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South Korea’s biggest cryptocurrency exchange saw 171x rise in profits, $6 billion in user funds

Bithumb has publicly revealed that its staggering profit was generated by its cryptocurrency holdings – our correspondent Joseph Young explores.

Written by Joseph Young Published on

Bithumb, South Korea’s largest cryptocurrency exchange that processes fiat-to-cryptocurrency traders, has seen a 171-fold increase in its profits in 2017, compared to 2016. A public report released by the company revealed that Bithumb holds more than $6 billion on behalf of users.

Higher Profits Than Revenues

The parent company of Bithumb is BTCKorea, a public company listed on the Korea Exchange, the country’s main stock market. BTCKorea is required by the stock market to reveal the holdings and balance sheet of its subsidiaries including Bithumb to the public every quarter, and it has done so with transparency since 2016.

In April, Bithumb released the full report of the company’s earnings in 2017 after it held a board meeting at the end of March. Last month, a Bithumb spokesperson stated that the company has generated about $400 million in pure profit or net income. But, investors were taken aback by the fact that Bithumb has generated $300 million in revenues. It turned out, the profit generated by Bithumb was higher than the company’s operating revenues.

According to Bithumb, the company was able to generate higher profits than revenues because of its non-operating income. Usually, in conventional industries like finance or retail, companies generate non-operating income from real estate. For instance, The New York Times generates a substantial amount of non-operating income from its headquarters in New York, as it rents out its skyscraper to other companies and businesses.

At the time, investors expected the non-operating income of Bithumb to come from its potential investment in cryptocurrencies like bitcoin or stocks, but the company did not disclose any details about its income in March.

This month, Bithumb disclosed that its non-operating income was generated by its cryptocurrency holdings, and its profits intensified as the cryptocurrency market achieved its peak by the end of December.

As of December 2017, Bithumb held about $6 billion worth of cryptocurrencies. It possessed more than $1 billion worth of bitcoin and $1.6 billion worth of Ripple for its users and investors. The company itself had significantly less than that. According to HanKyoReh, a South Korean mainstream media company, Bithumb owns $55 million of bitcoin, $60 million of Ether, $10 million of Dash, $30 million of Litecoin, $13 million of Ethereum Classic, $100 million of Ripple, $80 million of Bitcoin Cash, $23 million of Qtum, and about $10 million in EOS, Bitcoin Gold, Monero, and Zcash.

Generated From Fees

The Bithumb team explained that the company’s holdings of cryptocurrencies are composed of the fees it gathered from its users on the Bithumb cryptocurrency trading platform. Instead of converting the fees to fiat, Bithumb kept it in cryptocurrency, expecting the value of cryptocurrencies to rise.

“It is inevitable for a cryptocurrency exchange to convert some of the fees it generates from processing cryptocurrency traders to fiat to cover operating costs. But, it is important that the sell-off of fees, which often amount to hundreds of millions of dollars, does not hugely impact the market and the rates of cryptocurrencies. This is an issue that is non-existent in the traditional stock market and thus, local exchanges and the South Korea Blockchain Association are trying to come up with better policies.”

Written by

Finance and cryptocurrency analyst and writer contributing to CoinInsider. Offering unique insights. @iamjosephyoung

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