How to Start a Cryptocurrency Business From Scratch?

How hard do you think it is to create a crypto exchange? You may be surprised to discover that it's easier than it may seem at first glance. The truth is developing a cryptocurrency product is the easiest part of the process - the primary challenge comes with nurturing and growing your project over time.

Given the fact that anyone can start a cryptocurrency business, blockchain-based projects pop up every day. By the end of May 2013, over 15 different cryptocurrencies existed in the market, according to CoinMarketCap. Even nowadays, the number of cryptocurrencies has doubled from January 2021 to January 2022, and as of July 2022, it equals 9,898 digital assets. As a result, the competition has become fierce. As a result, the benchmarks are higher than ever before.

On one side, increased competition is beneficial: it stimulates the industry's growth and fosters innovation. However, from the entrepreneur's perspective, standing apart from the rivals requires way more money and effort to keep the venture afloat. As a result, 92% of all launched crypto projects failed - it may be a surprise for you, but it perfectly proves our point.

This article will go through the six essential steps business owners should know when starting their own cryptocurrency exchanges. But, before diving right into it, let’s get to the core of why crypto startups gain so much attention and what underlying struggles they possess.

Why Are Crypto Business Ideas on the Rise?

The answer is quite straightforward - because crypto is on the rise! 

Despite the bear market, the volume of the capital crypto ecosystem attracted in half of 2022 exceeded last year's figures.

Analytical portal Messari published a report on investments Cryptocurrency Sector received this year. It states that in the first six months of 2022, 1,199 funding rounds were completed. This capital inflow made it possible to attract about $30.3 billion to the DeFi, NFT, CeFi, and infrastructure segments.

Despite the decline, the volume of investments for this period exceeded last year's value. For comparison, in 2021, 1313 rounds were held for $30.2 billion.

Looking at these numbers, we can come to a simple yet essential conclusion - blockchain technology is here to stay. The crypto market is flourishing and rising astonishingly year over year bringing more cryptocurrency business ideas and innovations to life.

How to Create a Crypto Exchange: The Challenges You May Face Along the Way

According to the study conducted by the China Academy of Information and Communications Technology (CAICT), only 8% of the over 80,000 blockchain projects ever launched are still active today. It doesn’t sound promising, does it?

Here are vital challenges crypto ventures get stuck with when taking off the ground:

1. Compliance and Scams

Decentralization in an unregulated environment is the core of what blockchain is. Yet, based on a yearly study of securities regulators by the North American Securities Administrators Association, investments involving digital assets are the most significant hazard to individual investors in 2022. Not only do retail investors fall for fraudulent activity, but big crypto corporations get hacked too. 

To give you an idea, on March 23, 2022, the most popular play-to-earn game, Axie Infinity, was hacked and almost $615 million worth of cryptocurrency was stolen from a blockchain project.

The trust in just emerging cryptocurrency projects has been shattered. Therefore, entrepreneurs should strive to provide super high security and be transparent about business operations when starting a crypto exchange.

2. Liquidity

Liquidity has always been a core element of a thriving finance asset or system. High liquidity automatically increases traders' trust in the market since it indicates a stable environment with few fluctuations in price.

Cryptocurrency exchanges with a low liquidity level have a hard time surviving. Fundamentally, less liquidity leads to slippage, price manipulation, unfair prices, and orders that take too long to fill. All these factors serve as red flags for investors and are detrimental to them when making a decision.

3. User experience

Since so many successful cryptocurrency exchanges are operating nowadays, it is easier for entrepreneurs to understand which features to implement on their developing platform.

Keep in mind that various people have varied needs for trading cryptocurrencies. Some people come to solely deposit and withdraw cryptocurrency, while others rely on stop-loss orders and technical analysis. If an exchange lacks many necessary features and is hard to use, a trader has plenty of competitors to choose from.

6 Key Business Steps on How to Start a Crypto Exchange

Now that you have seen the most common challenges associated with building your own crypto business let's go through 6 key steps on how to build a cryptocurrency exchange.

1. Create a Decent Crypto Exchange Business Plan

A well written business plan is an essential part of building any business. It helps not only observe a target industry but to assess a company's sustainability before spending lots of time and money on it.

As Benjamin Franklin once said: “If you fail to plan, you are planning to fail!.” A business plan drives entrepreneurs to set clear goals and determine necessary steps ahead of time, along with resource allocation planning. 

