Crypto exchange profits are very high right now, but I'm surprised that they aren't falling faster.
Stock trades went to $0 long ago, yet crypto exchanges continue to charge around 0.5% (with some discounts if you're savvy) and nobody bats an eye.
But then again, I can send money anywhere for basically $0, yet everything I do with cryptocurrency comes with transaction fees and waits. I wonder if crypto users are basically more primed to expect fees and crypto exchanges are better at making users forget about it with clever UX?
Either way, I expect exchange profits will decline slowly as they begin competing with each other more.
Because most people in crypto are utterly convinced that their "investment" of $1000 in crypto will become $100k or even $1M in no time.. so the 0.5% seems negligible.
Gestures broadly at the behaviour of basically every crypto subreddit, YouTube channel and forum; to say nothing of the advertising by crypto businesses.
Excepting darknet commerce, cryptocurrency has no other purpose besides speculation, so it's pretty obvious that speculation is why most people are buying it.
I know that controlled substance e-commerce was a key market for bitcoin ~10 years ago, but given crypto's current volatility, transaction fees, settlement times, and vulnerability to forensic accounting, is bitcoin still a viable way to buy drugs?
Has plenty of purpose when you see people being deplatformed from their banks, inflation at all time highs, and the dollar possibly losing de facto monopoly in world trade.
Cryptocurrency is not practical without access to a bank.
> inflation at all time highs
Cryptocurrency's extreme volatility means it's a poor hedge against inflation, especially compared to other assets that are known to be reliable without the volatility. For example, if you bought BTC a year ago hoping to hedge against the alarm bells that were sounding for inflation, you are now doing much worse compared to havin done absolutely nothing.
> dollar possibly losing de facto monopoly in world trade.
This is not a real use-case. Could this happen? Perhaps, but there's no reason to believe that this wouldn't decimate the cryptocurrency markets, if anything, the new reserve currency would be the more desirable asset, not cryptocurrency.
> Gotta hedge your bets, you never know what is going to happen.
This logic could be applied to anything.
> Also, BTC has been used without a bank since inception – not sure what you mean by "practical".
Acquiring bitcoin without a bank is not practical, without a bank you essentially have to orchestrate an in-person meetup to exchange cash for cryptocurrency, and this raises many safety concerns besides being a very inconvenient burden. You also need a bank to turn BTC into spendable money, same problem applies.
I want a currency that I can take anywhere, that doesn't take up space, that can't be frozen by anyone. For example, if I was a Ukranian fleeing a warzone.
,,anyone born into a reserve currency like the euro, yen, or pound has financial privilege over the 89% of the world population born into weaker systems.''
They may live there, but a lot of them are immigrants. I'm an example for that: I migrated to western countries and started to feel that the direction they are taking is similar to what I have experienced in my country when I was young. I decided to quit the government based financial system, as I lost trust in it.
Sadly lot of people who don't understand the reason just do lots of day trading, which is a modern version of casino, that's how exchanges make so much profit.
"Power to the people" in reference to crypto does not mean a redistribution of pre-existing wealth. How would that even work? Crypto sells your house?
The humanitarian aspects of crypto are "banking the unbanked", protection against seizures/extreme inflation of the local currency in specific countries (Libya, Turkey, etc, the ability for refugees to cross borders with their wealth, and the ability of immigrants to send money back to their families back home.
When the wealthy deign to give "access" to the poor while using the arms of capitalism to enrich themselves, that's not charity. People getting rich off financial derivatives of the transactions of the rest of the world are just getting rich. They aren't providing value.
If you open your wallet and you find a global reserve currency then you should buy the book that was linked earlier about privilege.
Maybe it's just me, but when you live in a place where it's illegal to purchase foreign currency and you are forced to convert all your income from exports into a currency that evaporates in front of your eyes, your view of crypto changes dramatically.
I believe GP was referring to access to capital markets, not permission to use cryptocurrency. "Access" to an empty cryptocurrency wallet is worthless no matter where you live.
Luckily they can increase their 'financial privilege' through something like a Wise multi-currency account. That lets people in huge swaths of the world (and growing) send money internationally, free of charge or for very low fees. [1] Crypto isn't the answer.
And neither is charging anyone who has non-crypto solutions with 'financial privilege.'
There's a world of 'trad-fi' solutions to this problem. Wise. M-PESA. Flutterwave. Just to pick 3.
What you don't pay in crypto with direct fees (and you do pay direct fees for everything) you also pay in counter-party risk, volatility, irreversibility. Trying to foist that on the world's poor as some kind of implement of financial freedom is kind of shameful, imo.
I used it before, but it needs a bank account as far as I know. Right now I'm in Colombia, and most of the people here don't have a bank account, because they know people who were burned by huge late fees.
When I was in Costa Rica a person asked me if I know a bank that doesn't take his money away, because sometimes money just disappears from the bank accounts.
