Coinbase Profits Overview: Top Crypto Company’s Trading and Exchange Earning Model Examined
How Does Coinbase Make A Profit By Providing Trading Services?
Coinbase is known for being one of the largest crypto exchanges in the world, and the largest one located in the US. Its worth managed to spike up from $1.6 billion in 2017 to over $8 billion in 2018. This makes it one of the most popular, as well as most lucrative exchanges on a global scale.
However, many are still confused regarding how this exchange actually makes so much money. Numerous questions, such as how many users they have, how much they charge per transaction, and alike, are often asked by coin traders. This is what we will be addressing today, with hopes of explaining some of these things.
Before we start explaining how exactly Coinbase works, a little history is in order. Coinbase is a cryptocurrency exchange and wallet which was founded by Brian Armstrong and Fred Ehrsam back in 2012. The exchange has always been pretty strict regarding which coins it offers, and these days, its users can invest in Bitcoin, Ethereum, Bitcoin Cash, Ethereum Classic, and Litecoin.
Coinbase is also very simple to use due to its user-friendliness. It serves up to 32 countries and reportedly has more than 20 million customers. To this day, Coinbase has traded more than $150 billion.
As mentioned previously, Coinbase's value is (self) estimated to be at $8 billion. This also makes it one of America's most profitable startups.
How Does Coinbase Make So Much Money?
1) User number
Before we start going into the specifics, it should be noted that Coinbase is among the most popular crypto exchanges in the world. Despite the fact that most cryptocurrencies are not anonymous, it is impossible to determine how many people around the world are actual crypto holders.
Because of this, the only reports that we can use regarding Coinbase's user base are the exchange's very own estimates.
Furthermore, we know that Coinbase has a pretty great reputation within the crypto community. This is likely due to the fact that it is extremely user-friendly, and also very secure. Their website claims that they store as much as 98% of their funds offline so that any attempts at theft would result in minimal losses.
Not only that, but all of their funds are encrypted, and stored in safe locations around the world.
2) Coinbase Fees
Despite its popularity, or maybe because of it, Coinbase charges some pretty high fees. As a result, they can make a lot of money by charging transactions. Here is how things work at Coinbase:
After a new user sets up a free account on Coinbase, they usually go straight to investing in one of the offered cryptos. Of course, first they have to convert their USD into Bitcoin, or one of the othere offered coins. This is where Coinbase starts charging for their services.
There are two conversion fees that users have to pay while converting their USD to BTC. The first of them is related to spread. This is basically a difference between how much users are willing to pay for something, and how much someone else is willing to sell that “something” for. Coinbase's spread is pre-determined, and it is 0.50% above the exchange rate of the market. This means that every BTC purchase costs 0.5% more than it would according to Bitcoin's current price.
Next, there is a commission fee, which can be a form of a flat fee or a variable fee. When it comes to which of these two to charge, Coinbase usually goes for the higher one.
When it comes to the flat fee, it depends on the amount of cryptocurrency that user is looking to buy. If the user wants to buy an amount of BTC that is equal to $10 or less, the fee is $0.99. If the amount is between $10 and $25, the fee is $1.49. If the desired amount is between $25 and $50, then the fee rises to $1.99. Finally, for amounts between $50 and $200, the fee jumps once more and is $2.99.
As for the variable fee, it can change based on the user's location and purchase method. For example, in the US, Canada, Europe, the UK, Australia, and Singapore, the fee is 3.99% if the user pays via Debit or credit card. However, the fee drops to 1.49% if the user is buying or selling via their bank account.
Additionally, there is also a way of depositing money into Coinbase's wallet via wire transfer. This option also has withdrawal fees that include €0.15 for European bank transfers, £1 for the UK wire transfers, $25 for the US wire transfers, and no fee for US ACH transfers out. Depositing funds into Coinbase is free for all except for wire transfers within the US, where it costs $10.
How Do Transaction Fees Actually Work?
Finally, we arrive at the actual transaction fees. On Coinbase's platform, these fees depend on how someone has bought, how much did they buy, and what they plan to do with these newly-obtained coins.
- If a user converts $100 USD to Bitcoin via their bank account, Coinbase will charge a $2.99 fee. For credit card transfers, they charge $3.84.
- Next, there are spread fees. We have mentioned this earlier, and the fees include 0.5% more than the actual price of Bitcoin. Basically, this means that 0.5% of each transaction goes to Coinbase.
- Finally, if the amount of BTC is converted back to USD, Coinbase once again charges the same fee of $2.99.
In the end, we can see that Coinbase is making $5.98 if a user deposits $100 into the wallet, plus the additional 0.5% of each BTC transaction.
What Happens If BTC Is Not Exchanged Back To USD?
If a user performs a transaction and purchases some BTC, which they then decide to spend or exchange for another digital currency, Coinbase has new transaction fees ready and waiting. While it is free to send BTC from your wallet to an exchange, converting your BTC to another currency means paying another fee.
Coinbase charges 0.30% for every transaction made between $0 and $10 million within 30 days. For even larger amounts, such as anything between $10 million and $100 million, the fee is lowered to 0.20%. Finally, the largest transactions that go beyond $100 million get to enjoy an even lower fee of 0.10%.
In the end, what have we learned? We have learned that Coinbase has around 20 million users, according to their own claims. For each of these users, Coinbase charges at least $0.99 per each deposit, although the actual fee is likely closer to 3%.
Those who choose to go to Coinbase Pro and exchange their BTC for another crypto have to pay an additional 0.30% per transaction unless the amount traded exceeds $10 million or $100 million. Finally, there is the last 3% for converting BTC back to USD.
Additionally, according to Coinbase itself, the exchange has traded over $150 billion. With such high fees, trading this amount was bound to allow the exchange to make quite a profit for providing its services. Still, despite such high fees, Coinbase still remains a popular exchange, with more and more users choosing to use it all the time.