“I love paying fees on all my trades!”
-No one, ever
Little by little, trading fees and other fees can eat into your cryptocurrency returns. Fees can be the silent killer. It’s not exactly a secret that Coinbase, the world’s most popular crypto exchange, charges some lofty fees. We’ll look at the fees, why Coinbase gets away with it, and how to avoid them.
Why Are Coinbase Fees So High?
I’ll give the top three reasons off the bat:
1) People new to crypto don’t know any better and/or don’t notice
2) People love their awesome mobile/desktop user interface (UI)
3) People feel safer with Coinbase because it’s a regulated, publicly-traded company in the US
And from Coinbase’s standpoint- companies and people prefer more money over less. Economists call this ‘greed’. Coinbase charges the highest fees they can without losing too many customers.
People are new to crypto
Currently less than 2% of the world’s 8 billion people own or transact in cryptocurrency. This is an extraordinarily small number, but it’s growing at light speed each year. Coinbase added 45 million users over the past year alone. That’s the population of Spain. The vast majority of Coinbase users have been in crypto for less than one year, and most of those less than 6 months.
People likely get excited that they’ve found a place to easily buy and trade crypto, and either ignore or don’t care about the fees. Most of these people are not familiar with the other exchanges like KuCoin or Kraken that offer lower fees. I’ll admit that I thought (and still think) Coinbase has a great product when I discovered them.
People love their user interface (UI)
Coinbase’s mobile user experience in particular is flawless. Even though cryptocurrencies are not stocks, the UI invites users to apply the same mental models as stock traders with apps like Robinhood. You may be new to crypto, but even if you’re Buying, selling, and withdrawing funds is super simple.
People feel safer with a US regulated/publicly traded company
Let’s face it, if a company legally operates in one of the best and safest countries in the world to do business (USA), people worldwide trust it more. The cryptocurrency space still has a dark cloud hanging over it from the public’s point of view. The mainstream press narrative is that cryptocurrency is funny money and full of scammers and criminals. Coinbase has to be 100% transparent in its quarterly reports to public shareholders. Compare this to Binance, who started in China, was kicked out, and has changed its location several times.
Are Coinbase fees actually that high?
Coinbase’s fees on normal buy and sell trades are 2 to 3 times as much as other exchange’s fees. The standard fee for buy and sell orders of less than $10,000 for members is 0.5%. This may not seem like much at first, but for people who trade crypto regularly this is kryptonite. For comparison, I’ve added E*Trade and Schwab to the chart below to show that the standard in the stock brokerage industry is zero fees.
Coinbase has buying fees and selling fees, too. Coinbase also charges extra fees for the adding of funds if you’re using a debit card instead of a bank account. Coinbase charges fees for funds withdraw, too. These can add up. Coinbase also reserves the right to have a spread of up to 2% when you’re buying a crypto, meaning they can charge you $102 when you buy a $100 coin, and pay you $98 when you sell a $100 coin.
Like a famous American billionaire from Omaha once said, the more you move money around, the more you pay in fees. If compound interest is the 8th wonder of the world, then fees are the thousands of years of wind, rain, and ice that erodes those marvels to piles of dirt.
Is Coinbase worth the fees?
Despite the high fees, I do still find myself buying and cashing out crypto occasionally on Coinbase. One of my favorite features of theirs is how quick withdraw of funds are, not even using their “instant deposit” option which charges a 2-3% fee. If you’re new to crypto, only trading smaller amounts, and mainly using a buy-and-hold strategy, Coinbase’s ease of use might be worth it.
If you’re crypto veteran with accounts on multiple exchanges like KuCoin, Binance, Kraken, or Voyager, I’d recommend cashing in and out on those platforms instead. If you’re a day trader, stay the hell away from Coinbase and only use Coinbase Pro. And for God’s sake, don’t use Robinhood to buy your crypto. You’ll never actually own your coins. On Coinbase you can actually withdraw your coins to a hardware wallet and have full ownership of your private keys.
How do I avoid Coinbase fees?
If you love Coinbase but hate the fees, try transferring your funds over to Coinbase Pro. Pro’s interface may look a little more intimidating to new traders, but the savings on fees are well worth the 10-15 minute learning curve. Another tactic that I use frequently is only to buy and cash out my crypto on Coinbase but send coins over to Binance or KuCoin to do trading. This at least gets rid of the trading fees. If you live in the US, I’d give KuCoin a shot. There’s no KYC process and the platform has a huge altcoin offering. You can use your crypto on Coinbase to fund your KuCoin account. Fees decrease with the volume of crypto bought or sold, so try and make your trades all at once instead of in increments. You should definitely be funding Coinbase with your bank account and not a credit or debit card. If you’re living in a country other than the US or UK, make sure your bank isn’t charging you a ‘foreign transaction fee’- one of my banks charges 3% when I’m abroad.
Does Coinbase report to the IRS?
Yes. At the end of the year, Coinbase will make a tax form available to you that shows your crypto gains or losses. Coinbase reports your activity to the IRS if you have made at least $600 from crypto gains or staking. The good news is that if you’ve suffered losses with your crypto, you can deduct these. The ‘capital losses’ deduction in the US goes up to $3,000. Taxation and financial advice aren’t my wheelhouse, so hire a professional if you need help.
Using Coinbase is a mixed bag
The crypto space has seen some absolutely fantastic gains since its beginning, and nearly every time period since. Coinbase is cashing in on this wave because it is a first-mover in the space. But its fees are exorbitant. For comparison, some stock brokerages charge less in full-time financial advisory fees than Coinbase does on its trades. This means you could get full financial advice for a year for a smaller fee than you’d pay on a Coinbase trade. As the crypto market expands and more exchanges enter the industry, Coinbase will have no choice but to reduce its fees.