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 credit cards that offer cryptocurrency rewards.
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 10,400 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 vary considerably and they currently have no cap. Over the past year, the daily average cost of a Bitcoin transaction has ranged from $1.17 to $10.65 after surging to over $63 in April 2021.
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.
Exchange Fees
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:
- Trading
- Deposits made when moving crypto to online storage spaces, like digital wallets
- Withdrawals and liquidations
- Loans
Network Fees
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 paying compensation for the resources needed to validate and record your transaction on the public blockchain.
How Much Are Fees for Crypto?
Most cryptocurrency exchanges charge between 0% and 1.5% per trade, depending on whether you’re a maker (buyer) or taker (seller). Fees vary by exchange.
That means that if you’ve dedicated $1,000 to invest in crypto, the fee you’ll pay for that transaction, on average, could be anywhere from $0 to $15.
How To Minimize Crypto Trading Fees
The impact of fees on a cryptocurrency investor’s wallet can vary widely, and not just on Bitcoin’s network. On May 1, for example, average transaction fees on Ethereum hit an all-time high of $196.68. Fees dropped to $16.27 two days later and are currently bouncing between $5 and $10.
With fees ranging so widely, your timing and strategy for trades and other transactions really matter. Here are some tips for minimizing crypto fees.
1. Use an Exchange With Commission-Free Trading
Robinhood, the investing app that charges no fees on stock trades, also eliminated trading commission. Other cryptocurrency exchanges offering commission-free cryptocurrency trades include BlockFi, Shakepay and Uphold.
Other exchanges, such as Coinbase and Luno, have no trading fees for makers but do impose fees on takers. In addition, some exchanges charge spreads. Advanced trading options incur fees as well.
Although you’re likely to pay fees of one kind or another on most exchanges, including Coinbase and Binance, there are ways to minimize them.
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 might be free. 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 $10 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 for 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 up to $6 in bitcoin by signing up with Coinbase and making a cryptocurrency purchase.
- Receive up to $50 upon signing up with Gemini, linking a bank account and making a minimum purchase.
- Earn up to $50 after a friend you refer to Voyager signs up and makes a minimum trade.
- Get $50 for signing up with Celsius.
- Earn $30 after a friend you refer to eToro signs up and makes a minimum purchase.
- Earn $10 to $1,000 in bitcoin when you open a BlockFi account and trade $1,000 to $100,000 in cryptocurrency.
Good To Know
Cryptocurrency exchanges may not always be the only places where investors can incur crypto fees. Several brokerage houses would like to introduce cryptocurrency exchange-traded funds, and Fidelity already has.
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 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.
Daria Uhlig contributed to the reporting for this article.
This article originally appeared on GOBankingRates.com: Crypto Fees: A Full Breakdown and How To Minimize Costs
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
