Crypto trading: big fee or no-fee future

IMAGE SOURCE

In 2000 we had the “dot-com bowl,” and twenty-two years later it looks like we’re going to have the first “crypto bowl.” Among this year’s Super Bowl advertisers are two crypto companies, Crypto.com and FTX. Advertising during the Super Bowl can put a brand in front of an audience of 100 million people, but placing an ad during the game has always been a very expensive sport. According to an article in AdAge, a 30-second spot for this year’s Super Bowl LVI will cost $6.5 million. Next Sunday, Crypto.com will be airing its “Fortune favors the brave” ad, with Matt Damon, which has caught a lot of flack this past week, with the funniest being South Park’s season premiere. Earlier this year, Crypto.com paid $700 million for a 20-year deal giving it naming rights on the Staples Center in Los Angeles, home of the Lakers and Kings. And Crypto.com is not the only one, FTX put their name on the Miami Heat’s Stadium, signed a huge deal with the MLB, and enlisted NFL legend, Tom Brady, as an ambassador.

It looks like in 2022 crypto companies will be adopting traditional marketing tactics for customer acquisition. When you look at most of the dot-com companies that advertised in the 2000 Super Bowl, you’ll see that they faded away, either because they went out of business or because they were acquired by other bigger internet companies. This will probably be the case for crypto too.

Hefty fees

For cryptocurrency exchanges, there is no shortage of customers. Most cryptocurrency exchanges charge a fee every time a user makes a trade. And these commission fees vary widely.

Some exchanges use a tiered-level structure and charge a fee depending on how much a user trades over a 30-day period. In other cases, an exchange may charge a percentage of the digital asset bought or sold.

For a regular cryptocurrency trader that likes to trade frequently, these fees can be crazy. The fact is that the crypto market is a mess when it comes to fees that people pay. Everyone charges whatever they want.

If you bought $10,000 worth of Apple stock, with a traditional brokerage account, your upfront commission would be $0. Sure you’d be paying hidden costs like a marginally wider spread or slightly worse fill, but this is barely noticeable for liquid assets. Now if you bought the same amount worth of bitcoin on Coinbase, your commission would be on average $130. That’s insanely high.

A couple of weeks back I watched a video on Bloomberg that talked about the headwinds Coinbase may be facing as they are overcharging retail investors and making too much money on commissions. They are not the only ones charging huge fees.

Ninety percent of the revenue most exchanges make comes from retail transaction fees. When volatility spikes and prices move sharply up or down, retail users come rushing onto exchanges, and transaction fees surge. Crypto exchanges mine that FOMO into huge earnings.

Source image: https://www.businessofapps.com/data/cryptocurrency-app-market/

Changing winds?

But, the direction for crypto trading fees may be changing and heading to zero. This may present a problem for most of the 313 exchanges in the market.

Robinhood already charges retail investors zero fees to trade crypto. But just because it’s commission-free, that doesn’t mean Robinhood comes at no cost to users. Robinhood makes money from crypto the same way that it makes money from stocks. It sends trades to market-makers that complete the transactions and take a cut of the spread between the bid and ask price. They then send a rebate back to Robinhood.

But just as Robinhood forced other stockbrokers to lower their lucrative commissions to zero in order to stay competitive, similar downward price pressure could be building in crypto.

The brand is king

Big brands can get away with murder because they have built a loyal customer base and charge high fees when others offer the same product at a cheaper price. Cryptocurrency trading is riskier than traditional assets, mainly the risk of being hacked or scammed and having your funds stolen. Retail customers with limited knowledge of the crypto market will always choose a brand they know and trust as their safe, trustworthy trading option, and are willing to pay a premium for peace of mind.

High fees: Bedrock of the future?

When a product becomes a commodity, just like in other industries (CPG, automotive, or others), brand value is the only thing that separates a company and its products from its competitors. This is why Coinbase can charge high fees and why Crypto.com is advertising on the Super Bowl and spending $100 million on advertising.

The Super Bowl is perhaps the best vehicle for smaller brands to generate awareness and because crypto is considered risky, advertising at an event like the Super Bowl adds legitimacy and trust.

Any way you look at it, customers will end up paying to trade crypto whether through a fee or a spread. It could be a while before fees start dropping at least by the bigger brands in the market.

In 22 years from now, how will we look back on “Crypto Bowl”?

“History is filled with almost, with those who almost adventured, who almost achieved,” Matt Damon tells the camera as he saunters through a virtual “museum of bravery” displaying an array of milestones in human achievement. “Then, there are others, the ones who embrace the moment and commit,” he continues as he walks past a mountaineer. The video clip ends with Damon telling us: “Fortune favors the brave.”

No one can predict what will happen, but these brute-force tactics may pay off for crypto brands and signal a whole new phase of adoption.

Ilias Louis Hatzis is the Founder & CEO at Mercato Blockchain Corporation AG.

Ilias Louis Hatzis is the founder and CEO at Kryptonio wallet. Create your wallet in less than a minute, without seed phrases, private keys, passwords or documents. Keep your bitcoin and digital assets always secure and recoverable: https://kryptonio.com

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.