Trading Fees at Exchanges Rise Amidst Declining Volumes

Follow:  

This past year digital currencies experienced one of the most prolonged bear markets in the history of the nascent asset class. After reaching a peak in December 2017, bitcoin prices declined nearly 75% to trade, at the time of publication, above $5,000 per coin (view TradeBlock’s bitcoin index prices here). Throughout 2018 and early 2019, trading volume at US accessible digital currency exchanges have declined in conjunction with prices. Given the falling trading volume, we analyzed how exchanges have recently adjusted trading fees and how that compares to fee schedules over the past five years.

 

Digital Currency Trading Volume Declines to 2 Year Low

Monthly trading volume at US exchanges hit a two year low in March 2019. In the chart below, we diagram USD equivalent trading volume for bitcoin, on US accessible spot exchanges. Bitcoin trading volume peaked in December 2017, as prices hit an all time high. Volumes began declining throughout 2018 until November, when a sudden crash in prices drove increased trading activity. Since that time, trading volumes resumed their month-over-month decline to reach a two year low in March 2019.

Figure 1: Bitcoin Trading Volume Over Time

Bitcoin Trading Volume Over Time

Data for chart sourced from the TradeBlock Professional Platform

As bitcoin trading volumes fell, exchanges have begun increasing the number of assets listed — perhaps to drive greater trading activity amidst declining bitcoin trading volumes. Over the past few months, Coinbase – which has historically listed fewer assets than peer exchanges – listed two new currencies: Ripple and Stellar Lumens. Despite the strategy, alt-coin trading volumes have fallen considerably — inline with declining bitcoin volumes.

We analyzed all digital currencies that have a USD pair listed on Coinbase Pro — one of the largest US based exchanges by volume. In the chart below, we diagrammed USD equivalent trading volume across eight listed pairs. As shown, monthly trading volume at Coinbase Pro has declined to a two year low — trading volumes in March 2019 at Coinbase Pro recorded the lowest levels since April 2017.

Figure 2: Coinbase Pro Trading Volume Over Time

Coinbase Pro Trading Volume Over Time

Data for chart sourced from the TradeBlock Professional Platform

 

Digital Currency Exchanges Raise Trading Fees

We tracked trading fee schedules at the largest US accessible digital currency spot exchanges over the past five years. On average, exchanges lowered fees in 2015 and 2016 while volumes slowly began increasing. In 2017, exchanges, on average, held fee schedules unchanged as trading activity rose to all time highs. However, as volumes have continued to decline exchanges began raising fees in 2018 and 2019.

In Figure 3 below, we diagrammed average maker and taker fees at spot exchanges over the past five years for the lowest (and most expensive) tier. Maker fees represent costs that are incurred when a trader adds liquidity to an order book — because the trader is adding liquidity maker fees are often lower than taker fees, and certain exchanges may offer makers a rebate for adding liquidity to the order book.

Taker fees are costs incurred when a trader removes liquidity from an order book, by placing an order that is executed against existing bids or asks in the order book. Figure 3 contains average maker and taker fees from the following exchanges, for their respective lowest tier: Bitfinex, Bitstamp, Bittrex, Coinbase Pro, Gemini, HitBTC, itBit, Kraken, and Poloniex.

Figure 3: Average Trading Fees at Spot Exchanges Over Time

Average Trading Fees at Spot Exchanges Over Time

See below for sources

Taker Trading fees bottomed in 2015, as adoption of digital currencies slowly began rising, while maker trading fees reached their lowest level in 2016. Throughout the bull market in 2017 fees were nearly unchanged, as asset prices rose rapidly. During this same time period trading volumes at spot exchanges rose alongside price, which reached an all time high in late 2017/early 2018 (see Figure 1 above).

In 2018 and early 2019, prices contracted and trading volumes declined significantly from their peak. On average, exchanges raised fees on both the maker and taker sides in 2018 and 2019. An increase in trading fees is in line with expectations that exchanges are looking to protect revenues, amidst continually dampened trading volumes. Fee increases offer exchanges the opportunity to continue scaling by: allocating cash resources to offer more pairs; enhanced custody solution(s); improved exchange security; increased focus on maintenance to reduce down times; deploying more sophisticated technology towards market surveillance; and, launching new businesses such as OTC trading and lending/ staking services. As prices have recently begun to rise, it remains to be seen whether exchanges will reduce fees again as competition for market share heats up.

 

Subscribe to TradeBlock Research for the latest analysis and updates.

Subscribe

For the latest analysis and updates