Just like in any other sector, a crypto business plan can help you get funding and attract new business partners. A business plan is a proposal to investors explaining what, where, and why the project is superior to others. It adds credibility and professional touch to your venture. 

The white paper is a common term in the crypto space that serves as an alternative to the traditional business plan. Projects use the whitepaper to outline the technology behind the utility token. Apart from the technical information, white paper details a roadmap on how a token plans to grow and scale.

There are several reasons why business plans are a must-have. Essentially, they allow investors and business owners to see the product's viability. In addition, business plans provide clarity on what actions the company must take to achieve its goals.

The critical components of a crypto business plan include the following:

1. Executive summary. An executive summary is a pitch for investors. It should highlight essential information about your project and a brief overview of your financial growth plans;
2. Business description. First things first, the plan must showcase an in-depth overview of your venture, including its goals, core features, USP, and target customer base;
3. Market analysis. The primary point of this stage is to define your target audience clearly. Here you will back up your idea with accurate data and statistics that outline industry trends and themes;
4. Competitive analysis. A well-written business should present a comparison of your business and its direct and indirect rivalries. Your goal is to point out how your exchange will stand out;
5. Job roles and responsibilities. Here you should introduce your company's dream team and summarize each one’s skills and areas of responsibility. Outline the ownership structure of your startup in this section likewise;
6. Choose a business model. Describe how your exchange plans to make money and which pricing strategy it is going to utilize;
7. Draft a marketing plan. In this section, you will explain how you are going to attract, engage and retain your customers. Your marketing plan should describe your current actions and a long-term strategy;
8. Project your budget. Start by researching all relevant and related costs and expenses; 
9. Financial projections. The final section must outline your predicted annual income for at least the first 3 years of operations. This block also focuses on various funding resources, the capital you need to raise, and how you plan to raise it;
10. Prepare a go-to-market plan. Go-to-market strategies anticipate new businesses' challenges and help them minimize risk and optimize potential success when introducing a new product to the market;

The research you did at this stage will pay off. A nicely researched business plan will pay off by giving you, as a business owner, and your potential investors a crystal clear picture of business objectives and ways your team will reach them.

2. Clearly Define Your Crypto Brand

Everything starts with an idea. Essentially, a brand is the feelings and thoughts your product or service evokes in people's minds.

Brand identity lies at the heart of almost everything your business is and does. Crystal clear value proposition and brand image are beneficial in several ways:

• First of all, the brand distinguishes your project from thousands of others in the crypto industry. 

As was mentioned earlier, the crypto market is no longer the "blue market" we used to observe a few years ago. Instead, it has become oversaturated with new products and features previously only present in traditional financial markets. So, if you want your business to stand out from the competitors, crypto branding is something you will have to invest in. 

• Brand identity makes your brand more authoritative and credible.

Having consistent branding develops trust among its customers and credibility among its competitors. 

• Brand increases business value

Branding goes further than just making your product memorable. Proper cryptocurrency branding will boost your project’s business value and highlight your brand’s strong points for investors.

Crypto marketing firms cover various digital solutions, including branding, which allows you to concentrate on your business. Wondering how to find the best marketing firm to help your project develop strong crypto branding? - We have just a perfect startup marketing agency in mind!

3. Choose a Dedicated Software Provider: Turnkey & White Label Exchange Solutions

Starting a cryptocurrency business takes a skilled team of highly profound programmers that will be in charge of all technical issues. Even if you are a tech geek, hiring an authentic software provider is the smartest choice to make at this point. In addition, Crypto exchanges require constant observation and updates, meaning there is less time left for you to supervise and oversee the business.

White label and turnkey crypto exchange are two comprehensive packages of solutions that allow you to breathe easily without worrying about legal and technological aspects of your business development. Instead, you can focus on defining a project's unique value proposition and marketing, for example. In their essence, turnkey and white label exchanges are ready-made software designed, developed, and tested to be quickly available for deployment.

While building a crypto exchange from scratch may take at least 6 months, turnkey & white label crypto exchange solutions enable you to launch your cryptocurrency platform in a matter of days. Such offers save entrepreneurs tons of money and time, that’s why they are extremely popular.

