Let the crypto fee wars commence.
On Wednesday, Binance.US—the soon-to-be three-year-old cryptocurrency exchange—effectively eliminated fees for spot Bitcoin trading on its platform so long as customers do so using U.S. dollars, Tether, USD Coin, or Binance USD, a first-of-its-kind move stateside. “Since our inception, the ethos behind Binance.US has been to be the lowest cost provider,” CEO Brian Shroder says. “What we wanted to do with this move is solidify ourselves as the global leader in pricing.”
The American offshoot of the world’s largest crypto exchange, Binance, very well may have ignited a long-awaited race to the bottom in the crypto world that is now set to play out over the coming months and years as well, though.
Wall Street has long warned that crypto trading fees were headed for zero eventually, a potential boon to investors everywhere but a strain on crypto exchanges that may feel the need to match competitors like Binance.US, even though that may eliminate or limit a source of top-line growth. Other markets like U.S. equities have done the same, as stock-trading commissions fell to the wayside in late 2019 when, after years of mounting pressure from Robinhood, online brokerages including Charles Schwab, E*TRADE, Fidelity, and, well, pretty much everyone else went to zero-commission trading. And while free trading has existed in the U.S. crypto market since at least 2018 when Robinhood began offering trading in Bitcoin and Ethereum, the Binance.US news brings the question of who drops fees next to new heights.
“I think this is the beginning of the end for Coinbase’s business model,” says Dan Dolev, senior analyst at Mizuho who covers the company, referring to the fact that Coinbase generates north of 80% of its revenues from transaction fees. “The willingness to pay high fees, I think, is coming into question,” Doley says, adding that the move closer to zero should play out over the course of the rest of the year.
How long it will be before $0 crypto trading is the norm is unclear, still. Stock brokers, after all, took decades to lower fees. Yet, once the cuts did start, they came fast and heavy. Take Schwab, for instance. In 2006, the brokerage was charging a flat commission of $12.95 per trade. Four years later, Schwab cut its fee to $8.95, then again, in 2017, to $4.95, and finally, in 2019, to zero.
Up until Wednesday, there were few signs that fee compression was on the immediate horizon in crypto. In May, Coinbase CEO Brian Armstrong even said that the company has seen its “take rate” rise over the prior few quarters while speaking with analysts on an earnings call. Or as CFO Alesia Haas put it more bluntly later on: “We’re not seeing competition on fees.”
A lot can change over the course of six weeks, though, and, in crypto, it has.
The market has plunged in value, with the Federal Reserve’s aggressive attack plan against inflation and the ripples of the Terra and Luna implosions still weighing heavily on token prices. Trading volumes, which were already expected to be far below the heights of 2021, have fallen off a cliff. At Coinbase, for example, second-quarter volumes are tracking more than 30% below the prior period and somewhere between 10% and 15% lower than consensus, Dolev wrote in a research report. And layoffs have hit the industry hard, with Coinbase, BlockFi, Gemini, and Crypto.com all having made cuts already.
For now, there is a chance that Binance.US may be the outlier in cutting fees.
Valued at $4.5 billion in April following a $200 million fundraising round, the exchange was already widely seen as one of the lowest-cost crypto exchanges out there and has a steady pipeline of more products to come on top of a reported follow-on fundraise. “We at Binance.US are entering this crypto winter from a position of strength,” Shroder says. “We are in a unique position where we can actually lower our prices.”
But a sense of inevitability of trading fees going to zero is surely taking hold and picking up traction at crypto exchanges of all sizes now, making—just as it did in the U.S. equity market— scale all that much more important as trading volumes dissipate.
Bankman-Fried & Trust. It’s John Pierpont Morgan, the namesake behind the nation’s largest bank who stepped up in 1907 to avert a financial frenzy from becoming a financial crisis! It’s Warren Buffett, the Oracle of Omaha whose $5 billion investment in Goldman Sachs in 2008 helped stabilize the Wall Street giant! It’s Jerome Powell, the Federal Reserve chair who helped steer the U.S. economy from a state of complete disarray in 2020 when COVID-19 first took hold!
No, it’s Sam Bankman-Fried, the chief executive of crypto exchange FTX and founder of trading firm Alameda Research who has over the past few days joined the ranks of Morgan, Buffett, and Powell in becoming a backstop to ward off something far grander, which in this case, is contagion in crypto. And now, FTX and Alameda are stepping up, with FTX providing crypto lending platform BlockFi with a $250 million revolving line of credit and Alameda providing crypto broker Voyager Digital with a $200 million cash and USDC revolver and a 15,000 Bitcoin revolver that would be worth a little more than $300 million as of Wednesday morning. (Alameda also just bought about 15 million shares in Voyager.)
