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Are Some Cryptocurrency Exchanges More Expensive Than Others?

Motley Fool - Thu May 19, 4:57AM CDT

As cryptocurrency prices continue to fall in 2022, you may eventually decide that the market has dropped far enough. You're ready to pick up some Bitcoin(CRYPTO: BTC), whether it's your first crypto purchase or an addition to earlier holdings.

Either way, there are many cryptocurrency trading platforms available today. Their Bitcoin prices are not always perfectly matched, and some of them also charge trading fees. It's more than fair to ask how much of a difference your choice of crypto-trading service makes.

Comparing various options via Post-It notes on glass.

Image source: Getty Images.

I'll use Bitcoin as an example. It is not only the oldest and largest cryptocurrency on the market today, but it is also universally available on every cryptocurrency exchange worth its salt. And the pricing, fees, and trading structures of each platform might result in different levels of investing efficiency.

So let's see how big the real-world difference is for a handful of common investment sizes. There are dozens of cryptocurrency trading platforms available, but four of the most popular choices should be enough to get a feel for the pricing gaps. I'm using Binance, Robinhood(NASDAQ: HOOD), Coinbase(NASDAQ: COIN), and Bittrex in this analysis.

$100

Bar chart showing very small differences between Bitcoin investments on four different trading services.

Data was collected from Binance.us, Robinhood, Coinbase, and Bittrex near 3 p.m. ET on May 17, 2022. Chart by author.

In this case, Coinbase charges a trading fee of $0.60 and Bittrex bakes a $0.25 fee into the transaction. However, Binance and Robinhood quote slightly higher prices per Bitcoin. Based on this single data point, it looks like the fee-free services make up for the lack of trading charges by skimming a small slice off each transaction via those higher Bitcoin prices.

The differences are very small, though. The effective difference between the largest Bitcoin stash you'll get with $100 and the smallest one is just 0.65%, or $0.64 when translated back into dollars and cents. So far, I would argue that you shouldn't worry too much about the different prices and fees, focusing on value-added features instead.

But does that hypothesis hold up for a somewhat larger investment?

$1,000

Bar chart showing very small differences between Bitcoin investments on four different trading services.

Data was collected from Binance.us, Robinhood, Coinbase, and Bittrex near 3 p.m. ET on May 17, 2022. Chart by author.

Once again, Coinbase charged a $6 fee and Bittrex disclosed a trading charge of $2.49. At the same time, Robinhood continued to observe slightly higher Bitcoin prices while Binance's exchange rate fell back toward the average of the four services.

Anyhow, the difference between the top and bottom Bitcoin hauls from a $1,000 investment worked out to 0.42%, or $4.18 in fiat currency.

What about an even larger Bitcoin buy?

$10,000

Bar chart showing very small differences between Bitcoin investments on four different trading services.

Data was collected from Binance.us, Robinhood, Coinbase, and Bittrex near 3 p.m. ET on May 17, 2022. Chart by author.

Here, both Coinbase and Bittrex multiplied their effective fees by a factor of 10 again. As always, Bitcoin executed this simulated trade at a slightly lower Bitcoin price than the rest, while Robinhood's quoted price was the highest again. Still, we're talking about a difference of just 0.63%, or $62.91. Granted, that's enough to cover a halfway decent dinner for two, but it's still a small variance based on a $10,000 investment.

Alright, let's take one more step.

$100,000

Bar chart showing very small differences between Bitcoin investments on four different trading services.

Data was collected from Binance.us, Robinhood, Coinbase, and Bittrex near 3 p.m. ET on May 17, 2022. Chart by author.

This time, we get to multiply the trading fees by 10 again and keep the average Bitcoin prices fairly consistent with the $10,000 outing. However, Binance's Bitcoin rates nearly matched Coinbase's bottom-dollar quote. Hence, Binance turned out to be the most effective investment platform for a $100,000 stake, taking the crown from Bittrex and reversing Binance's consistent pattern of last-place showings.

At the same time, the relative difference between platforms was smaller than usual. The gap from the best choice to the worst one was just 0.1%, which works out to $86.70. It's another nice dinner but also an even smaller slice of a $100,000 investment.

What have we learned here?

At least among this group of popular trading services, it doesn't make much of a difference which one you use. The spread between the best and worst outcomes was always 0.65% or less. At the same time, Bitcoin's price varied by 0.2% across the 10 minutes it took me to collect this data. Realistically speaking, the service-by-service differences amount to a small rounding error.

And the services seem to pocket similar amounts of profits from each transaction. They just go about it from various angles. Coinbase collects bountiful trading fees while others prefer to quietly include their profit-generating take in the modified exchange rates for each cryptocurrency.

So you should feel free to use whatever trading platform you like, based on other features such as the security and convenience of their login procedures, the specific cryptocurrencies they support, whether they offer staking options for proof-of-stake tokens, and so on.

In the end, none of these services are dramatically more or less expensive than the others.

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Anders Bylund has positions in Bitcoin and Coinbase Global, Inc. The Motley Fool has positions in and recommends Bitcoin and Coinbase Global, Inc. The Motley Fool has a disclosure policy.