Are crypto trading fees heading to zero?

It took time for equity trading fees to fall from exorbitant to expensive, expensive to zero. A similar pricing cycle may be happening in the crypto world, albeit at a quicker pace.

Binance.US, a U.S. crypto company that keeps the better-known Binance at arms’ reach, announced this week that it was cutting trading fees for certain bitcoin trading pairs to zero. The move made waves because the market for facilitating crypto trades for fee-based income has built some incredibly large businesses.


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In the wake of the Binance.US news, shares of U.S. crypto exchange Coinbase lost 9.7% of their value during regular trading on Wednesday.

What feels notable at this juncture is that it appears the market did not anticipate the directional move by a U.S. exchange to lower its aggregate fee profile and reduce some trading emoluments to zero. But the writing has been on the wall for some time when it comes to trading fees; Binance.US is merely continuing a longer trend.

Fees go down

Coinbase built a large company on the back of consumer trading fees.

Per the company’s Q1 2022 earnings report, retail and institutional traders had about the same amount of crypto assets on Coinbase, with $123 billion and $134 billion, respectively. But while their assets on Coinbase were similar, institutional trading volume was far greater, totaling $235 billion in the first quarter, compared with just $74 billion in retail trading.

So Coinbase made more money from institutional traders than retail activity, yeah? Nope.

The opposite, in fact. Coinbase retail transaction revenue was $965.8 million in Q1 2022, while institutional activity was worth a far smaller $47.2 million. More simply, Coinbase eats off of retail traders paying fees to buy and sell digital assets. (This morning, Coinbase announced a shake-up to its consumer trading business, but with the company saying that its new service will offer “the same volume-based fees as Coinbase Pro,” it isn’t clear what impact the change will have on the company fee posture.)

This is why the move by Binance.US to cut certain bitcoin trading fees to zero matters — bitcoin made up 25% of Coinbase transactional revenue in Q1 2022, up from 16% in Q4 2021. The smaller exchange is attacking the place where Coinbase makes its living.

Again, this should not surprise. After all, Coinbase itself understands that limiting fees is a possible way to gain market share. For example, when Coinbase launched its NFT marketplace, it waived fees to help it launch. Why pay OpenSea a 2.5% fee when you can pay Coinbase zero for your NFT trade? This is essentially the same argument that Binance.US is making: Why pay Coinbase a fee to buy or sell bitcoin when you could pay them zero for the same trade?

Historical context

It’s gauche in my view to quote one’s words on other platforms at work, but I tackled the trajectory of crypto trading fees over time on a personal blog last December. To wit:

Notably from 2019 to 2020, Coinbase’s take rate (period trading revenue/period trading volume) stayed nearly static as its total trading volumes rose. In 2019, Coinbase’s trading revenues were worth 0.58% of its trading volumes. That number dropped a single bip in 2020 to 0.57 percent.

Such a modest decline was rather good, I think. 2021, however, changed the dynamic. Thus far in 2021, Coinbase’s aggregate trading take rate has fallen to 0.41% (Q1-Q3 2021 data), with its weakest known period being its most recent: In Q3 2021, Coinbase collected just 0.33% of trading volume as fees.

More simply, Coinbase’s ability to extract value per dollar of trading volume is falling over time, with the sharpest declines coming in the most recent quarters.

The latest Binance news is just another step along this trajectory. And if the path before us holds, Coinbase could see its ability to yoink fees from retail traders decline, which would be incredibly bad for its business. That’s why Coinbase’s stock fell in the wake of the news, I’d hazard: Because investors are betting that Coinbase’s long-term cash flows fell. Given the company’s continued dependence on trading incomes over other revenue sources, it’s somewhat hard to disagree.

Yeah, but…

Commentary about the Binance.US move to cut bitcoin trading pair fees in certain cases to zero included criticism of the exchange’s liquidity. CoinMarketCap data indicates that Binance.US is the 10th largest crypto exchange by volume. Coinbase ranks third in the same dataset. (It’s worth adding here that Binance bought CoinMarketCap in 2020.)

If Binance.US does have a less attractive trading platform in the United States due to thinner volume, cutting its fees may not cause a stampede of activity in its direction. Right away, at least, Coinbase is in little danger of major, immediate user bleed. But the move by Binance.US to begin pricing U.S. crypto trading fees to zero is another milestone in a long journey that does appear to limit the ability for crypto exchanges to rip revenue out of consumers buying and selling crypto.

Robinhood, which offers zero-cost crypto purchases, agrees. Though Cash App still charges for bitcoin purchases, it appears. So the market is still working out what to charge to buy and sell digital assets today. The trend, however, is clear.