This article was originally published in Kauppalehti.fi and in print on issue number 83 on 4.5.2021. Link to original post (in Finnish) can be found here.
Four domestic cryptocurrency companies tell about the growth of business and bright industry outlook.
Finnish digital asset companies have gained momentum thanks to the booming recent months.
“Last year was good but the current fiscal year is from a different planet. The previous turnover record has been well broken at this point of the year already.”, says Henry Brade, Coinmotion’s Chairman of the Board.
The digital asset brokerage service from Jyväskylä has experienced wild growth this year.
First quarter sales and operating profits are already high. Number of employees has almost doubled in a short time and new recruitments are pending.
According to Brade, the development is due to the rise of bitcoin in recent months. The high price has increased investors’ interest and trading on Coinmotion’s service which has brought the service provider more brokerage fees.
During the early year the service’s user count has increased by about 20 percent. Most of the customers are from Finland.
Brade believes new trading volume highs to be set during the year. Forecasting, however, is difficult in the digital assets sector as high volatility is in the nature of the market.
“Estimates and analysis are flimsy. When the market is so wild, trading volumes can increase without warning and decrease just as fast.”
According to Brade, the Finnish digital assets sector is developing relatively slowly and operations are small-scale for now.
Last year and this year have also gone well for Localbitcoins, which focuses on peer-to-peer bitcoin trading. The company gained over 20% more customers last year. The company’s main markets are in Latin American, African, and Asian countries.
“Whenever bitcoin price goes up, it increases interest and demand. That’s when not only a lot of customers arrive, but also trading volumes per customer increase”, says CEO Sebastian Sonntag.
Localbitcoins’ last year’s revenue was slightly lower than in the previous year. The operating profit of over 65% on revenue gives a good indication of profitability. Since the beginning of last year, the company’s staff has grown 60%.
Demand has been growing but regulation under the Financial Supervisory Authority, which begun in 2019, has made growing more challenging. Regulation has forced closures on some markets and increased costs associated with anti-money laundering measures.
Most of the demand for bitcoin in the Western countries is from speculative investing. According to Sonntag digital assets are often used as a hedge against a weak official currency in developing countries.
“For example, Venezuelan Bolivar’s inflation is thousands of percentages a year, so yes, people are looking for an alternative store of value. The banking sector is also weak and it is not easy to purchase financial products.”
A strong start to the year gives the company good prospects for reaching a new record year but the accelerated flow of new customers may soon begin to level off. In the longer-term Sonntag believes competition will intensify, which could increase the pressure to lower commissions.
“Competition is growing and there are more and more players on the market. On the other hand, competition is not yet real in the sense that all companies are growing with the market.”
The latest boom has also increased the interest of ordinary Finns towards digital assets. The Turku-based Northcrypto’s revenue has grown immensely; since the beginning of the year their revenue had grown to almost five-fold of the previous year’s total.
“In terms of quantity, we get a good slice of the ‘windbreaker people’, i.e., new investors. We aim for ease of use and we are a logical option in that respect”, says CEO Ville Runola.
The eight employee company’s operations are largely automated and therefore scales efficiently.
“If this year’s revenues grow 20x, the number of employees would only need to double”, Runola says.
Runola believes that the entire industry and companies will grow in the coming years. He sees growth opportunities for Finnish companies especially in Europe.
In recent years, many new services have been established around digital assets – including Tesseract Investment. The company borrows and lends in digital assets which allows for interest rate opportunities.
“Our business has developed really well as the market demand is quite strong at the moment. We have been a profitable business since last year’s March and have been expanding our operations a little bit everywhere”, says COO Niklas Lahti.
This year the company expects up to a tenfold growth in both revenues and profits.
Tesseract focuses on small investment companies and other institutional clients, of which majority are outside of Finland and the Nordic countries. The company manages millions of dollars in assets.
Lahti considers Tesseract’s outlook very positive. The digital asset market capitalisation has grown quickly and Lahti believes the digital asset credit market, which is still in its infancy, to inevitably grow in the coming years.
“Family office- style investors have taken digital assets much more seriously and as part of their diversification. Secondly, high-net-worth individuals have entered the market even more strongly over the past half a year to seek interest income.”