What does it cost to trade bitcoin?
Apart from the price of bitcoin itself, each cryptocurrency exchange adds a fee for trading, i.e. purchasing and selling coins. These fees include Maker (which add to the order book liquidity through limit orders) and Taker (which subtract liquidity from an order book through market orders) fees. In some cases, crypto traders can incur maker as well as trader fees, if the limit order is already present in the order book.
Cryptocurrency exchanges mainly calculate fees in two ways: as a flat fee per trade or as a percentage of the 30-day trading volume for an account. In both cases, they’ve adopted a tiered structure that depends on the amount being traded.
Four Things To Consider While Trading On Cryptocurrency Exchanges
There are four things that traders must consider while purchasing cryptocurrencies.
First, cryptocurrency exchanges are unregulated in most jurisdictions. With the exception of Japan and South Korea, regulators have mostly taken a hands-off approach to cryptocurrency regulation in some of its biggest trading markets. For example, cryptocurrency exchanges are governed by a patchwork of regulations in the United States - the second largest market for cryptocurrency trading. They are banned in China, which accounted for as much as 90% of overall trading up until the beginning of 2017. (But several prominent Chinese exchanges are still operational and have simply shifted base to Hong Kong or Malta in response to the ban).
Second, fee schedules at cryptocurrency exchanges are designed to encourage frequent trading in large transaction amounts worth thousands of dollars. Fees decrease with the increase in amount and frequency of trades. As such, small and infrequent orders are not cost-efficient at cryptocurrency exchanges. For example, some exchanges charge no fee for trades worth $10,000,000 and over.
Third, exchanges encourage trading with coins. Fiat currencies generally incur deposit and withdrawal fees at exchanges, depending on the payment mode. But purchasing cryptos with other coins, for the most part, is free. In some cases, a small fee may be charged to set up a wallet for the required cryptocurrency.
Fourth, most well-known cryptocurrency exchanges do not offer access to all coins. For example, Cardano’s ADA, which has the ninth-highest market cap as of this writing, is still not available on Coinbase. But traders can transfer funds from one wallet to another and fund their trading accounts using either fiat currencies or cryptocurrencies. For example, traders wishing to buy ADA can use fiat currency to purchase bitcoin at Coinbase. Binance already offers users the facility to import coins from other wallets. Once they have bitcoin in their Binance account, they can use it to buy ADA listed on the exchange. The transfer between multiple wallets at different exchanges incurs small charges at each end.
Here is a brief comparison of trading fees for bitcoin at select popular exchanges. This comparison does not take into account margin and leverage fees.
Coinbase is among the most well-known cryptocurrency exchanges. The San Francisco-based company has more users on its platform than brokerage firm Charles Schwab. (In fact, it reported adding up to 100,000 new users last year after CME announced launch of bitcoin futures). A big part of its popularity is due to its simplified interface which makes it easy even for novice traders to get started with bitcoin trading.
The Coinbase platform enables them to either purchase cryptocurrencies individually or in aggregate through Coinbase Bundles. An important point to note about Coinbase is that it does not function as a typical exchange in that it does not attempt to match orders. It is a cryptocurrency wallet that sells coins directly to customers. As such, the typical fee structure at exchanges, which include maker and taker fees, do not apply to Coinbase.
In the case of individual trading, Coinbase charges the greater of either a flat fee (that depends on the amount being traded) or a variable fee (that depends on the amount, user location and payment method).
Here’s an example. Coinbase charges a flat fee of $1.99 for purchases of cryptocurrencies between $25 and $50. It also charges 3.99% of the transaction amount for purchases made through credit card. Thus, if the user makes a credit card purchase for $25 worth of cryptocurrencies, the variable fee is $0.99 and the flat fee is $1.99. Because the flat fee is greater, Coinbase will charge $1.99 for the transaction. Such transactions can become expensive for users interested in transacting amounts greater than $300.
Some users have counseled traders interested in large transaction amounts to move their funds from Coinbase’s wallet to Coinbase Pro (which was known as GDAX earlier) to avoid fees altogether. Coinbase Pro functions as a typical exchange with maker and taker fees. The former is zero for all amounts while the latter varies from 0.3% to 0.1% depending on the amount being transacted.
Another option for traders interested in purchasing multiple cryptocurrencies on the platform is a Coinbase Bundle - a collection of five cryptos worth $25 per bundle. The platform charges a consumer exchange rate for each individual asset based on the proportion of each asset and its market capitalization. Coinbase bundle fees turn out to be cheaper because the user is only required to pay a single aggregate fee in the transaction as opposed to individual transactions in which they would have to conduct five separate transactions (with individual fees for each transaction) to purchase the same cryptocurrencies.
For individuals transacting in amounts greater than $300 in specific cryptocurrencies and interested in using different payment methods, Coinbase can turn into an expensive proposition. Kraken might be an alternate option. Depending on the base currency being exchanged and whether the transaction is a buy or a sell, the exchange’s fees range from 0% to 0.26%. There is a nominal fee to fund accounts using fiat currencies. The fees incurred for funding your account through the transfer of digital assets from another wallet is typically zero. Except for Washington and New York, the exchange is present in all states and Washington DC within the United States. It is also present in Europe and Canada.
Kraken has also received mixed reviews online with some users claiming that it was “slow”. Here it should be noted, that the speed of a cryptocurrency exchange is also dependent on the cryptocurrency’s blockchain. A surge in transaction activity on its blockchain, as happened with bitcoin last year, can delay order fulfillment at exchanges. Coinbase also experienced delays in trading at the height of bitcoin mania at the end of last year.
The cryptocurrency exchange owned by the Winklevoss brothers has a variable fee schedule, similar to other cryptocurrency exchanges. The fee ranges from 0% to 1% and depends on two factors: the amount being traded and the account holder’s gross trading volume over 30 days. As with other exchanges, the fee charged is inversely proportional to the amount being traded. Thus, the higher the amount traded, the lower your fees. There is no flat fee and the variable fee rate is recalculated every day at midnight and applied to all orders going forward.
Gemini was popular with retail investors because they had low fees (approximately $1.25 for $500 worth of btc) to fund and withdraw trading funds from banks. It was also among the select exchanges which could claim to be regulated. In recent times, however, that popularity has taken a hit as the exchange has hiked fees for bank transfers. It has also rolled out the red carpet for institutional investors and does not charge any fee for block trading.
More than ten withdrawals in a month incurs a trading fee listed here. Gemini recently launched the Gemini dollar – a stablecoin which can be purchased using fiat currency. While the exchange does not offer discounts for trading with the Gemini dollar, traders can make as many withdrawals in a month as they wish using Gemini USD instead of fiat currencies.
Binance is a Malta-based exchange which has emerged as one of the most significant players in the cryptocurrency ecosystem. Its fee schedule is similar to that of Gemini. It charges a variable fee that is recalculated each night during a 30-day trading period. The exchange has a stablecoin called BNB. The exchange has introduced a tiered trading fee discount for using BNB during trades. The discount starts at 50% fee discount during the first year of trading on its platform to 6.75% in the fourth year. Binance’s trading fee range from 0.1% to 0.04% based on the amount being traded and whether the trader is a maker or a taker. The plus side of trading on Binance is that the cryptocurrency exchange offers a variety of coins for trade. However, beginner traders might find it difficult to trade on the Binance platform, especially since it is difficult to transact using USD on the platform.
Investing in cryptocurrencies and other Initial Coin Offerings ("ICOs") is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or other ICOs. Since each individual's situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. As of the date this article was written, the author owns 0.21 bitcoin and 1 Litecoin.