What’s the Deal Behind Coinbase Making This Sudden & Drastic Move?

A few months back, Coinbase hiked its fees for its lowest volume tier by 150% and now again in a sudden and drastic step, Coinbase has increased its trading fees for the lowest volume traders by a whopping 233% while subsidizing 60% lower fees for the highest volume traders.

Looks like, Coinbase doesn’t care if you are trading only up to $10,000.

You better be a big trader!

While the cryptocurrency market is raising the fees dramatically, the discount brokers in traditional markets are moving towards zero trading fees, noted economist and trader Alex Kruger.

“The “rent-seeking middleman” business model that so many in crypto despise will come full circle to exchanges that are doing just that – collecting your rent for facilitating trade,”

said analyst Joe McCann.

While sharing a thread on this topic, McCann says just like with traditional markets, the fees will go down to zero in crypto space. But while it took 20 years for online brokers to do that, given the fact that crypto is a fast-growing market in comparison to traditional markets,

“this is going to happen sooner than 20 years.”

But why the spike?

In 2017, the year of the bull market, Coinbase booked revenue of $1 billion while in 2018, the year of a bear market, the exchange only brought $520 million in revenue which was less than the projected 60%.

Coinbase’s bread and butter business, McCann says has always been

“transaction fees from trading crypto on its exchange.”

And the business model in crypto currently is tightly coupled with bull or bear markets. So, in order to smooth the revenue and forecasting going forward, Coinbase needs to create

“ancillary businesses that generate revenue more consistently and predictably.”

Coinbase Custody is that business that has exploded assets under custody (AUC) to more than $7 billion as of August 15, 2019, in only 13 months, observes McCann.

The second option is to “rapidly accelerate” the listings of new assets to increase the trading volume. As we are seeing, the exchange has added 26, and counting, new assets.

Another option is increasing the fees when trading drops.

After hitting $13,900 in late June, the trading volume has plunged, as such Coinbase is raising fees to offset the low trading volume.

Now, McCann says three scenarios are likely to follow, the first one exchanges like Binance and OKEx drop fees to $0 to buy the flow. Other options include an extremely well-funded tier-1 VC-backed startup launch their exchange in direct competition to Coinbase with no trading fees or Coinbase itself do this.

The last option, however, he said is

“highly unlikely.”

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