Become a better investor
Lesson in Course: Crypto (advanced, 9min )
Trading and transacting crypto isn't free. So how much does it cost?
Crypto exchanges make money whenever we make trades, regardless of whether it's cash-to-crypto or crypto-to-crypto. We pay fees for their services. When using crypto for utility, we also pay fees when we make transactions with our crypto.
Fees affect how much of our money gets invested, influencing how we might decide to invest. Let's look at what some of these fees are and how much we can expect to pay.
Unlike investing in the stock markets, fees charged by centralized crypto exchanges can be very high. However, costs on DEXs are significantly lower.
Since most folks use CEXs, we'll focus on the fees of the largest exchanges.
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 different circumstances.
For example, the cost will be higher if a crypto has a lower trading volume, since it isn't frequently traded. The higher fee compensates for the extra difficulty of matching a buyer and a seller.
Exchanges usually include the fee in the exchange rate. 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. The most commonly traded cryptos will have the lowest fees and, therefore, the smallest spreads.
Here are some quotes from popular exchanges about how they price their fees:
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.
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 US Fees—General: 0.1% spot trading fee; 0.5% Instant Buy/Sell fee.
Coinbase and many popular CEXs usually keep it simple for us by combining exchange service fees and transaction fees into a single amount. Below is an example of a cash-to-crypto trade, trading $50 for ETH. For that transaction, Coinbase charged $1.99 for all of the fees combined.
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%.
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.
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.
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.
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.
Below are helpful resources to find current Ethereum gas prices and Bitcoin transaction fees.
Bitcoin transaction fee
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.