Market data on the crypto market will continue to be free

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Market data is the lifeblood of Wall Street.

Any specialist in market structure can tell you that the subject of market data is an issue that frequently divides financial services firms (despite how boring this conversation can be). On the one hand, there are brokers who want to pay less for access to proprietary exchange data. On the other side are the brokerage firms, which have a myriad of market data and, as centers of trading activity, expect to charge money for access.

As such, stock market data is quite constrained in a very different way from the crypto market. Crypto exchanges make most data free (whether it’s volumes, auctions, or bids), while exchanges charge for this data. For the fastest access to data, they charge even more. This begs the question: will crypto exchanges follow the path of stock exchanges? This issue was on full display this week when an anonymous crypto account took to Twitter to complain that FTX had limited open interest and liquidation data for its futures products.

That turned out to be wrong, according to crypto prodigy Sam Bankman-Fried. And, frankly, there is a good reason why this is not true. And this is the reason why market data is always open and free in the Old West crypto market.

In crypto, exchanges like FTX, Coinbase, and Binance have plenty of ways to make money outside of data, while stock exchanges like Nasdaq and New York Stock Exchange earn a small fraction of a dime corresponding to the stock market transactions. As a result, exchanges like Coinbase derive over 90% of their income from trading, while stock exchanges like ICE derive over 50% of their money from data.

Additionally, the activity of a crypto exchange is much broader compared to its equities market counterparts.

SBF said it well in a recent telephone conversation:

“We have the GUI, custody, clearing, brand name, and retail operations. So, in the end, our take rate on earnings is much higher than the stock exchange which is fair in the business of matching sellers and buyers. We earn a lot more by making data free than we would by increasing data revenue. “

He added that a 10% increase in the cost of data would result in a loss of customer base that would offset such a surcharge. Of course, FTX isn’t the only crypto exchange to have a similar business model: Coinbase, Gemini, and Kraken look very similar.

So when will the exchanges start charging for access to market data in crypto? It will likely happen at some point, but before that the competition needs to compress. Until the crypto market is dominated by fewer exchanges similar to the equities environment, this will not happen.

2021 The Block Crypto, Inc. All rights reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial or other advice.

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