The launch of the first digital-only peer-to-peer currency is a revolutionary idea, and with every innovation, it will rub some the wrong way, which is evident in the divisiveness in the sentiment around bitcoin. Some people like myself love it and see it as the foundation for a new healthy monetary ecosystem, while others see it as a get-rich-quick scheme or a technology that is meant to be disrupted.
In the case of the latter, we’ve seen the explosion of the shitcoin market. In this regulatory grey area, anyone with the ability to spin up a website, copy code from GitHub and create a social media account can create private money promising investors the world.
The era of shitcoins is far from over, and opportunities in the space will continue to spin up and promote these tokens as long as the market consists of naive investors willing to hand over their money on a whim. This latest cycle of shitcoin speculation has seen the emergence of meme coins seems, which are rip-offs of rip-offs. Today there are hundreds of copycat or, should I say, “copydog” coins that rallied on the back of Dogecoin‘s marketing success.
This should tell you all you need to know about the sector. If all coins are rip-offs of bitcoin, then logically, all other tokens are meme coins. They are trying to meme into existence the idea that there is an alternative to bitcoin or that one could exist, and supporting that narrative is a plethora of exchanges willing to give retail easy access to these casino chips.
Bitcoin on the menu, shitcoins in the kitchen
Bitcoin has a growing movement behind it as people start to take the orange pill and reap the benefits of holding sound money. This positive grassroots movement only continues to gain momentum. As the bitcoin brand continues to grow and reach new eyes and ears with the help of ordinary bitcoiners worldwide, the interest in bitcoin drives users to want to acquire it.
Now anyone who has been in bitcoin for a cycle or two has an appreciation for how long it takes before it finally “clicks”, and even with the growing body of knowledge we have today, this learning curve reminds remarkably steep.
Since education in this space is yet to be formalised and become ubiquitous certain companies like shitcoin casinos are trying to take advantage of the situation. They offer or rather advertise themselves as a place to buy bitcoin, and once you’re in, they slap you with a whole host of other tokens and actively encourage you to try them out.
Beware where you buy your bitcoin
These exchanges are willing to list any token as long as they can make money off of the speculation, misinformation and desperation of their user base. Like any casino, there is a massive house edge. Because regulators are still coming to grips with these financial products, the premium in this unregulated space is big business, and someone is always going to come in to exploit it. While one side of the “coin” revolves around trying to play venture capitalist with casino chips, the other side is trying to push forward a revolution in how we acquire, hold and store the product of our time and energy.
Bitcoin-only exchanges and brokers are places to stack sats, not “gamble” on capital flows into the space or trade “pseudoequities” of failing startups that are labelled as “venture investments.” Certain bitcoin-only exchanges don’t even offer a sell option that shows you a certain level of commitment to the asset, as they are willfully ignoring possible revenue streams from bitcoin sales.
So if bitcoin-only exchanges are willing to forgo certain profitable activities, such as listing other coins, why do so many of these large exchanges list token after token with very little diligence or concern for their customer’s portfolios?
Beholden to their investors
The largest exchanges in the world don’t get there without raising massive amounts of capital first and the investors are looking for a return on the risk they took betting on building out a service in a regulatory grey area.
Time is of the essence when it comes to returns in this market because you simply don’t know when those premiums will get squashed by regulatory burdens and the need for compliance and vetting customers and projects. All that paperwork, all those submissions, all those filings would not only be costly and require more staff, but it would mean that the margins these exchanges currently enjoy would be far smaller.
If the margins are smaller, the investors will have to wait longer to see a return, so the incentive here is to play dumb, list as many coins as possible and ask for forgiveness once you’ve suckered in enough retail users.
The illusion of choice
Under the guise of “it’s a free market, bro”, these exchanges list anything from popular venture capital-backed products to low-value, small-capped coins trending on social media. Some coins are built on compelling narratives, such as innovative solutions, while others rely on the backing of a celebrity or piggybacking on meme culture.
Honestly, it doesn’t matter what the coin promises or does; what these exchanges are trying to do is give you so many options to overwhelm you with selections so you feel compelled to try them out. You know variety is the spice of life, so why would you settle for bland old bitcoin when you can bag 21 flavours, baby?
Psychologically humans feel that more choice means you’re getting a better deal, and these exchanges rely on you applying your grocery shopping consumer mindset towards investing.
Increase assets under management
Exchanges use the size of their assets under management (AUM), especially its growth over time, to demonstrate success against competitors and showcase confidence in their business. An AUM that has increased over time can be a signal that the firm is either gaining new customers, that the firm is growing money for its existing customers, or both.
