself!

Do you think the altcoin exchanges failing is merely the operators running away with the coins? I would doubt this as the exchange itself would likely have some level of value and could likely be sold for amounts greater then what would be stolen (less what it would take to disassociate the stolen coins - the mixer fees).

Yes, because most exchanges that get "hacked" are experiencing falling levels of trading activity right before.

Conspiracy: Mintpal was hacked, they got the BTC + were able to sell it and the buyer covered the losses. Nice job, eh? ^^

IDK. I do not usually wear tinfoil hats so I am one to believe it was not an inside job. The buyer obviously though the price they paid was worth it, otherwise they would not have purchased the exchange. If the exchange had not been hacked and the buyer didn't have to cover the losses then the exchange could likely have asked for a higher price.

It was more of a joke, yes. Still many exchanges think they can get away with stealing and then closing shop. and most, sadly, do

many bitcoin exchange also like to do this. ;)

Poloniex was hacked and I believe everyone was paid back in full later.

The exchanges are profitable if your lucky or are able to determine a good buy and sell signal on an altcoin.
Anyways coinmarketcap shows the general liquidity if it wasn't mentioned yet.
And mintpal got bought out lol.

they are surely less profitable now, but usually they are the most profitable thing, between fee/voting and other stuff, they earn lots of btc per day, but you need a good employers with security internet study ecc....

IT amazing how much money company's and business's make off fees and exchanges. Like paypal and ebay make tons of money from fees just imagine 100k people giving .50$ to paypal that adds up. Just like bitcoin just the inflation rate and the money from fees just add up. It's a big business.

they claimed to have processed 100 million USD in payments last year.  Somewhere in their website they should say what their fee is.  It should amount to a couple million USD of revenue, at most.  Not much for a company that has to pay maybe 10 employees at 50'000 USD/year or more.

Does anyone know how much payment they (and/or Coinbase) have processed this year?

When they steal large amounts it is possible to track the theft through the blockchain as mixers are not setup to handle extremely large amounts. Additionally the vast majority of exchanges have some level of information about their owners public so if they were to steal then they would already be doxed.

Extremely profitable , I used to do small exchanges with a group of friends with anyone we could find. (:

I think that the altcoin exchanges likely make a lot of money from coin voting "fees"....I really think that is almost a genius idea to have people "vote" to have additional coins supported on their exchanges with their money. I would think that it usually costs next to nothing to have an additional coin supported by the exchange and the exchange could protect themselves by mandating that a higher number of confirms is needed for coins that are less secure.

They have high costs and low margins so they may not be all that profitable, remember mtgox...

Think of it like this. You make a small exchange, get 1 BTC transacted within a day with .5% fee, $30. Now 10 BTC, $30. 100 BTC, $300.

What if you were to transact over 5K BTC a day? That would make you $15K a day running an exchange site. Big sites like bitstamp would make even more than that.

now bittrex is one of the most profitable
some btcs a day
around 50 btcs month
highly profitable I think

cryptsy.com is on cryptostocks and paying dividends regularly. you can see what ROI numbers they are having.

I was shocked the first time that I saw this on cryptsy. If I had guess I would say that a lot of the altcoin hypers will spend a lot on "voting" on exchanges for their altcoin to be accepted.

If you take btc-e for example, with multi million dollars turnarounds daily, and 0,2% fees, it is not that hard to see that its highly profitable.
There are some other things one should also be aware of, like the amount of security and maintenence that is needed to run such high volume operation.
I wonder how they keep their relations with banks, since bitcoin is still considered a gray area.

Very profitable.

Bter just paid a hacker 440 btc to return 42M NXT coin rather than just close down the business and declare bankruptcy.

In what way were the coins stolen in the first place?
Never considered bter for an exchange that would be able to pay such an amount.
Well there you have it, if you want to get rich, just open up and exchange :P

You need to understand that the numbers you are quoting are only the exchanges' revenues. They must still pay their expenses which are far from free. I don't think btc-e spends a lot on compliance costs, but they probably spend some non-zero amount. They have to pay for their servers and internet so people can access their site. They need to pay people to maintain their site and for security. All these add up and are probably a lot.

you should have looked before, the profit was to the moon literally, high volume for every coin made, now there just chip

If I had a team of dedicated developers who had a strong background in security, I would definitly look into making a secure and open exchange. Flat fees based on percantages sound extremely profitable one large volumes of coins are

But wouldn't this cost a lot of money? Do you think that your trading fees and other fees would compensate for the cost of paying your devs and security? I personally do not think so.

