Coinbase is one of the largest cryptocurrency exchanges, and unfortunately, it’s the one
that most beginners gravitate to when they first start investing.
I say unfortunately because Coinbase costs users tons of money when they could be getting
better services at a lower cost or even no cost at all.
And at the end of the day, this means that people who use Coinbase are going to see lower
returns on their crypto investments than people who use other tools.
In this video, we’re taking a look at everything wrong with Coinbase and why it’s costing
you so much money.
This starts with the basic crypto trading, where Coinbase tacks on fees every step of
the way.
Then, we’ll look at the yield offerings to earn passive income on your crypto, which
fall short of everything else available.
Next, we’ll look at why the Coinbase debit card is a lackluster product compared to the
competition.
Finally, their newer borrowing feature rounds out their cryptocurrency platform, but it’s
going to come with some hefty fees that you can avoid by going elsewhere.
Of course, I will also wrap up this video with the best alternatives I use instead of
these products so you can save yourself money and earn more crypto.
Let’s take a look.
The most costly part of using coinbase is the fees associated with buying, selling and
sending cryptocurrency.
On Coinbase, the fee to buy and sell cryptocurrency can be as high as nearly 10%.
Of course, the less you pay in fees, the more cryptocurrency you will actually be able to
purchase, which will lead to higher investment returns.
Therefore, the goal of any investor should be to minimize fees wherever possible.
But, Coinbase doesn’t make this easy.
For starters, Coinbase charges a flat fee on any purchase of $200 or less.
On the low end, you will owe $2.99 on a $200 purchase, which is a 1.5%.
On the high end, you will owe 99¢ on any purchase of $10 or less, which is almost 10%
of your investment going to fees.
So if you’re someone like me who likes to dollar-cost-average(DCA) into cryptocurrency,
these fees will add up fast and could end up costing you a ton of money.
The only way to avoid these exorbitant fees is to buy crypto in increments larger than
$200, which is not so doable for the average investor looking to dollar-cost-average.
And this still doesn’t solve the problem of fees, because Coinbase will charge flexible
percentage fees on any larger purchases.
These fees start at 1.49% if you deposit cash into Coinbase or purchase directly from your
bank account, and they can cost as much as nealy 4% if you’re purchasing with a debit
card.
These fees will be the same when it comes time to sell your cryptocurrency back into
dollars, and again, they’ll add up if you make multiple transactions over time.
These fees are made even worse with a price spread.
This is when Coinbase will quote you a higher or lower price than the asset is currently
trading for so that they can guarantee your trade will go through.
On average, this means you’ll pay about .5% more or get paid .5% less when trading
on Coinbase.
These spreads are a sort of hidden fee that Coinbase gets to collect as profit, and again,
it’s less money that you are getting out of your investment.
Coinbase has a decent solution for these problems with the Coinbase Pro platform, which is a
more advanced exchange.
You can log-in with your normal Coinbase information, deposit US dollars onto the exchange for free,
then purchase crypto with just a .5% fee.
In addition to reducing those purchase fees, you can also eliminate the price spread because
you’ll be placing orders yourself, instead of letting the basic Coinbase trade function
do it for you.
However, even Coinbase Pro doesn’t solve one final issue that Coinbase has, and that’s
withdrawal fees.
When you send any cryptocurrency out of your account, whether it’s to a hardware wallet,
a friend or even a crypto interest account, you’ll owe network fees.
Some platforms offer to cover this fee for you, allowing you to transfer for free.
Coinbase does not, which means you could pay tens or even hundreds of dollars to transfer
crypto, which gets really costly for smaller transfers.
Luckily, there’s an even cheaper solution than Coinbase that also offers completely
free withdrawals, and I’ll explain it more towards the end of the video.
In my opinion, one of the most attractive elements to investing in cryptocurrency is
being able to earn yield or interest on your crypto assets.
Many platforms are starting to offer this, and Coinbase is one of the latest to get in
on the action.
To earn yield, you simply hold your cryptocurrency on one of these crypto platforms, and they’ll
pay you a set percentage rate.
The great part about this is it’s completely passive income and it’s paid out in the
crypto that you hold, which means that interest can compound and continue growing over time
to make you more money.
You might be familiar with BlockFi, which is probably the best-known crypto yield platform.
Now I have many qualms with the BlockFi platform, which I explained in a previous video, but
Coinbase is actually even worse in comparison.
The issue is that Coinbase withdrew from a true crypto interest product due to regulatory
fears.
Even then, they were only going to offer a measly 4% APY on the USDC stablecoin.
Despite dropping this product, they still offer something similar with their staking
program, which allows you to lock up certain coins and earn rewards for providing that
liquidity.
Coinbase falls short here because they have a severely limited number of supported assets
- only six at the moment - and the yield on those assets are all pretty low.
(low assets/low rates) Meanwhile, other platforms support dozens of assets and pay upwards of
10% APY on assets, which completely puts Coinbase to shame.
Obviously, I’ll share my favorite at the end of this video.
The next issue is the Coinbase card, which is one of many that are positioning themselves
as a crypto rewards card.
The first issue with the Coinbase card is that it is a debit card and not a credit card.
This means you will need to pre-load your Coinbase account with funds in order to use
it.
