The approval of a spot Bitcoin ETF has sparked a debate on whether crypto exchanges would need to revisit their pricing structures, considering the relatively low fees charged by some of the well-known players in the market. However, concerns have been raised about the sustainability of offering such low fees by Caitlin Long, a representative from Custodia Bank. Long argued that ETF issuers may resort to lending securities to offset losses if their fees do not cover their costs adequately. This article aims to analyze the pricing structures of various crypto exchanges and compare them with the proposed Bitcoin ETFs currently awaiting approval.
To understand the cost associated with purchasing Bitcoin on different exchanges, we examined some of the top crypto platforms. The transaction fees for making a market order with no promotional benefits, such as staking or high trading volume, were analyzed. The results indicate that crypto.com offers the lowest fees, charging only $1.50 for a $2,000 Bitcoin purchase. In comparison, the lowest ETF fee for holding Bitcoin for one year is $4.80. However, it’s important to note that some exchanges impose withdrawal fees, such as crypto.com’s 0.0006 BTC withdrawal fee ($27) and the average network fee on Bitcoin (0.0002 BTC or $9.45).
When considering the cost of holding Bitcoin in ETFs, it’s crucial to analyze the fees charged by brokers for custodying shares. While some brokers charge fees, others offer zero-commission trading. For example, Webull, eToro, and Robinhood provide zero-commission trading for US ETF purchases, while others like Hargreaves Lansdown, BestInvest, Interactive Investor, and ig.com charge fixed fees. Assuming zero-commission trading, crypto.com emerges as the cheapest exchange to purchase Bitcoin, costing only $1.50 for a $2,000 purchase compared to the lowest ETF fee of $4.80 for one year.
It is important to understand the difference between purchasing Bitcoin through an ETF and using a crypto exchange. With a spot Bitcoin ETF, investors are exposed to the underlying Bitcoin, which is custodied by the issuer and its Bitcoin custodian, typically Coinbase Custody. However, when exiting the ETF, investors can only do so in cash, not Bitcoin. In contrast, purchasing Bitcoin through a crypto exchange allows users to withdraw it directly to a self-custody wallet or convert it into fiat currency and withdraw in cash. This difference in custody is significant, as spot Bitcoin ETFs have undergone closer regulatory scrutiny than many crypto exchanges.
Considering the examined services, Binance is the cheapest exchange for purchasing Bitcoin and withdrawing it into self-custody. On the other hand, Bitwise is the cheapest ETF to buy and hold custodied Bitcoin through an exchange-traded product. Crypto.com ranks as the cheapest crypto exchange for purchasing and custodying Bitcoin without withdrawal. However, it’s important to note that this analysis is based on a single purchase with no special privileges or volume bonuses. Many exchanges offer discounts on fees for active traders, which can significantly reduce the cost of buying and holding Bitcoin.
The cost of purchasing and holding Bitcoin varies between crypto exchanges and ETFs. While some exchanges offer lower transaction fees, concerns have been raised about the sustainability of such pricing structures. ETFs provide exposure to the underlying Bitcoin but limit investors to cash settlements. On the other hand, crypto exchanges allow users to directly hold and withdraw Bitcoin, but the custody arrangements may vary in terms of regulatory scrutiny and security. It is essential for investors to consider their preferences and goals when deciding between crypto exchanges and ETFs for purchasing and holding Bitcoin. Additionally, it’s important to take into account potential discounts or volume bonuses offered by exchanges, as these can impact the overall cost.
