Bernstein expects crypto trading revenues to double in 2018
In spite of the recent drop in cryptocurrency prices, some analysts remain remarkably upbeat on the asset class, with Bernstein predicting crypto exchange revenues to double this year.
In an investment note entitled “Crypto trading – the next big thing is here?” analysts at Sanford C Bernstein, led by Christian Bolu, said revenues generated by cryptocurrency exchanges could reach as much as $4bn this year.
In 2017, digital currency transactions on crypto exchanges generated $1.8bn in fees, led by market leaders such as Binance, OKEx, Bitfinex and Coinbase.
Transactions peaked in Q1
Transactions reached their peaks in the first quarter of 2018, however, as cryptocurrency prices hit record highs, led by bitcoin which had hit its peak close to $20,000 in December.
While trading volumes began to tail off when prices began to slide, most of the activity was seen by individual investors while institutions kept cautiously to the sidelines.
The Bernstein analysts, however, said they believed that attitudes would eventually change. They wrote: “As the crypto-asset class seasons and institutional demand builds, there are a plethora of opportunities for traditional firms, including custodians, asset management and market-making services.”
But institutional investors would only join in the cryptocurrency market seriously once the regulatory landscape becomes more transparent, the analysts added.
Daily traded volume has dropped off again in recent months as the crypto market has experienced a further price decline, meaning fewer investors are buying.
Nevertheless, cryptocurrency trade remains a drop in the ocean compared with other, more traditional areas of investment. Daily traded volume for all digital assets currently averages around $17bn, while the US equity market averages over $200bn a day and the Treasuries market around $470bn.
The market for trade in traditional currencies is the world’s biggest by daily traded volume. Between them global foreign exchanges trade closer to $5tn a day.
Institutions are arriving
But more institutions are becoming attracted to crypto investments as client demand for new assets builds. Among them, Goldman Sachs and JPMorgan Chase are setting up derivatives trading and other services to facilitate crypto asset exposure.
Earlier this month Goldman issued a statement in response to reports it was setting up a crypto custodian service. It said: “In response to client interest in various digital products we are exploring how best to serve them in this space. At this point we have not reached a conclusion on the scope of our digital asset offering.”