Over the past few years, many people have been wondering how Chinese Bitcoin exchanges make any money, to begin with. There are no trading fees on most of these platforms, and deposits are not subject to any charge either. At the same time, these platforms usually charge a premium Bitcoin price, and there are lending fees to take into account as well.
Chinese Bitcoin Exchanges Are Very Different
It is evident for everyone to see Chinese Bitcoin exchanges use a very different revenue model compared to their Western counterparts. In Europe and the US, it is only normal to pay a trading fee on every buy or sell order. But in China, those fees do not apply, as all trades are executed at 0% fee.
This begs the question as to how Chinese Bitcoin exchanges make any money. While they see a ton of trading volume every single day, not charging any fees seems rather strange. Then again, buying Bitcoin on a Chinese exchange is always subject to paying a premium price, which can be anywhere from 3-8% depending on the time of purchase.
While the business model may appear strange to Westerners, it makes a lot of sense in China. Exchange operators are competing to become the market leader. Once they are the leading Bitcoin exchange platform in China, they can adapt their business model as they see fit. But there is more, as their lending rates for both Bitcoin and CNY are higher than what most exchanges are charging right now.
To put this into perspective, the Bitcoin lending rate on most Chinese platforms is 0.1% on average. Platforms such as Poloniex offer rates as low as 0.04%, making it a much cheaper option. Then again, Poloniex does not have support for CNY, making it less appealing to Chinese cryptocurrency traders.
Furthermore, most Chinese exchange platforms are not just in the exchange business either. They operate mining pools and other Bitcoin services which allow for revenue to be generated. All of these efforts combined will pay the costs of running the exchange as well. This does not mean these companies are making a ton of profit, though.
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