The Hidden Cost of Funding Your Crypto Account

Imagine a new US trader gleefully coming to a crypto exchange. They see the KYC requirements, complete them, and then pick the asset to trade. And just when they are about to deposit, they realize something: the fee is high.

The user hasn’t even traded anything yet, but still has to lose money from a method that doesn’t have anything to do with the market fees.

This “deposit fee” hurts more than the trading fee. With trading fees, you at least get some trading action. But here, even participation costs money. While this cost isn’t exactly hidden, it does get ignored often, slowly creeping up as the frequency of deposits grows.

Why Do Card Deposit Fees Exist?

But why does one even have to pay the deposit fee? The answer to this question lies in the networks and issuing banks. As money is interchanged across the networks, Visa or Mastercard have to maintain the network, which takes resources, and thus, the fee is cut.

The fee isn’t exactly small either. On the low end, it is around 1.5%. But if the volume is particularly large, or the exchange is exclusive, it can go as high as 3.5%. As for why the fee is so high, it is because traditional card purchases come with strong chargeback protections, which crypto transactions don’t have.

Theoretically, exchanges have to bear this fee, but it is passed to the user. Exchanges deduct the processing cost and then net the difference as their own profits.

But there are also types of exchanges that don’t pass the deposit fee to the user. Why? It is a deliberate business decision on their part. They think of that in terms of acquisition costs, which means they aren’t worried about their bottom line.

For such exchanges, absorption comes with a perk. As investors see their first deposit as frictionless and carrying no fee, they are more likely to stick with them.

Deposit Speed as a Parallel Friction Point

Cost isn’t the only issue customers face. There is transfer speed to consider as well. Take bank transfers, for instance: ACH in the US takes three to five business days to complete, which is a lengthy period within the context of crypto. Multiple assets have hit their all-time highs in the past within this time-frame, or have dropped in value.

Bank transfer users are often at a disadvantage here. Low speed means no chance to capitalize on the rapidly changing cryptocurrency ecosystem. Users would just have to wait and let the opportunity pass them by.

For many users, this is when they step back from exchanges. If the first deposit experience isn’t good enough, there is no chance that subsequent deposits will be.

While card deposits have resolved this issue, turning three to five days into five minutes, they often charge the highest fee. So even if a user manages to generate a profit, the revenue may be offset by high fees.

So, for a new trader, the best option is one that comes with no fee, and fast settlement. Although it is rare, there are some exchanges that provide it.

The Shift to the Fiat Fee Structure

Since the cryptocurrency market is rapid, and the changes to an asset price are varied, exchanges have started to come up with new ways to attract new users. One approach is treating zero-fee deposits as a differentiator.

In the US, where retail adoption is still taking shape, first impressions matter. So for new users, many exchanges are providing low-cost or no-cost deposits.

BTCC, for instance, offers 0-fees VISA/Mastercard deposits for eligible users in the US. Settlement only takes five minutes, and with no pre-registration required, users are already at an advantage.

Conclusion

A deposit fee is a “not-so-hidden” cost to crypto trading. But exchanges have grown wiser and are seeking ways to make things easier for the customer.

But not all zero-trading fee offers are the same. Users should still assess key things before making a deposit. They should ask questions such as which deposit methods are covered, what the settlement time is, and whether the 0-fee offer is promotional or provides long-term value.

With the right exchange that offers zero-fee and instant settlement, users can experience a complete shift in their trading experience. They can move forward with confidence and excitement about the crypto market.