Crypto Fees: A Full Breakdown and How To Minimize Costs

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Cryptocurrency is regularly in the news for a variety of reasons — its turbulent history, its recent strife, the emergence of crypto in 401(k) plans and interactive brokerage houses and credit cards that offer cryptocurrency rewards.

Read: 5 Things You Must Do When Your Savings Reach $50,000

The news and sentiment on cryptocurrency vary — and so do the experiences of those who trade it. Crypto isn't yet a well-regulated industry in the way that we've come to expect from more traditional forms of investing.

Although regulators are attempting to make strides on that front, it's important to do your research about cryptocurrency exchanges, transaction options and related fees.

Crypto Has Thousands of Transactions Every Hour

Bitcoin alone can average more than 11,600 transactions per hour, and unlike a stock exchange, cryptocurrency trading is available around the clock — so related fees can add up quickly.

On top of the volume associated with cryptocurrency trading, fees vary considerably and they currently have no cap. Over the last couple of months, the daily average cost of a bitcoin transaction has ranged from about $0.55 to $1.59. However, fees surged to over $63 in April 2021.

In this high-volume, round-the-clock marketplace with free-range fees, knowing what to expect and having a strategy for entering and exiting cryptocurrency investments will provide the best chance of capital preservation.

In the News

El Salvador has become the first country to make bitcoin into legal tender while China has banned cryptocurrency exchanges and initial coin offerings. Cryptocurrency has even made waves in the real estate industry, as a Miami-area penthouse recently sold for what could potentially be a record price — $22.5 million in cryptocurrency.

Types of Cryptocurrency Trading Fees

An investor can execute a wide variety of transactions on a cryptocurrency exchange, each of which comes with its own cost structure. The cost of any given crypto transaction can change regularly and on short notice — so if you're trading cryptocurrency, you should be checking fees often. There are two types of crypto fees. Here's a look at each.

Exchange Fees

For a cryptocurrency exchange to make money, it needs to attach to some of the financial momentum flowing through it. In most cases, that means assessing fees for common transactions, such as:

Trading

Deposits made when moving crypto to online storage spaces, like digital wallets

Withdrawals and liquidations

Loans

Network Fees

Cryptocurrency is a digital asset that, to date, is not controlled by any regulatory party, including the government. Cryptocurrency is hosted on networks and computers all over the globe and, at present, trades are made between buyer and seller, with no third-party running point.

The transaction does need to be recorded, though, so with network fees, you're paying compensation for the resources needed to validate and record your transaction on the public blockchain.

How Much Are Fees for Crypto?

Most cryptocurrency exchanges charge between 0% and 1.5% per trade, depending on whether you're a maker (buyer) or taker (seller).

That means that if you've dedicated $1,000 to invest in crypto, the fee you'll pay for that transaction, on average, could be anywhere from $0 to $15. Coinbase, however, charges up to 4.5%, so a transaction could cost you $45 there.

How To Minimize Crypto Trading Fees

The impact of fees on a cryptocurrency investor's wallet can vary widely, and not just on Bitcoin's network. On May 1, for example, average transaction fees on Ethereum hit an all-time high of $196.68. Fees dropped to $16.27 two days later and are currently bouncing between $0.50 and $1.70, according to YCharts.

With fees ranging so widely, your timing and strategy for trades and other transactions really matter. Here are some tips for minimizing crypto fees.

1. Use an Exchange With Commission-Free Trading

Robinhood, the investing app that charges no fees on stock trades, also eliminated trading commissions, making it one of the cheapest platforms for trading crypto. Fidelity also will offer 0% commission trades for retail investors. Uphold charges no commission on bitcoin trades.

Some exchange transactions have lower fees or no fees for makers but do impose fees on takers. In addition, some exchanges charge spreads. Advanced trading options incur fees as well.

Although you're likely to pay fees of one kind or another on most exchanges, including Coinbase and Binance, there are ways to avoid or minimize them.

2. Buy Cryptocurrency With Coins

When you liquidate cryptocurrency into fiat — government-backed — currency, you are likely to face fees for that withdrawal and the related deposit into your digital wallet.

On the other hand, using coins to trade might be free. Consider using this strategy to reduce or eliminate your crypto fees.

3. Watch Transaction Amounts

Many cryptocurrency exchanges charge a percentage of the amount traded — meaning that if you're executing a $10,000 trade with a 0.10% fee, you might incur a $10 fee. In some cases, a flat fee is available, but in general, the bigger your transaction, the more you'll pay.

4. Be Strategic About Your Transaction Types

It may be that you want to exit a cryptocurrency investment, but do you need fiat currency from that trade? If not, you may be able to back out of that crypto holding with minimal fees by trading it for another cryptocurrency investment.

Some exchanges will charge you for deposits into your digital wallet, and conversion fees for moving from cryptocurrency to fiat currency may also apply.

5. Offset Crypto Fees by Taking Advantage of Promotions

Several cryptocurrency exchanges offer sign-up offers and other deals that give you access to free cryptocurrency, which will lessen the sting of fees in your portfolio balance. Here are a few examples:

Get up to $200 in bitcoin or USD by signing up with Coinbase and making a cryptocurrency purchase.

Win up to $2,500 in a crypto sweepstakes by Earnity. Receive extra entries for purchasing at least $10 worth of crypto.

Receive sign-up bonuses worth a total of $4,050, depending on trading tier, for completing various trading-related tasks on Phemex.

Good To Know

Cryptocurrency exchanges may not always be the only places where investors can incur crypto fees. Several brokerage houses would like to introduce cryptocurrency exchange-traded funds, and Fidelity already has.

Investors should plan to evaluate all potential fees associated with them before taking the plunge. Although ETFs typically offer a lower fee structure than other diversified investments, there are enough unknowns with cryptocurrency to warrant above-average due diligence.

Keep Crypto Fees Under Control and Maximize Your Investments

When it comes to crafting a financial strategy, investors tend to focus solely on returns. But watching what you pay for investments is just as important, if not more. Fees can take a very real bite out of your portfolio, particularly over time.

Cryptocurrency is no exception to that rule. There's a price to pay for trading crypto, even without a third party such as a brokerage house involved in the transaction. Online networks must be managed, trades must be documented and crypto exchanges must make money to support the role they play.

The Bottom Line

Investors interested in digital currency need to understand the potential pitfalls of a volatile marketplace that runs 24/7. As a crypto trader, your next investment decision could theoretically happen at any minute — and that, in turn, means it's in your best interest to keep your knowledge about fees up to date.

Have a strategy for buying, selling and storing cryptocurrency, and revisit that strategy often, because new developments will continue to unfold.

FAQ

Trading fees can be confusing. Here are some frequently asked questions to help you sort them out.

Daria Uhlig contributed to the reporting for this article.

Information is accurate as of Nov. 8, 2022. 

This article originally appeared on GOBankingRates.com: Crypto Fees: A Full Breakdown and How To Minimize Costs