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2021 was the year Coinbase went mainstream.
Founded in San Francisco almost a decade ago, one of the world’s largest cryptocurrency exchanges became a public company in April and is now valued around $50 billion, which is what Hyundai is worth.
Coinbase reached those dizzying heights as demand for cryptocurrency skyrocketed, fuelled by thousands of stimulus dollars and endless hours under home quarantine. Bitcoin, the most popular digital currency, was worth less than $5,000 when Covid-19 hit America compared to nearly $50,000 a little over a year later.
Traders flocked to Coinbase because it made it easy to buy and sell cryptocurrency through easy-to-navigate tools and a slick design. (Except in Hawaii; residents of the Aloha state can’t sign up.) Despite its popularity, Coinbase’s fees can be extremely high, potentially greatly eating into any gains you may see.
Here’s how to figure out if Coinbase is right for you.
- Wide selection of cryptocurrencies to trade
- Low account minimum
- Convenient user experience
- Expensive and difficult-to-understand fee structure
- Getting lower fees requires using a different Coinbase platform altogether
Cryptocurrencies on Coinbase
Currently you can buy the following cryptocurrencies on Coinbase:
- Bitcoin (BTC)
- Ethereum (ETH)
- Cardano (ADA)
- Tether (USDT)
- Internet Computer (ICP)
- Bitcoin Cash (BCH)
- Litecoin (LTC)
- Uniswap (UNI)
- Chainlink (LINK)
- Stellar Lumens (XLM)
- USD Coin (USDC)
- Polygon (MATIC)
- Ethereum Classic (ETC)
- EOS (EOS)
- Aave (AAVE)
- Wrapped Bitcoin (WBTC)
- Filecoin (FIL)
- Tezos (XTZ)
- Dai (DAI)
- Maker (MKR)
- Cosmos (ATOM)
- Alogrand (ALGO)
- Compound (COMP)
- Dash (DASH)
- Zcash (ZEC)
- Synthetix Network Token (SNX)
- Yearn.finance (YFI)
- SushiSwap (SUSHI)
- Decentraland (MANA)
- Basic Attention Token (BAT)
- Enjin Coin (ENJ)
- The Graph (GRT)
- UMA (UMA)
- Celo (CGLD)
- 0x (ZRX)
- Bancor Network Token (BNT)
- OMG Network (OMG)
- Curve DAO Token (CRV)
- Ankr (ANKR)
- 1inch (1INCH)
- Ren (REN)
- Loopring (LRC)
- iExec RLC (RLC)
- Kyber Network (KNC)
- SKALE (SKL)
- Storj (STORJ)
- Cartesi (CTSI)
- Augur (REP)
- Origin Token (OGN)
- Balancer (BAL)
- Numeraire (NMR)
- NKN (NKN)
- Civic (CVC)
- Band Protocol (BAND)
- NuCypher (NU)
- Orchid (OXT)
- Mirror Protocol (MIR)
- Ampleforth Governance Token (FORTH)
- District0x (DNT)
- Tellor (TRB)
One reason why Coinbase has earned nearly $3 billion in revenue over the past 12 months, per Morningstar, is that it charges a bunch of fees. This isn’t necessarily bad—almost all crypto exchanges charge fees, whether they’re overtly labeled as such or not. The problem is that Coinbase’s most consumer-friendly offering, its namesake Coinbase platform, charges higher fees for its convenience and simplicity than you may get elsewhere—even on its more complicated crypto trading platform, Coinbase Pro.
First there’s the so-called “spread fee,” which Coinbase says is typically 0.50% of your transaction.
What’s this about?
When you want to buy a cryptocurrency, such as Bitcoin, you log into your Coinbase account and pick an amount you want to buy, say $100 worth. To determine what that’s worth in Bitcoin, Coinbase uses the exchange rate on Coinbase Pro. Coinbase then adds on the spread fee which it terms the “consumer exchange rate.” This is essentially the difference between the price Coinbase pays to get a crypto and the price it resells it to you for. There may be padding on either end to help Coinbase make a profit.
Then there’s the aptly named “Coinbase Fee,” which is contingent on the size of your purchase, the fiat currency you use to make it and how you pay. This fee is the greater of either a flat fee or a variable percentage, which can be slightly confusing to figure out.
Here’s how the flat fee shakes out for American buyers:
- Transactions less than or equal to $10, the fee is $0.99
- Transactions more than $10 but less than or equal to $25, the fee is $1.49
- Transactions more than $25 but less than or equal to $50, the fee is $1.99
- Transactions more than $50 but less than or equal to $200, the fee is $2.99
After exceeding $200, the fee structure changes to be percentage based, determined by how you pay for the crypto:
- 1.49% for U.S. bank accounts and Coinbase USD Wallets
- 3.99% for debit card or PayPal
Fees for purchases above $200 may run up to 1.5% of any transaction for a minimum fee of $0.55.
