Commission Wars: Bitcoin Exchanges’ Race to the Bottom
The days of high commission digital currency exchanges may be gone, for now. A trend developing in the digital currency exchange world has seen the costs of using these services fall as the developers work harder to attract and keep their user base.
The days of high commission digital currency exchanges may be gone, for now.
A trend developing in the digital currency exchange world has seen the costs of using these services fall as the developers work harder to attract and keep their user base.
Competition: good for the customer
A recent example in March was when established exchange BitStamp announced it was to roughly half its commission costs for the majority of its users. For those trading under a volume of US$25,000, the fee became roughly 0.25%. For users trading above US$20 million, the fees fell even further, to as low as 0.1%.
For BitStamp, finding the motivations for lowering their fees may point towards the hack they suffered in January of this year when 19,000 BTC was stolen from a hot wallet. Although all user balances were honored, the success of such an attack can go far in rattling the confidence of users. Following such an attack, an exchange needs to work hard to stop an exodus of users, or at least give their users a strong incentive to stay.
Just as within any business ecosystem, when one service differentiates itself in this way, its competitors find it increasingly important to either match such an offer or find their own niche. With the competition between digital currency exchanges being as tough as it is, nearly all of the exchanges now offer similar features, forcing companies to enter “commission wars.”
Bitspark CEO, George Harrap, explains how he sees large exchanges responding to the threat of startups, like Bitspark, charging 0% transaction fees to undercut the competition. Harrap:
“I see the larger exchanges falling behind on providing new features the market expects and that there are better alternatives arriving to fill a market need like Bitspark. How the larger exchanges will compete with this added to competition remains to be seen but I'd imagine in the short term it'd mean a reduction in trading fees which at the end of the day is the best outcome for the customer.”
While major players such as Coinbase continue to charge a 1% fee possibly due to the perceived reliability and safety of their services for now, the increasingly lower prices offered elsewhere may very well force these established companies to start matching the near-zero fees offered by smaller exchanges.
Cointelegraph spoke to Arthur Artza CMO at ecoin.eu about their 0% fee strategy, which may be helping drive fees lower across the ecosystem. Artza:
“We chose to charge 0% commission, as we can instead make our profit from deposit and withdrawals of e-currency on the exchange.”
Low fees alone may not be enough to attract new users to an exchange, however. “As well as the 0% commission trading, we have also had to make sure we have low fees for the deposit and withdrawal of e-currency from the exchange,” adds Artza.
As smaller exchanges such as BitSpark start to offer similar or even better services at a fraction of the cost, they are increasingly able to wrest customers away from those larger companies through these lower fees. Harrap explained to Cointelegraph how his company was responding to the pressure to excel as an exchange. He explained:
“Our focus has been on providing an accessible, secure, transparent, and feature rich service for our customers. Features like our recently announced 100% Multisig reserves in partnership with leading Bitcoin security provider Bitgo, our real time proof of reserves, 18 trading pairs and our world first cash in cash out remittance service are just some of the competitive advantages Bitspark brings to the table and we are working hard to deliver even more unique world leading services and features over the coming weeks and months.”
The result of these competitive price changes is certainly beneficial to the average user. Just as grocery store chains in a price-war will discount a certain product to undercut their rivals, big exchanges will seek to make these profits back through other fees from value-added services or by becoming a Bitcoin Universal Services provider. Thus, the increased competition does not only result in lower fees for the user but is also helping drive innovation and forcing companies to differentiate themselves from the competitors by offering new services and products.
While the cost of using exchanges appears to currently be in free-fall, this trend cannot last forever. With exchanges like Bitspark and Ecoin already offering 0% commission trading, it is likely we will see companies specializing in more niche services while larger exchanges will focus more on value-added features to retain and grow their user base.
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