Alternatively, instead of loading US dollars or stablecoins into your account, you can
use the card to buy things with crypto, but personally this is the last thing I would
do.
While there are likely people who disagree with me, my belief is that the whole point
of investing in crypto right now is to save it for the future, not to spend it.
If you’re going to buy crypto just to spend it a couple days later, you’re jumping through
a lot of hoops and paying a lot of fees for no clear benefit.
Plus, if you choose to purchase with crypto, Coinbase charges a 2.49% conversion fee to
sell your crypto assets and fulfill your purchase in US dollars.
Again, more fees being added on will reduce your returns.
So you can make a better case for the card if you are consistent about pre-loading it
with dollars or stablecoins, but it’s still quite an inconvenience for the lackluster
rewards.
Currently, the Coinbase card pays just 1% back in Bitcoin, Doge, Ethereum or DAI, and
4% back in AMP, Rally, The Graph or Stellar Lumens.
I personally want to focus my crypto investing on Bitcoin, and 1% back doesn’t cut it for
me there(poor rewards).
Instead, I’m better off using a standard 1.5 or 2% cash back credit card, putting all
my purchases on that, and then using the rewards to buy more crypto, which will be much greater
than those 1% back returns.
The 4% rewards are much more appealing, but I am not familiar enough with any of the supported
currencies to want to invest in them long-term.
To me, the only feasible option here is to earn the 4% rewards then trade them to Bitcoin,
but then we’re back to the beginning and paying massive fees on all of our transactions.
So again, I think a better solution is just using a simple credit card and redeeming cash
back for Bitcoin, at least until a solid crypto rewards card comes out.
Finally, we have the Coinbase borrow product, which enables users to take out loans against
their crypto.
I did a video on this a few weeks back because it can be a highly valuable strategy, especially
if you want to avoid taxes on your crypto.
With crypto borrowing, you offer up your cryptocurrency as collateral and receive cash in return.
By taking out a loan, you are not getting taxed on the money received, and your crypto
gets to continue appreciating while it’s locked up as collateral.
This is a smart way to use some profits from your investments in a tax-efficient way.
However, it becomes much less efficient when the loan provider adds on a bunch of fees
and places limits on how you can borrow, which is exactly what Coinbase does.
For starters, Coinbase only lets you borrow against your Bitcoin, while many other providers
let you borrow against a variety of assets.
This gives investors limited options if they want to take out a loan.
Next, Coinbase charges 8% APR on your loan value, which is on-par with bank loans, but
not at all competitive with other crypto lenders.
Finally, with many forms of borrowing, you have something called a margin level.
If the value of your Bitcoin collateral drops below this margin level, due to drops in Bitcoin’s
price, your loan will no longer be in good standing.
Most crypto lenders then give you the opportunity to add more Bitcoin to your collateral and
restore your account to good standing.
Coinbase, however, will simply sell your collateral to satisfy your debt and then charge you an
additional 2% fee for doing so.
The best alternative here is a lender that will give you more flexibility on the assets
you can use as collateral, more flexibility with margin and lower interest rates.
So let’s get into the platforms you should be using instead of Coinbase, starting with
buying and selling cryptocurrency.
To avoid all of the fees that Coinbase charges, I use the Gemini exchange for all of my buying
and selling.
They have a set-up very similar to Coinbase, so it’s just as easy to use for beginners.
However, you’re going to want to make sure you use the Active Trader tool for all your
trades.
This is similar to Coinbase pro, where you can deposit US dollars and then make trades
at a much lower cost.
The fees on Gemini Active Trader are just .35% compared to Coinbase’s .5%.
And the standout feature of Gemini is that they give you 10 free crypto withdrawals per
month.
So if you want to move your crypto to another wallet and maybe earn yield, it won’t cost
you a cent.
And speaking of earning yield, Celsius is my absolute favorite platform for earning
on and borrowing against my crypto.
For yield, they support over 40 assets and pay as much as 17% APY on those assets.
The stand-out options here are Bitcoin at 6.2%, Ethereum at 5.35% and stablecoins at
an impressive 10% APY.
On Celsius, these rewards are paid out every single Monday in the cryptocurrency asset
that you hold.
There are no lock-up periods, no minimum balance requirements and no fees to transfer into
or out of the app.
If you want to borrow against your crypto, Celsius offers loans at just 1% APY.
You can use any of the platforms’ 40+ supported assets for collateral with tons of repayment
options and no fees whatsoever.
And unlike Coinbase, if you get margin called, you’ll have the opportunity to restore your
collateral before your assets get automatically.
Celsius is also working on a crypto rewards credit card which I expect to be extremely
competitive, so I will be looking forward to that and using a standard cash back credit
card in the meantime.
If you want to know when that starts rolling out, be sure to subscribe to the channel because
I will definitely have a video on it.
If you want to get started on either Gemini or Celsius I have links to them below, you’ll
get $10 in Bitcoin for trading your first $100 of crypto on Gemini, and you’ll get
$50 in Bitcoin when you sign up and make a $400 deposit on Celsius, so don’t miss out
on those.
Finally, if you want a step-by-step for getting started with earning crypto interest on Celsius,
check out this video where I walk you through the whole process.
I’ll see you in the next video!