However, turnkey and white-label solutions have a flip side. The absence of in-depth customization and overused and poor designs are common issues with ready-made crypto exchanges. Not so many companies provide core customization and a more extensive feature set, which makes several platforms look alike. One more significant disadvantage white label exchanges come with is finding a tech team for maintenance and ongoing support. Since the original software’s architecture is only known to previous developers, the new ones you hire will have to spend additional hours studying the structure, charging you decent money.

4. Get the Required Cryptocurrency Exchange License(es) And Permits

Since cryptocurrencies are decentralized, they don’t have any authority to supervise the activities of companies using them. Nevertheless, as crypto exploded in popularity, more governments started looking for methods to regulate how people used digital money. That being said, choosing a country for your exchange's operation is crucial, considering how skeptical some may be.

Having decided on the country, you need to complete all the legal formalities to run your crypto business hassle-free. First, every new company must register a crypto exchange license (business license). But more to come - your venture may require multiple licenses or permits to operate appropriately.

Basically there are 2 types of authorisations an exchange needs:

• Authorisation as a crypto exchange service provider
• Authorisation as a custody service provider

As a business owner, you are responsible for ensuring your crypto exchange operates legally. The process sounds complicated in theory, but it only worsens in practice. A license, however, necessitates deeper comprehension of legal issues. Legal issues require deeper understanding regardless of how educated and professional you are. So, feel free to hire a skilled attorney whenever you are not feeling sure. But, since your business is at stake, starting on the right path is better.

5. Partner With a Crypto Market Maker

For any emerging cryptocurrency business, liquidity is a challenge. No trading activity or big spreads that easily influence the asset's price - separate or combined. Don't these factors sound appealing to investors and new users? 

There are a few indicators of a quality cryptocurrency exchange, and liquidity has a top priority.

Solving a liquidity problem is a piece of cake if you know what a market maker is.

A market maker is usually a crypto prop trading firm that is responsible for submitting both bid and ask limit orders on a crypto exchange. The main goal of a market maker is to help buyers and sellers find each other even if they trade at different times. Nailing down the liquidity is impossible without a market maker working for you behind the scenes. 

6. Start a Crypto Marketing & PR Campaign

A cryptocurrency exchange is much more than just a technology. It comprises different aspects every business owner should pay close attention to, and marketing is fundamentally one of them as it drives liquidity.

A solid blockchain marketing strategy must make your brand stand out in today's oversaturated crypto market. It is no longer a competitive advantage; it is a bare necessity of every project. The share of users your exchange gets depends on your marketing strategy and how fast you adapt to the ever-changing crypto market. The proper marketing & crypto PR campaign will help you maximize your reach, attract the most engagement and create a loyal user base.

Just like with all 5 steps mentioned above, relying on professional expertise will be more time-saving and cost-effective than doing it by yourself. 

How to Maintain Liquidity When Starting a Cryptocurrency Exchange?

Managing liquidity on your crypto exchange can be easy if a market maker takes care of it for you!

Bitquant Capital is a primary market maker and liquidity provider in the cryptocurrency space offering a complete package of solutions for centralized and decentralized exchanges, various trading pairs, and tokens in particular.

Providing liquidity for DEXs and CEXs are totally different tasks:

• Retail traders drive liquidity on decentralized exchanges through liquidity pools. As market makers, we take full responsibility for creating and managing liquidity pools to enable trade execution with minimum slippage and incentivize users to fund pools themselves.
• Compared to decentralized platforms, centralized cryptocurrency exchanges use order books. The market-making strategy we develop ensures sustainable trading volume, tight bid/ask spreads, deep order books, and establishing a fair price for listed coins by making the market run non-stop.

Trading volume doesn’t equal liquidity. However, an exchange with high trading volume and efficient marketing tends to attract more traders. More traders on the exchange lead to more buy and sell orders on the books - and that’s how trading volume contributes to liquidity. Thanks to our robust technology, Bitquant offers 24/7 trading activity support before and after projects’ launch.

To sum up, launching your own crypto exchange is challenging work, but it is totally worth it. It takes a lot of determination, responsibility, passion, and patience to get the idea off the ground. But, maintaining the growth and project sustainability is even more challenging. Therefore, your partnership with a market maker doesn't end in the "launch" stage - it continues throughout the startup's life cycle. A market Maker's role can't be overestimated, especially when you build a crypto exchange. An experienced liquidity provider working for you is a quality mark of a project bound to succeed.

Don’t hesitate, kickstart your market making strategy now!

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