In practice this means your $100 only gets you $97 worth of Bitcoin. While that fee may not seem like much right now, over time it can seriously impact your returns. (In the traditional stock investing world, this dynamic led to uber-low-cost passively invested index funds that charge substantially less than actively managed funds with comparable, if not better, performance.)
Let’s say you put $100 into your Coinbase account each month to buy Bitcoin for 20 years. Assuming Bitcoin returns an annual average of, say, 10%, you’d end up with almost $66,700 after fees. Without fees, though, you would have had about $68,700.
By simply executing your trades, Coinbase would have skimmed more than $2,000 off your returns in fees, or about 4.6% of your total return.
Hopefully, as consumers have more options to make crypto trades, Coinbase’s fees will decline. After Robinhood offered no-fee commissions on stock trades, for instance, Charles Schwab and E-Trade, among others, followed suit. Not coincidentally, Robinhood now allows its customers to trade crypto.
“The race to the bottom phenomenon that took place in late 2019 with stock trading fees will likely make its way to the crypto trading space,” says David Trainer, CEO of New Constructs, an investment research firm. “We expect Coinbase competitors to cut their trading fees to zero in an effort to increase market share.”
With its higher fees, why has Coinbase become one of the most popular destinations to purchase cryptocurrencies in the U.S.? A few reasons:
Ease of Use
For one, it is incredibly easy to use. Signing up takes no time at all, and you can earn a small amount of Bitcoin ($5 worth) by uploading a state or federally issued piece of identification. (You’ll need to do this should you want to sign up for Coinbase Pro.)
You can then link your bank account to your account through data transfer network Plaid, the recommended method to minimize trading costs.
The interface is bright and simple to navigate. A search bar helps you sift through the myriad of crypto offerings available—from Bitcoin to Tellor—and you can set up purchases to recur on an ongoing basis.
For those a bit deeper in the weeds, Coinbase allows you to trade select cryptos to other cryptos, meaning you can convert your Litecoins to Augur, for example.
Coinbase built its reputation as a secure place to buy and sell crypto. That was an especially salient claim after the Mt. Gox debacle, when roughly 850,000 Bitcoin were stolen in 2014. (That total is currently worth more than $37 billion.)
Coinbase has never had such a calamity, though there have of course been customer complaints about the fledgeling exchange.
It claims that 98% of consumer funds are stored offline in various locations around the world, which helps provide even greater security for digital assets. Coinbase holds your crypto in its free wallet service, though you can choose to hold your crypto in a third-party wallet. You’ll need to complete a two-factor authentication to sign into your account. There’s also biometric fingerprints and AES-256 encryption on private keys.
Moreover, Coinbase pools the cash in your account with its other U.S. customers and puts them in one of three places: custodial accounts at U.S. banks, U.S. money market funds or short-term U.S. Treasuries.
You don’t know where your funds are held, but to the extent they’re in U.S. banks, you receive pass-through FDIC insurance up to $250,000. But remember: As with most investments, the crypto you hold in your account does not benefit from this governmental protection. You may lose all of the money you invest in cryptocurrencies.
What about Coinbase Pro?
Whereas Coinbase is designed for newcomers, more advanced traders might be interested in Coinbase Pro. (You don’t need a separate account for Coinbase proper and Coinbase Pro; the same credentials will suffice.)
While the Pro version comes with more sophisticated charting and trading options, the biggest difference is the fees, namely that they’re lower and simpler.
Your trading volume is determined by how much you traded over the previous 30-day period and is calculated in dollars.
The “taker” fee is applicable when you make a trade and it is filled immediately.
The “maker” fee comes into play when you make an order, but it isn’t filled immediately. By virtue of waiting for another customer to match your order (i.e., someone who wants to buy as much as you want to sell), you pay the lower “maker” fee.
It’s possible to have part of your order counted as a taker and the remainder considered a maker, depending on how much of your order Coinbase is able to move at one time.
In any case, the 0.50% fee on traders of less than $10,000 is much less than the 1.49% (plus the spread) you’d pay on Coinbase proper.
With its transparent sign-up process, ease-of-use and positive security reputation, Coinbase has become a popular gateway for cryptocurrency investors looking to get started. Fees, though, can be a major downside, and you should consider moving to the Pro version as soon as you’re comfortable.
*Fee amount varies based on purchase amount and method of purchase. 1.99% (0.5% spread fee + 1.49% Coinbase fee) applies to order of at least $200 made via U.S. bank transfer or Coinbase USD Wallet.