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A collection of Bitcoin (virtual currency) tokens on display.
REUTERS/Benoit Tessier
You don’t get to keep it all.
PRIVATE KEY

Stock trading is virtually free—why isn’t crypto?

By Matthew De Silva

It’s been almost five years since Robinhood debuted zero-fee stock trading, but the approach has finally cracked the mass market. Charles Schwab cut its online stock-trading commissions to zero in early October, and the announcement immediately sent waves throughout the US financial industry. Schwab’s pronouncement was closely followed by equivalent moves from TD Ameritrade, E*Trade, and Fidelity, much to the delight of investors.

But while Robinhood has exerted pressure on legacy brokers, the same cannot be said of its effect on the cryptocurrency market. Despite offering zero-fee crypto trading since Feb. 2018, Robinhood’s impact on bitcoin exchanges has been, well, negligible. At exchanges like Coinbase and Gemini, fees remain sky-high.

Brian Armstrong, Coinbase’s CEO, cheered his company’s strong performance at a Vanity Fair conference in Beverly Hills, California last week. The exchange, he revealed, has been profitable for the last three years, including 2019.

Since launching in 2012, “we’ve done about $2 billion in transaction fee revenue,” Armstrong said. He added that Coinbase has earned more money than it has raised from venture capitalists. Currently, the company is valued at $8 billion. (That’s even higher than Robinhood’s $7.6 billion valuation, achieved in July.)

Coinbase’s success is due in large part to trading fees—and compared to today’s stock commissions, they’re massive. In addition to charging a 0.50% markup on the prevailing market price of cryptocurrencies (a “spread fee”), the company charges the following flat fees:

Order sizeFee
Less than or equal to $10$0.99
More than $10 but less than or equal to $25$1.49
More than $25 but less than or equal to $50$1.99
More than $50 but less than or equal to $200$2.99

Above $200, Coinbase charges a variable fee that is 1.49% of the transaction. Gemini uses an identical fee schedule but calls the markup fee a “convenience fee.” (Heh.)

For retail investors, these commissions feel like a disservice—and they’re certainly high compared to the trends in stock trading. Indeed, if you buy less than $10 of bitcoin on Coinbase or Gemini, you pay 10% or more in fees. The percentages aren’t quite as painful for larger orders, but they still seem exorbitant. Paying $2.99 for $200 of bitcoin incurs about 1.5% in fees. So, it’s little wonder that Coinbase and its peers have made a killing.

Fees on Coinbase Pro, a platform for the exchange’s more frequent traders, aren’t quite as severe. However, they’re still elevated compared to the commissions charged by other crypto trading platforms like Kraken (which charges between 0.16% and 0.26% for 30-day trading volume $50,000 or below) and Binance (0.1% for up to 50 bitcoin in trading volume during a 30-day period).

I reached out to Coinbase and Gemini to ask whether they foresee crypto commissions falling in the future. Coinbase did not immediately reply to my inquiry, while Gemini declined to comment.

To be fair, crypto exchanges provide a valuable service, connecting buyers and sellers. And unlike stock brokerages, many have only been around for about five to seven years. When you consider that crypto exchanges don’t charge for advisory services, it seems like trading fees are one of the few ways they afford to keep the lights on.

If anything, Robinhood’s zero-fee crypto trading is an outlier, and it appears to be subsidized by other activities (such as margin trading fees and payment for order flow). Robinhood declined to answer whether Robinhood Crypto is profitable.

The major takeaway is this: the more often you trade, the less you get to keep. While there’s always a temptation to speculate on price spikes, intelligent investors would do well to make a few decisions and stick to them. After all, the house always wins.

Bits & Pieces
  • What’s blockchain actually good for, anyway? For now, not much (Wired)
  • Fintech innovation labs as “innovation theatre” (FT Alphaville)
  • Bitcoin advocate Jack Dorsey backs crypto startup CoinList (WSJ)
  • Bitmain turmoil: Co-founder and executive director Micree Zhan ousted (CoinDesk)
  • Bitmain reportedly files for US IPO in secret; Deutsche Bank is the sponsor (The Block)
  • Banks may cut ties with Facebook on Libra concerns, ING warns (Financial Times)
  • Paxos wins SEC ‘No-Action’ letter to settle equities on a blockchain (CoinDesk)

Please send news, tips, and convenience store coupons to privatekey@qz.com. Today’s Private Key was written by Matthew De Silva and edited by Mike Murphy. You don’t have to make it back the way you lost it.