“I do feel like we have a responsibility to seriously consider stepping in, even if it is at a loss to ourselves, to stem contagion,” Bankman-Fried recently told NPR. “Even if we weren’t the ones who caused it, or weren’t involved in it. I think that’s what’s healthy for the ecosystem, and I want to do what can help it grow and thrive.”
Declan Harty
@declanharty
Declan.harty@fortune.com
DECENTRALIZED NEWS
Credits 🚀
Crypto is back on the rise following a yikes-worthy weekend that saw Bitcoin crumble to below $18,000, Ether fall into the $800s, and the entire market's value decline below $800 billion.
Binance.US wants to add another $50 million or so of funding onto its seed round at a $4.5 billion valuation.
FalconX has more than doubled its valuation to $8 billion following a $150 million Series D fundraise.
A top Bank of England official says the survivors of the crypto rout may become tech's next giants.
FTX.US has acquired stock clearing firm Embed.
eBay is wading into the NFT market business with a deal to buy KnownOrigin.
The crypto political-donation machine in Washington, D.C. is alive and well.
Debits 🐻
The Federal Reserve is still planning on more interest rate hikes as the battle against inflation rages on.
European Central Bank President Christine Lagarde says crypto staking and lending should fall under a follow-up to the Markets in Crypto-Assets regulation.
"You just cannot defy gravity." The Bank for International Settlements is amplifying the alarm bells around structural issues in crypto.
FOMO NO MO
"I have great confidence in our ability to build back even stronger than we once were." Weeks after the Terra and Luna cryptocurrencies imploded, Do Kwon, the King of the Lunatics behind it all, is mounting a second act with a new version of Terra. Now, in a new interview with The Wall Street Journal, Kwon pushed back on allegations of him being a fraudster, talked of the "great confidence" he has in building up the new Luna ecosystem, and acknowledged that "yes," he does regret some of the things he said in the past.
From the article:
The relaunch may be the ultimate act of chutzpah by Mr. Kwon, a man with a divided following within the crypto community. His admirers call themselves “Lunatics” and his critics consider him a snake-oil salesman.
“I feel really bad for Do because of the way his name is being dragged through the mud right now,” said Ronald AngSiy, an executive at Intellabridge Technology Corp., a company that allows people to earn interest on cash deposits by investing them in crypto.
Mr. AngSiy interacted with Mr. Kwon in business meetings and acted as an ambassador for Terra. He said he lost more than $1 million of his personal investments in the Luna crash, but maintained a high opinion of Mr. Kwon. “On Twitter he can come off as a megalomaniac, but he’s not like that in person,” he said.
Others in the crypto community say Mr. Kwon ran a sophisticated scam. “It was just really obvious from seeing how this guy tweeted, and how he spoke on camera, and how he carried himself that he was a fraudster,” said Cory Klippsten, chief executive of cryptocurrency firm Swan Bitcoin.
BUBBLE-O-METER
53.38%
It was a rough one in trading for Voyager Digital. Hours after unveiling that its exposure to Three Arrows Capital totaled more than $600 million worth of Bitcoin and USDC, Voyager's OTC-listed stock plunged, dropping 53.48% over the course of Wednesday before ending the day at $0.57.
THE LEDGER’S LATEST
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The get-rich-quick days of crypto are over. Investors are losing their shirts, but industry players say this is healthy by Taylor Locke
'People with money are scared': The CEO of FTX blames the crypto crash on the Fed hiking interest rates by Nicholas Gordon
Goldman Sachs says a recession is now twice as likely as its previous prediction by Colin Lodewick
Bitcoin whale Michael Saylor urges governments to step in and regulate crypto's 'parade of horribles' by Christiaan Hetzner
'Crypto has had ups before, and it has had downs before': Ethereum's Vitalik Buterin is philosophical about the crash by Taylor Locke
(Some of these stories require a subscription to access. Thank you for supporting our journalism.)
IF YOU DON’T KNOW, CRYPTO
Let's talk gas fees. Not to be confused with the gas tax that's in the headlines because President Joe Biden is plotting a campaign to get Congress to suspend it, gas fees are an unnecessarily jargon-y term for, simply, the fee required to complete a transaction on a blockchain network like Ethereum. After all, blockchains need gas just like how "a car needs gasoline to run." In the case of Ethereum, gas fees are paid in, you guessed it, Ether. However, to make things even more confusing, gas fees are not denoted in ETH, but rather "gwei," one of which is worth 0.000000001 ETH. How much Ether, or gwei, is paid out is dependent on supply and demand (as in anything), which can make for periods of extraordinary gas fees like when Yuga Labs did its Otherside NFT sale.
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