Just put 90% of the coin on cold storage if you run an exchange. No one will be able to steal it.

If everyone withdrawals the money from the exchange, what would happened?

Big fees means bigger profit. But this makes customers avoid you.

Another step sites take is to limit minimum amount of transaction which can be exchanged.

If the exchange is honest, nothing special.   Trading would stop of course and the exchange would stop collecting fees.

If the exchange is dishonest, they may have invested some of the clients' money into stock, Ferraris, caviar, strip dancers... then the exchange may be unable to satisfy all withdrawals and then will be forced into bankruptcy.

The easiest way to figure this out is look at their 24 hour trade volumes. you can see they take a .2% fee.

so take all of the USD or all of the BTC or whatever, add it all up, multiply by .002 and thats how much they made in a 24 hour period.

Reputable exchangers can take advantage of trust by their fee. I feel its clear scamming.

what exactly is scamming about this is you take a fee (often a very small one) for
providing a service to other people?

Right.

There is cost involved in providing a place for buyer and seller to meet. And complying with all the crazy AML rules.

You have quote the big boys in the crypto industries leaving poloniex behind, they all feed on us. They make on imaginable amount of money based on the volume of trade.

Very profitable and i am planning to get my own.

This will only get your their gross revenue. You still need to take their operating expenses into consideration. Things like hosting, security and salary for their staff are far from cheap and will likely eat up a good portion of their revenues.

they make a lot of money from the fees
but idk how much money is needed for running their service

If they are making gains without fees there is something fishy for sure. They are probably getting bribed by shitcoin devs and shitcoin holders to add the coins on their markets for instance.

They are so profitable with their fees, really really profitable, Cryptsy guy is now rich for life i think.

what about tax? it must be crazy for them to keeps every move, and they are forced to declare them

http://www.forbes.com/sites/kashmirhill/2014/06/26/bitcoin-bitstamp/

To be profitable an exchange must have a very high volume of tradings, not all of them are making big profits.

Big exchanges making very good profit because they have too much volume and high fees

Kind of make me wonder why there are so few exchanges spring up to compete with them if the profit is so high.

If some 20-year-olds kids can do it, surely some experience people will be able to do it too.

Good question.

Actually there are many small exchanges that are not listed on the popular charts (and many more that have folded). 

One barrier is that it takes a lot of investment, programming, and paperwork to set up an exchange with the quality and features that clients now expect.  This initial expense doe snot depend on how much volume the exchange has.  So a new exchange starts out in the red and remains so for months.

Exchanges serving the same market compete on the basis of features, quality, fees, client service, etc.  Larger exchanges can afford more staff so they can improve faster.

Finally, given a  choice between a small and a large exchange, clients will prefer the larger one, since it has more liquidity.  That is, a largish buy or sell will get a better price on the larger exchange, even if the market price starts out the same on on both.  Thus the larger exchange will tend to grow, while the smaller one will shrink.

You need to have a lot of technical skills and a lot of time to setup an exchange. You also need to be somewhat reputable (or enter the market early enough so this is not necessary). I don't think that many people would trust an exchange that no one has heard of with their money. 

The earnings grow along with trading volumes, it's really difficult to start an exchange from scratch.

Absolutely right we watch few exchanges starts few days back and gone very quickly because managing them is not easy job

Not much really, they need infrastructure to handle the website and trades plus maybe a few staff to handle support. Not much overhead and almost guaranteed profits.

Its so profitable that new exchangers that are starting from scratch are popping out

I think the lack of these reasons in bitcoin's early days is the reason why MtGox was able to survive and thrive for as long as it did. For many years it did not have any real competition, however lacked most features that are assumed to be at today's exchanges.

of course may need money to build the system and its security, but it is only the beginning,
and a little to the cost of maintanance and their employees,
but the profit is huge because transactions take place every day, every hour, even every minute, the profits will be greater if the exchanger was popular and had a lot of user.  :o

At the end the one who is gonna make the most of profit are the exchanges,they are the beast.

