Alex Krüger has released a detailed analysis showing that fees charged by some cryptocurrency exchanges make trading far more expensive than on traditional stock exchange platforms. Some responders opine that such exorbitant fees might make virtual currency trading less appealing to more savvy and experienced traders.
Coinbase is 48X More Expensive
In a Twitter thread published on Wednesday (March 27, 2019), Krüiger, a market analyst highlighted the stark contrast in the fee structure for some cryptocurrency exchanges and their stock market counterparts. According to Krüger’s analysis, trading on some platforms like Coinbase and Bitmex was more expensive than forex platforms like Oanda.
The data published by Krüger reportedly shows that “maker and taker fees” for crypto spot trading made higher volume tier trading significantly more expensive. Most mainstream trading platforms tend to employ a flat fee structure. Thus, there is usually no increase in cost burden for high volume trades.
To explain his point, Krüger compared trading fees for a forex platform like Oanda on one hand and Coinbase and Bitmex on the other hand. Oanda’s fees amount to about 0.008 percent. According to Krüger, trading on Coinbase when compared to Oanda is 48 times more expensive. While for Bitmex, it is about six times more expensive.
Trading in highly volatile assets should be less expensive. However, as Krüger observes:
“A cross-asset trading costs analysis should also account for spreads and relative volatility. In the last 2.5 years, BTC has been 12x more volatile than the euro and 7x more volatile than the S&P 500. Crypto fees are generally high even after adjusting by relative volatility.”
Krüger’s revelations come at a time when the industry is facing concerns that about 95 percent of Bitcoin trading is inflated. Wash trading, the major cause of this inflation tends to happen on less-regulated platforms so s to gain traction and charge higher fees.
High Fees May Discourage Institutional Traders
Some analysts believe that the high fees charged by these exchanges might constitute a stumbling block to more widespread institutional interest in the market. Given that big money players won’t want to enter into higher value trades, the cost burden of such an enterprise night disincentivizes more experienced traders.
This reality could be one of the reasons why the virtual currency trading market remains dominated by millennials as against more experienced traders from the older generation. Research findings by both eToro and Clovr point to younger investors pivoting away from the stock market to the virtual currency trading arena. In a recent interview with CNBC, TRON CEO, Justin Sun opined that cryptocurrencies hold a lot of promise for the younger generation of investors.
With more exchanges springing up on a regular basis, investors continue to have a plethora of options. Many of these new exchanges have introduced low fee structures to make trading a lot easier for first-time users.