The potential approval of a spot Bitcoin Exchange-Traded Fund (ETF) has raised questions about the pricing structures of crypto exchanges. With some of the most prominent players in the market charging seemingly low fees, Bloomberg analyst Eric Balchunas wonders if these exchanges would have to reconsider their pricing once a Bitcoin ETF is introduced. However, Custodia Bank’s Caitlin Long warns that low ETF fees might indicate issues for issuers in covering their costs. She suggests that these issuers may resort to lending securities to offset losses. While the filed prospectuses of ETF applicants state that Bitcoin will not be lent, it is possible for ETF shares to be lent out under collateral. In this analysis, we compare the fees of top crypto exchanges and the cost of holding Bitcoin in proposed Bitcoin ETFs.
To assess the competitiveness of crypto exchanges, we examined the transaction fees charged by popular platforms for making market orders with no promotional benefits. The chart below displays the fees of these exchanges. It is worth noting that some exchanges, including Webull, eToro, and Robinhood, offer zero-commission trading. Conversely, others like Hargreaves Lansdown, BestInvest, Interactive Investor, and ig.com charge a fixed fee for U.S. ETF purchases, often followed by zero commission after a certain number of fees.
After considering the acquisition of shares in Bitcoin ETFs, it becomes necessary to account for any fees charged by brokers for custodying shares. While some brokers charge fees, others offer zero fees. Assuming zero-commission trading for the proposed ETFs, we compared the cost of purchasing Bitcoin through different exchanges and holding it for one year within the ETFs awaiting approval. Our findings show that crypto.com is the most affordable exchange to purchase Bitcoin, with a cost of just $1.50 for a $2,000 purchase compared to the lowest ETF fee of $4.80 for a one-year hold.
However, it is important to note that certain exchanges also impose withdrawal fees. For instance, crypto.com has a withdrawal fee of 0.0006 BTC, equivalent to $27 at the time of writing. Comparatively, the average network fee for Bitcoin is 0.0002 BTC ($9.45). On the other hand, exchanges like Binance only levy the network withdrawal fee. To evaluate the complete cost of purchasing and withdrawing Bitcoin, we considered the respective amounts and used the average transaction fee at the time of analysis.
One crucial distinction between buying Bitcoin through an ETF and a crypto exchange lies in the exposure to the underlying Bitcoin. With a spot Bitcoin ETF, the underlying Bitcoin is effectively custodied through the issuer and its Bitcoin custodian, typically Coinbase Custody. However, when exiting the ETF, one can only do so in cash, not in Bitcoin. The custodied Bitcoin is held exclusively while holding ETF shares.
Conversely, on a crypto exchange, one is purchasing Bitcoin held in custody by a third party. Afterward, the Bitcoin can be withdrawn directly to a self-custody wallet or converted into fiat and withdrawn as cash. The difference in custody is significant because spot Bitcoin ETFs are subject to closer regulatory scrutiny compared to many crypto exchanges. The FTX incident in 2022 highlighted the importance of knowing where your crypto is custodied.
Based on our analysis, Binance emerges as the cheapest exchange for purchasing Bitcoin and withdrawing it into self-custody. Bitwise, on the other hand, is the least expensive ETF for buying and holding custodied Bitcoin through an exchange-traded product. For those seeking to purchase and custody Bitcoin without withdrawal, crypto.com presents the most cost-effective option. The top providers for purchasing Bitcoin and having it held in custody are crypto.com, Binance, Bitwise, and Ark/VanEck.
It is crucial to remember that this analysis is based on a single purchase with no special privileges or volume bonuses. Many exchanges offer fee discounts for active traders, thereby reducing the cost of buying and holding Bitcoin.
The potential approval of a spot Bitcoin ETF raises questions regarding the pricing structures of crypto exchanges. While low ETF fees may indicate problems for issuers in covering costs, it remains to be seen whether these fees will force exchanges to reconsider their pricing. Our analysis reveals that crypto.com offers the cheapest option for purchasing Bitcoin, while Binance emerges as the most cost-effective exchange for withdrawing Bitcoin into self-custody. With regulatory scrutiny on the rise, it is imperative to choose a custodian that can be trusted. Ultimately, the choice between ETFs and exchanges depends on individual preferences and requirements.
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