Crypto Fees: A Full Breakdown and How To Minimize Costs
Cryptocurrency is regularly in the news for a variety of reasons — its turbulent history, its recent strife, the emergence of crypto in 401(k) plans and interactive brokerage houses and a new credit card that offers up to 4% crypto back.
The news and sentiment on cryptocurrency vary — and so do the experiences of those who trade it. Crypto isn’t yet a well-regulated industry in the way that we’ve come to expect from more traditional forms of investing.
Although regulators are attempting to make strides on that front, it’s important to do your research about cryptocurrency exchanges, transaction options and related fees.
Crypto Has Thousands of Transactions Every Hour
Bitcoin alone can average more than 10,000 transactions per hour and unlike a stock exchange, cryptocurrency trading is available around the clock — so related fees can add up quickly.
On top of the volume associated with cryptocurrency trading, fees range considerably and they currently have no cap. As of this writing, the average cost of a Bitcoin transaction — the world’s largest cryptocurrency — is up 347% from a year ago.
In this high-volume, round-the-clock marketplace with free-range fees, knowing what to expect and having a strategy for entering and exiting cryptocurrency investments will provide the best chance of capital preservation.
In the News
El Salvador has become the first country to make Bitcoin into legal tender while China has banned cryptocurrency exchanges and initial coin offerings. Cryptocurrency has even made waves in the real estate industry, as a Miami-area penthouse recently sold for what could potentially be a record price — $22.5 million in cryptocurrency.
Types of Cryptocurrency Trading Fees
An investor can execute a wide variety of transactions on a cryptocurrency exchange, each of which comes with its own cost structure. The cost of any given crypto transaction can change regularly and on short notice — so if you’re trading cryptocurrency, you should be checking fees often. There are two types of crypto fees. Here’s a look at each.
For a cryptocurrency exchange to make money, it needs to attach to some of the financial momentum flowing through it. In most cases, that means assessing fees for common transactions, such as:
- Deposits made when moving crypto to online storage spaces, like digital wallets
- Withdrawals and liquidations
Cryptocurrency is a digital asset that, to date, is not controlled by any regulatory party, including the government. Cryptocurrency is hosted on networks and computers all over the globe and, at present, trades are made between buyer and seller, with no third party running point. The transaction does need to be recorded, though, so with network fees, you’re directing money to decentralized cryptocurrency miners in exchange for being able to transact on a public blockchain.
How Much Cryptocurrency Exchanges Charge for Trades
Crypto fees vary, but most cryptocurrency exchanges charge between 0.1% to 1% or more per trade. That means that if you’ve dedicated $1,000 or more to invest in crypto, the fee you’ll pay for that transaction, on average, could be anywhere between $100 and $1,000.
How To Minimize Crypto Trading Fees
The impact of fees on a cryptocurrency investor’s wallet can vary widely. Between April and June 2021, for instance, the average transaction fee for a Bitcoin trade ranged from $4.38 to $62.77. Other forms of cryptocurrency, such as Ethereum, experienced a similar pricing scale.
With fees ranging so widely, your timing and strategy for trades and other transactions really matters. Here are some tips for minimizing crypto fees.
1. Use an Exchange With Commission-Free Trading
Robinhood, the investing app that helped zero-commission trading become commonplace in brokerage houses, recently made cryptocurrency trading commission-free. Other cryptocurrency exchanges offering this include Blockfolio, which has been acquired by FTX, Digitex, and Lykke.
At Phemex, Premium and Premium Trial users enjoy fee-free spot trading. At Amplify, investors can trade Bitcoin and Altcoins without paying commissions.
2. Buy Cryptocurrency With Coins
When you liquidate cryptocurrency into fiat — government-backed –currency, you are likely to face fees for that withdrawal and the related deposit into your digital wallet. On the other hand, using coins to trade will be free in most cases. Consider using this strategy to reduce or eliminate your crypto fees.
3. Watch Transaction Amounts
Many cryptocurrency exchanges charge a percentage of the amount traded, typically around 0.1% — meaning that if you’re executing a $10,000 trade, you might incur a $1,000 fee. In some cases, a flat fee is available but in general, the bigger your transaction, the more you’ll pay.
4. Be Strategic About Your Transaction Types
It may be that you want to exit a cryptocurrency investment, but do you need fiat currency from that trade? If not, you may be able to back out of that crypto holding with minimal fees by trading it for another cryptocurrency investment. Some exchanges will charge you for deposits into your digital wallet, and conversion fees when moving from cryptocurrency to fiat currency may also apply.
5. Offset Crypto Fees by Taking Advantage of Promotions
Several cryptocurrency exchanges offer sign-up offers and other deals that give you access to free cryptocurrency, which will lessen the sting of fees in your portfolio balance. Here are a few examples:
- Get $5 in Bitcoin by signing up with Coinbase, $10 upon signing up with Gemini or referring a friend, $25 for successfully referring a friend to Voyager, $50 for signing up with Celsius or $50 for successfully referring a friend to eToro
- Earn payouts in Bitcoin by maintaining an account balance of at least $100 with BlockFi
Good To Know
Cryptocurrency exchanges may not always be the only places where investors can incur crypto fees. Several brokerage houses, including Fidelity, would like to introduce cryptocurrency exchange-traded funds and many have proposals awaiting feedback from the Securities and Exchange Commission.
If crypto ETFs are cleared for rollout in the U.S., investors should plan to evaluate all potential fees associated with them before taking the plunge. Although ETFs typically offer a lower fee structure than other diversified investments, there are enough unknowns with cryptocurrency to warrant above-average due diligence.
Keep Crypto Fees Under Control and Maximize Your Investments
When it comes to crafting a financial strategy, investors tend to focus solely on returns. But watching what you pay for investments is just as important, if not more. Fees can take a very real bite out of your portfolio, particularly over time.
Cryptocurrency is no exception to that rule. There’s a price to pay for trading crypto, even without a third party such as a brokerage house involved in the transaction. Online networks must be managed, trades must be documented, and crypto exchanges must make money to support the role they play.
The Bottom Line
Investors interested in digital currency need to understand the potential pitfalls of a volatile marketplace that runs 24/7. As a crypto trader, your next investment decision could theoretically happen at any minute — and that, in turn, means that it’s in your best interest to keep your knowledge about fees up to date.
Have a strategy for buying, selling and storing cryptocurrency and revisit that strategy often because new developments will continue to unfold in the industry.
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- The Independent. "Week of Cryptocurrency Turbulence Felt in Traditional Financial Markets, Analysts Suggest."
- The Wall Street Journal. 2021. "Cryptocurrency Comes to Retirement Plans as Coinbase Teams Up."
- Reuters. 2021. "Interactive Brokers To Offer Crypto Trading by the End Of Summer 2021."
- CNBC. 2021. "El Salvador Adopts Bitcoin as Legal Tender After Passing Law."
- Miami Herald. 2021. "Miami Penthouse Sale Sets Cryptocurrency Real Estate."
- Reuters. 2021. "China Bans Financial, Payment Institutions From Cryptocurrency Business."
- Business Insider. 2021. "IRS Chief Asks Congress for More Authority To Regulate the Crypto Industry."
- Fortune. 2021. "The 'Sunday Effect' Could Be Another Hurdle for Crypto ETFs in the U.S."