Cryptocurrencies are supposed to make the U.S. dollar obsolete. But this year’s crypto trading craze means companies that help investors buy and sell digital currency have been raking those old-fashioned greenbacks in.
The total value of the cryptocurrency market more than tripled in less than six months and briefly surpassed $2.5 trillion in May, according to figures from CoinMarketCap. As a wave of new crypto traders and investors hopped aboard the fast-moving bandwagon, they left behind a trail worth billions in revenue for the companies where the digital coins were being swapped.
Robinhood may offer commission-free trading, but the online broker makes a windfall off these transactions by selling data to high-frequency trading firms. In the first quarter, Robinhood generated nearly $88 million in revenue from its cryptocurrency business, the company disclosed in its initial public offering (IPO) filing with the U.S. Securities and Exchange Commission earlier this month. And 34% of that total came from Dogecoin, the coin created originally as a joke that’s now among the Top 10 biggest cryptocurrencies.
Coinbase is generating average net revenue of $34 to $45 each month from its 6.1 million retail customers that are making transactions — or the equivalent of as much as $540 each year, the company disclosed in its most recent earnings statement. By comparison, a low-cost index fund that tracks a benchmark like the S&P 500 might charge $3 a year for every $10,000 invested.
What is clear is that companies are profiting, either directly from trading fees or indirectly by selling data, as people try to chase the hottest cryptocurrency to the moon, and hope it doesn’t land with a dud. “The velocity of money is much higher on planet crypto,” notes Matthew Sigel, head of digital assets research for VanEck. “Fees can add up for active traders.”
Crypto trading still is relatively new since Bitcoin only came on the scene just over a decade ago. As a result, there’s not yet an industry standard for how brokers are passing along the related fees. Robinhood’s zero-commission model has come under scrutiny, especially as the company prepares for its upcoming IPO.
Fees vary widely even among the crypto-focused brokers — and are often a bit confusing. To simplify things, here are four ways to avoid high crypto fees from trading:
- Opt for decentralized exchanges
These exchanges cut out any “middle man,” allowing for peer-to-peer crypto swaps, and they offer low fees (beyond transaction fees). Examples include Uniswap and PancakeSwap, which charge flat fees of 0.3% and 0.25%, respectively.
- Find centralized exchanges with lower fees
These exchanges do use that “middle man,” but some — like FTX US — have lower fees than Coinbase.
- Sign up for “pro” accounts, if eligible
Coinbase Pro charges fees that are a fraction of what standard users will pay.
- Hold coins that offer a trading discount
Binance.US offers customers a 25% discount on spot trades if they hold the company’s Binance coin in their account.