How has this affected the business of exchanges?

To be sure, a cryptocurrency exchange refers to a place or platform where people can trade cryptocurrency. Exchanges allow users to buy and sell cryptocurrency through their platform in exchange for a fee. They usually do this by storing users’ cryptocurrency on their own wallet which enables their customers to access it anytime they need it.

Two ways exchanges offer asset exchanges are through a decentralised crypto exchange. This is similar to how exchanges like the Nigerian Stock Exchange operate where you have buyers and sellers, only there are no brokerage intermediaries and it’s completely decentralised. In essence, this type of exchange allows buyers and sellers to trade cryptocurrencies directly with one another without any middleman to ensure that all trades are processed correctly.

When the market is in bullish mood, the number of buyers usually will increase while users willing to sell are likely to increase their prices. A specified commission from such transactions goes to the exchange providing the platform. However, if there are negative sentiments towards the market, number of buyers usually drops and while the number of sellers is likely to rise, they usually do so at very reduced price. There are no guarantees however that an exchange will reduce the amount of commission it charges for transactions since it must earn money to keep the platform running.

A second way is through the intermediary – this time the cryptocurrency exchange. Some exchanges act as intermediary to enable a transaction between a buyer and seller. If a buyer wants to buy bitcoin from a platform for instance, the price that an exchange would quote could be slightly higher than the actual spot price of bitcoin. In this way, whenever a seller makes a transaction the exchange makes a profit.

One of the advantages of having an intermediary is the ease of converting from cryptocurrency to fiat currency.

Exchanges can also make money by listing fees. Developers of altcoins and initial coin offerings are charged fees to have their tokens listed.

In essence, whether in decline or boom, cryptocurrency exchanges are not directly exposed as they do not necessarily hold cryptocurrency assets. They are merely conduits that enable the market. Their non-exposure helps cushion them from direct losses that buyers and sellers might be exposed to. Thus, as long as there are buyers and sellers, the exchanges will make money.

Source:

1. https://www.vanguardngr.com/2018/11/cryptocurrency-how-price-drop-affects-exchanges/