Comparing Crypto Exchange Fees and ETF Costs for Bitcoin Purchases

Comparing Crypto Exchange Fees and ETF Costs for Bitcoin Purchases

Bloomberg analyst Eric Balchunas recently raised an interesting question about the potential effects of a spot Bitcoin ETF approval on the pricing structures of crypto exchanges. He suggested that the low fees offered by some prominent exchanges might be forced to be reconsidered. However, digital asset custody platform Custodia Bank’s Caitlin Long expressed concerns about the implications of such low ETF fees. Long warned that issuers offering fees that do not cover their costs might resort to lending securities to offset losses. Although the prospectuses of the ETF applicants claim that Bitcoin would be held in cold storage rather than being lent, it is still possible for ETF shares to be lent out with collateral backing the transaction. This article analyzes crypto exchanges to compare their fees and further explores the potential costs associated with Bitcoin ETFs awaiting approval.

To determine the extent of low fees offered by crypto exchanges, we conducted an analysis of popular platforms. The chart presented below illustrates the transaction fees for market orders without any promotional benefits, such as staking, holding native tokens, or high trading volume. Examining these fees provides insights into the affordability and competitiveness of different exchanges in terms of purchasing Bitcoin.

The chart below presents the costs associated with holding equivalent values of Bitcoin for one year within the Bitcoin ETFs currently awaiting approval. It is important to note that users must purchase ETF shares through a broker, which may involve additional fees. While some brokers charge custody fees, others offer zero-commission trading. For instance, platforms like Webull, eToro, and Robinhood provide zero-commission trading. On the other hand, platforms such as Hargreaves Lansdown, BestInvest, Interactive Investor, and charge fixed fees for U.S. ETF purchases, with some offering zero commission after a certain number of fees. This analysis assumes zero-commission trading for the proposed spot Bitcoin ETFs.

Taking into account the assumption of zero-commission trading, the data suggests that is the most cost-effective exchange for purchasing Bitcoin. With a mere cost of $1.50 for a $2,000 purchase, stands out as the cheapest option compared to the lowest ETF fee of $4.80 when held for one year. However, it is important to consider the withdrawal fees charged by various exchanges. For instance, imposes a withdrawal fee of 0.0006 BTC ($27 at press time), while the average network fee for Bitcoin stands at 0.0002 BTC ($9.45 at press time). Binance, on the other hand, charges only the network withdrawal fee. The chart below explores the total costs of purchasing and withdrawing Bitcoin based on the current average transaction fee at press time.

There is a crucial distinction between purchasing Bitcoin through a spot Bitcoin ETF versus a crypto exchange. With a spot Bitcoin ETF, investors are exposed to the underlying Bitcoin, which is essentially custodied by the issuer and the Bitcoin custodian (typically Coinbase Custody). However, when exiting the ETF, investors can only do so in cash and not in Bitcoin. The Bitcoin remains in custody only while holding the ETF shares. In contrast, using a crypto exchange enables investors to directly purchase Bitcoin, which is held in custody by a third party. Investors can then either withdraw the Bitcoin to a self-custody wallet or convert it into fiat currency and withdraw it in cash.

The difference in custodial practices between ETFs and crypto exchanges holds significant implications. Spot Bitcoin ETFs, if approved, have faced closer and more direct regulatory scrutiny than many crypto exchanges. The 2022 FTX incident highlighted the importance of knowing the custodial practices of crypto assets. As of press time, Binance emerges as the most affordable exchange for purchasing Bitcoin and withdrawing it into self-custody, considering the examined services. Bitwise, on the other hand, is the cheapest ETF for buying and holding Bitcoin through an exchange-traded product, while remains the most economical option for purchasing and custoding Bitcoin without withdrawal.

It is worth noting that this analysis assumes a single purchase with no special privileges or volume bonuses. Many exchanges offer fee discounts for active traders, which can further reduce the overall cost of buying and holding Bitcoin. Additionally, the cryptocurrency market is known for its volatility and fluctuating transaction fees. The fees mentioned in this analysis are based on the average transaction fees at press time and are subject to change. It is crucial for investors to stay updated on the latest transaction costs and fees when considering their purchasing options.

The potential approval of a spot Bitcoin ETF raises questions about the pricing structures of crypto exchanges. While low ETF fees may seem beneficial for investors, the implications for issuers should not be overlooked. Analyzing the transaction fees and costs associated with crypto exchanges and ETFs provides valuable insights for investors looking to purchase Bitcoin. Factors such as custody practices, withdrawal fees, and additional benefits offered by exchanges should also be considered when evaluating the overall costs. As the crypto market continues to evolve, investors must stay informed and make well-informed decisions based on their individual requirements and preferences.


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