But now need to work on security also few new exchanges have this problem hacked very easily and lost all money

The more popular the exchange is, the more demand for tasks that an exchange's employees will have. In other works the more volume that an exchange handles, the more staff it will need to hire. I also think the more popular exchanges also have a lot of smaller, less profitable accounts that I would think would have a fixed cost to setup.

I would say that security is likely a major expense for exchanges. The fact that they hold so much money on behalf of their customers likely makes them a big target for hackers.

They have low margins, high costs, they can be hacked; who knows how many bitcoins they have and how many exchanges would survive if all customers were withdrawing all their coins

Well hopefully they would be able to survive from a "run on the bank" as they should have 100% reserves both in bitcoin and in fiat. I agree that they likely do have low margins as I think they spend a lot of money on security.

It is very hopeful to think they all have 100% reserves

When they start they have low fees, not a lot of traffic, high costs, unexpected costs and very small capital so they are burning cash; I let you figure out what cash they are burning at that moment in time

Well ideally they would keep their customer funds separate from their operating funds. I don't think exchanges have a lot of surprises when it comes to their costs so they likely would not need to keep a lot extra for these kinds of expenses. 

Bitstamp owners have become the most wealthy people in their country, that tells you all  :D

But this not happen in one night or one month he done very hard work for his exchange and now one of most legit exchange in bitcoin community

In addition to fees, if to attract venture capital, and that they make big money  :D

I agree this is what they should do, however I don't think it is something they likely do. I don't think most exchanges are transparent enough, nor have sufficient internal controls to be able to perform this kind of accountability. 

Yea most of exchanges have no rules about this and they are using all funds just because of this some time exchanges run quickly

They use the money sent to them as their capital, like banks

Exchanges are making shitloads from fees, i can guarantee that. The amount of orders that happen daily with cryptos is unprecedented and they happen much faster than in any other markets due the digital fast nature of the asset. All these little fees sum up in big ass amounts. This plus the ads = money in the bank for the guys moving big money in their exchanges.

This is one thing the NY regulations are suppose bitcoin exchanges to do, and they must subject themselves to audits to prove they are in fact keeping their customers' money separate from their own.

I think the fact that exchanges make a lot of very small fees would somewhat hamper their ability to do this.

Exchanges can create money and bitcoin out of thin air in their database and no one will notice it, but they are just as risky as any other small bank, which also does the same thing

I have seen someone who is selling a complete exchange website in the market.
If it's true you can find out yourself if it's really profitable :P

Exchanges can't actually add decimal values in their databases as it will lead to theit clients' funds unsecurity (there will be a negative delta between assets and liabilities) and they will have troubles while processing crypto- or fiat withdrawals as there won't be enough money. Great exchanges (especially today's leaders) possess internal terminals to control this figures in real time (at least our exchange had  ;)).

Yes they can technically do this, but I think this would not be in their long term interest. I would believe that exchanges would be able to make more money from trading fees over the long term then they could buy selling phantom bitcoin on their exchange

That is too dangerous for them if they are on the wrong side.

Fees make big money, 0.2% per trade is a huge amount of BTC at the end of the day.
Also withdrawal fees are sometimes high, especially for many small transactions.
All depends on the volume of trades.

History shows that exchanges will eventually be on the wrong side of these kinds of trades/shanagians. They may be able to profit somewhat over short periods of time, but it will only take one major market swing in which they are on the wrong side of for them to end up with major losses in excess of what they would be able to make back. I would say that this kind of activity would almost certainly have a negative EV.

I know it's an old thread. But if anyone is still interested, Bitstamp have filed their first accounts recently, more in this thread:

https://bitcointalk.org/index.php?topic=785256.0 (https://bitcointalk.org/index.php?topic=785256.0)

That is an abbreviated account of their financial state *as of Oct/2013*, which they were required to file under UK law (and they filed only in Aug/2014, maybe late).

It does not say how much profit they made.  It says only that they have about 64.9 M USD that belong to clients and about 820 k USD of their own.  Apparently it does not include their bitcoin holdings, since their assets (65.7 M USD) are described as "cash in the bank".