The growth in cryptocurrency is evident to all those involved and those watching from a distance for a while. It has been estimated that up to 4 billion people could be using blockchain by 2024, and multitudes more would follow as its momentum increases over time.
It is no surprise that many want a piece of the pie, with a vast number of people diving headfirst into new exchanges daily. However, this isn’t easy to start up or maintain without experience or guidance. Not only does one need some funding behind them to get going, but they will also likely need access to some top-level clients who can help boost their profile. So, what are the risks of starting crypto exchange?
It is incredibly risky to start your own crypto exchange since the market is very volatile. Many stories exist about new exchanges collapsing within months due to a lack of trading volume. These companies invested millions into their project only for people not trading on their platform and ultimately withdrawing their funds. It is challenging for exchanges to remain profitable without volume, so they fail.
Legal Problems: It isn’t just a case of starting a crypto exchange and hoping people start trading on it. Legal problems may arise, such as money laundering, if running an unlicensed exchange or not doing enough KYC (Know Your Customer) checks on those who conduct transactions on your platform. Starting new exchanges without legal advice can leave you vulnerable to charges of irresponsible behavior and perhaps even criminal charges.
Top-Level Clients Needed/Exchange Profile Boosters: Another massive problem that arises when you create a cryptocurrency exchange is a need for top-level clients to boost the profile. Creating a new exchange without access to big-name clients willing to list their tokens on your platform is challenging. This is because the No.1 priority for any company looking at being listed on an exchange, especially one not associated with a significant brand, is credibility and the ability to trade their token. If you don’t have anyone reputable on your exchange, traders aren’t likely to trust it, so they won’t use it.
Investment: The costs to build cryptocurrency exchange can be extremely high unless you get lucky and self-fund most of it through bootstrapping. However, the costs are still huge even then. It can cost millions of dollars to buy reliable servers for crypto trading and hire developers. There are also the legal fees and security costs involved in running an exchange. Therefore, having at least 1 million USD or more to start an exchange is highly recommended.
Risks vs. Rewards: It may seem like it’s worth taking all these risks if you get a big payout when starting your exchange (i.e., you make millions), but the likelihood of this happening without experience or guidance is very low. Exchanges fail because they don’t manage their money well enough, meaning that there isn’t any left to trade with one day!
Overall, starting a cryptocurrency exchange is one of the riskiest businesses as it requires so much money and effort to get off the ground as there are many legal problems and risks involved. However, those who can navigate these obstacles successfully and start cryptocurrency exchange could potentially make big profits if their entity grows enough in size/volume.