With Bitcoin you can get hacked, you can lose your password, but at least you can really own it, and no bank can just randomly take away your money.
Just a few weeks ago Russia did the same thing for international accounts of people there, which is in the news, but it's happening in lots of 3rd world countries every day.
> I used it before, but it needs a bank account as far as I know.
Wise Multi-Currency does not, to my knowledge - it is a bank account and provides you banking details in many jurisdictions. The fact your bank charged you late fees isn't a reason not to have a bank, IMO, but to each their own.
> With Bitcoin you can get hacked, you can lose your password, but at least you can really own it, and no bank can just randomly take away your money.
Lots of people get their crypto seized by the government, all the time. At one point the biggest single Bitcoin wallet holders were the FBI and the Bulgarian FBI. It's time to let that narrative go.
> Lots of people get their crypto seized by the government, all the time. At one point the biggest single Bitcoin wallet holders were the FBI and the Bulgarian FBI. It's time to let that narrative go.
Cryptocurrencies are not "backdoored" like the banks as governments cannot order Bitcoin to hand over a specific person's money. While you can bug their keyboards or compromise their OSes etc., the best you can do is a $5 wrench attack if your target is not willing.
Doesn't the lack of a central authority increase the odds that coins, once seized, will be extremely difficult to recover? On par with trying to recover physical cash seized under civil asset forfeiture statutes, at least.
I don't have any direct experience here, but my understanding is that bank and credit accounts are typically frozen, not seized, so the process is easier to reverse.
Just checked wise to transfer from USD to ARS and the exchange rate is the official mandated by central bank which isn't the real market exchange rate, it's roughly the half.
Since you can't receive USD here (well you can, but the government wants them more than you), you either send ARS from abroad or you receive USD and they get converted at the official rate which means you lose half your money.
I know Argentina is a big red edge case, but it shows how crypto can help when the currently existing financial system crumbles due to power abuse.
I don't live in country whose currency is not used as a reserve. I still can send money instantly to anyone within the country for free and send money internationally for a small fee. It will actually be more expensive to send money using cryptocurrencies because of the spread.
I'd also venture that a decent amount of the people trading crypto today weren't familiar with traditional brokers and investing in the stock market. I'm one of those people and truth be told I had no frame of reference for what is an acceptable fee schedule. I just wanted to trade, and did. Hopefully competition brings fees down, but for the longest time you really didn't have a lot of options when it came to finding an exchange that let you trade the coins you wanted.
Although I expect the law of diminishing returns to kick in with regard to commissions eventually, I expect it to be made up in other ways.
Its a whole second decade of crypto exchanges and traditional finance (tradfi) exchanges still dont have REST APIs or anything remotely close to free or accessible for programmatic trading, while crypto exchanges have always had that for free right out the gate.
Every day they have 3x as many trading sessions as tradfi exchanges.
And thats even before we start talking about selling the data, the international customer set, unilateral discretion in listing anything with a community of potential traders, using company treasury (or customer deposits) in DeFi products for passive yield, and more.
The lack of free api’s for traditional exchanges is by design.
It’s a risk mitigation technique that only members or sponsored traders can trade on those exchanges. This allows for there to be real ramifications if the sponsor doesn’t do due diligence and allows a counterparty into a trade that can’t settle.
Perhaps this limitation is precisely what the trustless features of the coins gives us or perhaps the crypto exchanges just haven’t been bitten by a really bad counterparty risk incident yet. Time will tell.
Its a poor implementation crafted by skittish legal doing cookie cutter things for decades, implemented by certificate chasing IT staff who couldnt launch a tool by a script kiddie if their life depended on it.
And then there are also structural differences, such as in crypto the trade is the settlement.
So other markets could have a different approach, and then have to deal with settlement.
> yet crypto exchanges continue to charge around 0.5%
That's not true. Coinbase charges 0.5%, but little trading is done there. The derivatives exchanges, where most treading actually happens (Binance, FTX, ...), charge around 0.05-0.10%. Some even charge 0% if you use limit orders.
I don't know, it's just they're such such a juicy target for hacking. They're like real life banks. Every thug wants to rob a bank. Online it's even worse, no need to go to the bank to probably get shot, you can rob the biggest banks from the comfort of your grandmother's basement, all you have to do is find a glitch in the matrix, but like the shittiest matrix ever. Like the matrix in The Matrix, from 1998, the graphics in that movie were full of artifacts.
Stock exchanges have a central limit order book.
Crypto exchanges are like foreign exchange brokers at airports: they act as market makers, earning the majority of their fees from the bid/ask spread rather than some fixed comms afaik.
So comparing NYSE to Coinbase revenues is apples to oranges. Coinbase is thus closer to a market maker like Citadel, both having similar revenues (7B)
>I wonder if crypto users are basically more primed to expect fees and crypto exchanges are better at making users forget about it with clever UX?