An increasing AUM is a measure of success because it generally leads to higher revenue and bigger compensation packages for management and returns for investors of the exchange. Additionally, the more assets you have to manage, the more users you can acquire since you’re appealing to a wider range of people and communities.
When you’re in the growth-at-all-cost business, listing another coin that might appeal to a new demographic or cohort of investors is a sure way to increase those assets under management. Instead of having to open up an account or try to buy on-chain, you can use a single exchange for all your degenerate gambling.
Income from listing fees
This one might be shocking to you, but not every coin listed on an exchange is there because of market sentiment or demand. No, in fact, they are listed because of backhand deals. Projects spinning up coins need access to liquidity, so they approach these exchanges and offer to pay the listing fee to make a market for them.
They’ve even gone as far as to give it a name, “IEOs” or Initial Exchange Offerings; in some cases, when a new coin is launched, a certain exchange will have exclusive rights to launch the coin’s first market. They get to hype it up to their user base and probably have a healthy pre-mine to dump on the market as retail investors look to secure the next narrative-driven frenzy.
Generate fees on trading
There are several ways in which exchanges make money by listing more coins on the platform, and most of it comes through activity bias. If an exchange only had one asset to sell, like bitcoin, they’re not going to net as many fees as they would having 100 tokens where they can skim off a few cents from every trade.
Exchanges typically generate income from:
- Maker fees
- Taker fees
- Spread fees
- Deposit fees
- Withdrawal fees
- Staking fees
Cryptocurrency exchange platforms tend to operate using a maker-taker fee system. Maker fees are a common exchange fee and, as the name suggests, are charged to makers on a platform. A maker generally makes an order within an order book that can be fulfilled by someone else later on, not immediately.
In simpler terms, they “make” the marketplace for other traders. As a result, makers are the best users an exchange can have, as they provide the platform with liquidity.
If an exchange doesn’t use the maker-taker fee structure, it will often charge spread fees. A spread fee is determined by calculating the difference between the cost of a token
By listing shitcoins, you get to increase your fees across all actions and now net additional fees by providing staking services.
Profit from speculation
Exchanges spend millions each month on advertising to promote their services and acquire customers; those customer acquisition costs have to be recouped if they are to run a profitable operation. If you’re only relying on the effectiveness of your marketing team and the way they allocate resources. You’re missing out on a lot of free advertising through the myriad of poor financial advice being shared online daily.
By listing all these questionable tokens, you tap into the marketing power of the internet; instead of having to promote your product, you’re now on the right side of every shillfluencer, celebrity, or marketing paid for by these token-issuing companies.
When the internet gets a hold of a narrative, and it picks up pace, such as Elon tweeting about a certain coin, instead of spending $10, $20 or $100 to acquire a user, all you do is tap into that current trend and offer unsuspecting users the rope they need to hang themselves out to dry.
Profit from “diversification.”
We’ve all heard the tired trope of “don’t put all your eggs in one basket” while there is some wisdom to it, you cannot simply apply it as a blanket strategy to every investment. The idea behind diversification is to have exposure to value that is not correlated and help you hedge against volatility in one market.
You’re not diversifying; you’re buying financial securities that are leveraged bets on the capital flow into bitcoin and taking on more risk rather than reducing your risk, which, as I mentioned, is the entire point of diversification.
Exchanges encourage users to have a “basket” of assets as the “safe” or savvy investor play so they can increase the likelihood of you trading between pairs, and they can net fees, or you’ll buy tokens they have a bigger margin on.
Shitcoins have bigger margins
There is a limited amount of bitcoin circling the internet, and to get them, you either have to mine them or buy them. Even if you have billions of dollars to bankroll your operations, there is no way to get around the reality of bitcoin, and it’s the same rules for everyone. If you’re an exchange buying and selling bitcoin, there are only so many coins you can buy OTC or make deals with miners to secure coins at a certain price, so there isn’t that much margin in bitcoin.
But if you’re listing coins that cost nothing to create or companies are willing to hand you a sizable amount of coins in exchange for a listing or offer you a discounted pre-mine allocation, well, then your margins are nice and fat, aren’t they?
So why not list these tokens and score a healthy profit off of a naive customer base who believes you’re an authority on digital assets while you make digital asses out of them.
Exchanges are not your friend
Do you use a shitcoin casino, or have you switched to a bitcoin-only service to acquire your satoshis? Do you find these multi-coin exchanges valuable in your neck of the woods and see them as a necessary evil? If you do use one of these casino exchanges, what would get you to switch to another service?
Let us know in the comments down below.