Fees From Cryptocurrency Providers— When Are Investors Paying Too Much?

Compared to the decades of experience investors have with the S&P and NASDAQ, everyone’s a comparative rookie when it comes to cryptocurrency. And crypto’s appeal often comes from the idea that crypto exists outside of traditional banking. However, overlooked in that idea is the reality that—not unlike traditional banking and other investment platforms—many cryptocurrency services charge users expensive fees for these crypto transactions. And these fees can get very steep, very quickly.

All that’s true, assuming that those platforms and third-party vendors are properly disclosing and administering those fees.

But that’s not always the case: In 2020, Robinhood paid $65 million in fines to settle claims that it failed to disclose commission fees and failed to get the best possible terms for when executing customers’ orders.

Elements that can influence crypto fees, markups or commissions.

Factors Influencing Cryptocurrency Fees, Markups Or Commisssions

Crypto transaction fees are largely determined by network traffic, capacity, supply and demand. The more traffic there is, and the more demand for capacity, the more expensive the transaction.

Some networks (such as Bitcoin and Ethereum) allow users to adjust the fee—with higher fees used to entice a “miner” to process the trade. Setting a low fee will save users money, but if the fee is too low, a transaction may not go through at all.

If clients want a lower fee, timing can help: Transactions made during peak trading hours on a workday usually have a higher fee than a weekend transaction.

Brokers Also Charge Fees

Clients should also be aware that third-party providers, such as crypto ATMs and trading apps, also charge fees for their services. Most charge percentage rates for the transaction, but some have a fixed rate, while others offer reduced rates for larger transactions.

Small transactions are expensive and getting more so. In February 2022, Venmo and PayPal announced a change to their fee structure. Venmo and PayPal have been charging a percentage fee for all trades larger than $25. But after March 21^st, they’ll charge a hierarchy of flat fees for transactions up to $200. A trade of $1 will cost 49 cents—a whopping 50% fee.

If you are concerned that your firm is overcharging clients for cryptocurrency transactions—providing them with misleading information, undisclosed fees, or other misrepresentations—the experienced attorneys at Silver Law Group and the Law Firm of David R. Chase are here to help. For a free, confidential consultation regarding any questions you have about whistleblowing, email us or call us today at (800)975-4345.