On Thursday afternoon, Coinbase’s professional cryptocurrency exchange, the fittingly-named Coinbase Pro, revealed that it would be implementing a new fee structure to “increase the depth and liquidity of our markets”.
To the surprise of many, it wasn’t a move to decrease fees for the majority of Coinbase’s vast clientele.
The crypto community was quick to react to the decision. And let’s just say that most weren’t all too pleased.
The New Structure
Before we get into the nitty-gritty of the community’s reaction, let’s take a look at the new structure that will be imposed by Coinbase Pro on Monday next week. This update will “slightly” increase trading fees for lower-volume customers and “reduce fees” for customers that trade cryptocurrencies a lot. Coinbase clients that have over $50,000 worth of volume will see a reduction or no change at all.
Users with between $0 to $10,000 in monthly volume will have to pay 0.5% (50 basis points) on trades, while accounts with more than $50 million worth of monthly volume will have to pay zero “maker” fees and marginal “taker” fees.
To put 50 basis points into some perspective, this trading fee update makes Coinbase Pro the most expensive exchange (tied with Bitstamp) for retail investors, which make up a large portion of the Bitcoin market.
And while a 0.5% fee may not make a dent on one’s account over the course of one or two trades, it can add up with time.
A Coinbase Pro equivalent, something like Kraken or Bitfinex, taker (the most common order type used by consumer traders) fees are closer to 0.25%.
Crypto Community Slaps Back At Coinbase
Although so-called whales are likely over the moon (haha, I know) after seeing Coinbase’s latest fee model, traders all across Crypto Twitter have taken to the streets, expressing their distaste over this update.
Macro and crypto analyst Alex Kruger noted that this latest update has increased fees for retail customers by “a total [of] 233% since March.” The researcher joked that the individuals at Coinbase “rock” and “must be great businessmen”, expressing his confusion in that way.
Discount brokers in traditional markets are moving towards zero trading fees for customers.
Coinbase listened carefully, and decided to do the exact opposite: increase fees by 150%, for a total increase since March of 233%.
— Alex Krüger (@krugermacro) October 3, 2019
Joe McCann, a prominent cryptocurrency analyst, noted that this recent move from Coinbase is oddly ironic, as it has become a common belief that Bitcoin was created to remove financial intermediaries, most of which charge fees at every turn to sustain their business.
McCann wrote that “the ‘rent-seeking middleman’ business model that so many in crypto despise will come full circle to exchanges that are doing just that — collecting your rent for facilitating trade.”
Finance Going Feeless
While Coinbase seems to have good intentions behind its decision to increase fees for retail investors, it is important to note that brokerages are starting to trend towards a feeless model — at least in the traditional finance realm anyway.
Charles Schwab at the turn of the month revealed that it would lower trading fees to zero for stock, exchange-traded fund, and options transactions made on U.S. and Canadian exchanges. TD Ameritrade and E*Trade, the two other giants in the retail brokerage giants, followed suit, lowering their fees to zero in a massive fee war.
The brokerage industry fundamentally changed today.
Schwab announced zero trade commissions. Wiping out $400M in rev instantly, but smaller % of rev mix than competitors . TD, E*Trade & others followed.
— Hunter Horsley (@HHorsley) October 3, 2019
McCann amongst other cryptocurrency analysts believe that it will only be a matter of time before platforms like Coinbase, Bitfinex, Binance, and so on and so forth follow suit. But as to when, no one is all too sure.
You see, many cryptocurrency exchanges have yet to establish proper revenue flows outside of trading fees, and would thus be crippled if they lost the trading fee stream.