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Crypto fees

Lesson in Course: Crypto (advanced, 9min)

Trading and transacting crypto isn't free. So how much does it cost?

Eureka!

What it's about: The breakdown of the costs charged to trade crypto.

Why it's important: With few options available, some brokerages or exchanges can be taking our hard-earned money.

Key takeaway: DEXs charge the lowest exchange fees. Transactions fees like gas fees cannot be avoided.

Most of us are familiar with the idea of service charges. Crypto exchanges make money whenever we make trades, regardless of whether it's cash-to-crypto or crypto-to-crypto. Brokerages that run on top of these exchanges charge their own fees in addition. No matter what, we'll need to pay fees for their services. Certain exchanges like DEXs charge much lower fees.

With crypto, there's another fee we have to be prepared to pay. We also pay fees when we make blockchain transactions with our crypto. Let's look at what some of these fees are and how much we can expect to pay.

Exchange service fees

Most exchanges charge their fees as a percent based on the amount of crypto bought or sold, so larger transactions will have higher fees. The percentage often changes depending on the liquidity.

Reduced liquidity on spreads

For example, the service fee will be much higher if a crypto has a low trading volume. The higher fee compensates for the extra difficulty of matching a buyer and a seller. 

Exchanges make money by standardizing purchase and sell orders

Exchanges will include their service fee in the exchange rate we get for our trade. They do this by having the buyer purchase the crypto at a higher price than the seller receives for selling it. Exchanges keep the difference which is known as the spread.

What is Bid-ask spread?

The bid–ask spread is the difference between the prices quoted for a buyer and a seller for stocks, futures contracts, options, or currency pairs.

The most commonly traded cryptos will have the lowest fees and, therefore, the smallest spreads.

 
How popular exchanges price their fees

Coinbase

Coinbase charges a spread of about one-half of one percent (0.50%) for cryptocurrency purchases and cryptocurrency sales. However, the actual spread may be higher or lower due to market fluctuations in the price of cryptocurrency on Coinbase Pro between the time we quote a price and the time when the order executes. 

We also charge a Coinbase Fee (in addition to the spread), which is the greater of (a) a flat fee or (b) a variable percentage fee determined by region, product feature, and payment type.

Kraken

Our Kraken.com platform matches orders from clients who want to buy cryptocurrencies with orders from clients who want to sell cryptocurrencies (or vice versa).

We charge a fee when your order is executed (matched with another client's order). The fee ranges from 0% to 0.26% of the total cost (value) of your order and depends on the following...

Binance

Binance US Fees—General: 0.1% spot trading fee; 0.5% Instant Buy/Sell fee.

Crypto transaction fees

Any transaction we make with crypto requires verification before it gets added to the blockchain. Transaction fees are an incentive for miners and validators to verify our transaction. We pay them using the crypto native to that blockchain.

Transaction fees are built into the blockchain

These fees are not the same as the exchange fees! Exchange fees go to the exchanges for executing our trade, whereas transaction fees pay validators for adding the transaction to the blockchain. The transaction fee of a particular blockchain will be the same regardless of the exchange we use.

Transaction fee sizes will vary in different circumstances. For example, they will spike when there are a lot of transactions happening. We could end up paying significantly more to complete a transaction during periods of high demand. They go by different names depending on the blockchain, but here are two of the most popular transaction fees.

Gas fees

We have to pay a gas fee for our transactions on the Ethereum blockchain. The chart below shows the ETH gas fee over one year. The spikes show us the times when trading or using ETH was the most expensive.

ETH gas fees

Bitcoin transaction fees

Remember, transaction fees are blockchain-specific, so the fees for Bitcoin are different than Ethereum. The chart below shows the transaction fees for BTC over one year. We can see how quickly they can change by a significant amount. 

BTC transaction fees

Seeing our fees in context

Coinbase and many popular CEXs usually keep it simple for us by combining exchange service fees and transaction fees into a single amount, or spread. 

The transaction and service fee are combined in a total spread

Let's take a look at what fees look like in context.

$50 USD fiat to ETH fees

Below is an example of a cash-to-crypto trade, trading $50 for ETH.

 For this transaction, Coinbase is charging $1.99 for all of the fees combined.

What if we already have crypto, and we're looking to make a swap?

$50 USDC to ETH fees

Coinbase charged the same fee for a crypto-to-crypto transaction, trading 50 USDC (worth $50) for ETH.

In the end, the $1.99 transaction fee on Coinbase represents 3.98% of our transacted value of $50.  Paying a ~4% fee for the convenience of a CEX might be worth it for us if we make fewer long-term trades. However, if we trade frequently, those fees will start to add up and become expensive. In that case, we should consider lower-cost CEXs or use DEXs for our crypto-to-crypto trades. Some DEXs charge fees of about 0.5%. 

 

Actionable ideas

It's always a good idea to pay the lowest fees possible, since fees lower our investment potential.

When investing in crypto, we'll pay lower exchange fees by investing in more popular cryptocurrencies. Buying or selling during off-hours will save us on transaction fees. Finally, we might want to consider using a DEX for any crypto-to-crypto trading if we will be trading more frequently.

 

Supplementary materials

Below are helpful resources to find current Ethereum gas prices and Bitcoin transaction fees.

Gas price

       Ethereum Average Gas Price        

In-depth view into Ethereum Average Gas Price including historical data from 2015, charts and stats.

https://ycharts.com/indicators/ethereum_average_gas_price

Bitcoin transaction fee

       Bitcoin Average Transaction Fee        

In-depth view into Bitcoin Average Transaction Fee including historical data from 2009, charts and stats.

https://ycharts.com/indicators/bitcoin_average_transaction_fee

Glossary

What is Bid-ask spread?

The bid–ask spread is the difference between the prices quoted for a buyer and a seller for stocks, futures contracts, options, or currency pairs.