That's pretty much what it is. No one knows the actual spot price of the coin they are buying. They just say "give me $5 of shitcoin" and whatever number of coins is spat out is fine.
And an example of clever UX: On Coinbase, a crypto to crypto conversion has no fees. However, in that conversion the market price of the target coin is higher than the spot market price. So a hidden fee.
Clever UX is quite an optimistic term for such a pattern.
> I wonder if crypto users are basically more primed to expect fees and crypto exchanges are better at making users forget about it with clever UX?
They aren't, because crypto has no users. Unlike with dollars, where useful main street economic activity dwarfs the horse-trading that's happening on Wall Street - it's the other way around in the crypto space.
What it has are speculators, and they will eat that 0.5% transaction fee, if that's the cost of their investments going #tothemoon.
Crypto exchanges are like foreign exchange brokers at airports: they act as market makers, earning the majority of their fees from the bid/ask spread rather than some fixed comms afaik.
So comparing NYSE to Coinbase revenues is apples to oranges. Coinbase is thus closer to a market maker like Citadel, both having similar revenues (7B)
Most crypto exchanges are not just exchanges. They're brokers, dealers, market makers, non-bank banks, and clearing houses all in one. Regular stock exchanges are not allowed to be both exchanges and players.
Right, and on Coinbase a round trip costs you 1%, or USD 420. Last time I looked (when they IPOd), Coinbase alone syphons off 0.4% of the entire crypto market cap in fees every year. Traditional equity exchanges are dreaming of margins like that.
The fees for buying using credit or debit card are still 2.5% (5% round trip). I always assume that savvy users use coinbase pro by moving crypto in from other exchanges where trade fees are better; but then an exchange where you have to do that isn't exactly the full package experience.
The white elephant in the room is that crypto has terrible transaction efficiency.
I think someone figured out that Visa or Mastercard can process around 200,000 credit card transactions for the power required to process one etherium transaction.
Crypto only really works for people for whom moving a very large amount of money, that has a very high cost otherwise. You know, the kind of people who have to wash their money...
There is always a lot more commission to be made for an unpredictable and risky asset. The trick is really to keep the fees within the bounds of daily or even hourly volatility. If you buy $1000 worth of Bitcoin, and expect to see anywhere between $800 or $1200 in your account a little while later, you don't really care that the exchange has kept $5 out of it.
It's a nascent market, wide bid/offer spreads relative to other products, no to little regulatory overheads (for now!) and for the most part build on modern technology stack ... So yea this is not surprising, what is though is that none of the traditional exchanges or venues have yet to make a serious play. Once they do this gravy train will end.
The “perpetuals” this industry has seemingly invented charge high rates to keep a position open, daily. I’ve seen swaps and CDS has similar cost models but not usually to the swap dealer.
> The “perpetuals” this industry has seemingly invented charge high rates to keep a position open, daily.
There is a funding charge to keep the perpetual in line with spot, but note: one side (typically longs) pays, the other side (typically shorts) receive.
This is akin to the good old spot/future arbitrage.
Their only place would be as fiat onramps, and that means they should be pushing for harsher KYC laws, because increasing the cost of business is the usual strategy of incumbents.
> Their only place would be as fiat onramps, and that means they should be pushing for harsher KYC laws, because increasing the cost of business is the usual strategy of incumbents.
I think this is a short/medium term perspective. Long term, crypto expands the existing eurodollar system (decentralized permissioned [via global banks] ledger money -> decentralized permissionless ledger money) and defi has a multitude of on chain credit origination (aka. not reliant upon off chain stablecoin flows/fiat) while friendly jurisdiction have some kind of fiat on/off ramp (and even deeper cash on/off ramps via cryto atms or "localbitcoin"-like markets). People much more researched than I on the inner workings of the eurodollar system think so as well [0]. Even now, I've seen workers for CEX's engage with DAO's of tokens that they've listed (so some CEX's are investing in their eventual demise, on top of being validators/miners of different chains).
There's an inherent trade-off between decentralisation and computing price+performance, so it's likely that centralised exchanges will continue to be cheaper and faster for higher-frequency activities such as day trading, transaction processing, etc. Their utility for speculation decreases with harsher KYC/AML/accredited investor regulation, so it doesn't make sense for them to support that.
No, this is my own work. It includes a web UI I built with my own Nexus Dev Tools (https://nexusdev.tools/) and a trading engine I wrote in Nim. I wrote the Open Source client in Python. It does utilize the Binance REST API.
Stock trades went to $0 long ago, yet crypto exchanges continue to charge around 0.5% (with some discounts if you're savvy) and nobody bats an eye.
But then again, I can send money anywhere for basically $0, yet everything I do with cryptocurrency comes with transaction fees and waits. I wonder if crypto users are basically more primed to expect fees and crypto exchanges are better at making users forget about it with clever UX?
Either way, I expect exchange profits will decline slowly as they begin competing with each other more.