How can I reduce cryptocurrency fees?

[almostthere]

Goal: Purchase about $500 each of the top 30 (by market cap) cryptocurrencies. I then hold the currencies in cold storage off the exchange.

In my initial experiments with moving the equivalent of $1500 out of coinbase, I have already spent $44 on fees.

The fees seem to fall into three categories: withdrawal fees, transfer fees, and trading/exchange fees.

The following statements seem to true based on that experience:

1) Many fees seem to flat to flattish.
2) Some currencies seem to have much larger transfer fees than others. It seems Bitcoin generally has large transfer fees. Bitcoin Cash seems to have much lower transfer fees.
3) Every movement costs something.
4) Withdrawal fees vary dramatically from exchange to exchange.
5) Bicoin and/or Etherum seem to be the primary currencies markets are made in. IE, prices are usually quoted in one of the two of these.
6) There seems to be two broad models of exchanges: the money changer type where the fees in spread go the changer - for example ShapeShifter. This is akin to finding a money changer on the streets of a foreign country. The second type is trading or multiple currency exchange. Here I can trade with other people. This is most similar to stock market type of exchange with many nice price graphs to be mesmerized by.

This leads me to believe the following:
1) Move larger amounts of money at the time.
2) Be direct. Move the money the least number of times possible.
3) While Bitcoin seems the primary unit of exchange, it seems that using another currency to move money and exchange, such as Bitcoin Cash or maybe even Ripple, maybe cheaper in the end because transfer fees are so much lower.
4) While the overall fee of ShapeShifter may be higher than the 0.1% charged on say HitBTC for the trading fee, it seems to be inclusive of not just the exchange fee but also withdrawal and transfer fees.

Please correct me where I am wrong on any of the above.
Please provide me with additional strategies to reduce overall fees.
Please tell me what I don't know.
Please provide any heuristics that will generally lead me to save on fees.

[unemployable]

Um, buy fewer than 30?

[bryan]

For coinbase, you can open a GDAX account, fund immediately from coinbase, and then make a withdrawal transaction for free (GDAX doesn't charge and they foot the on-chain fee). Crazy but true.

Obviously each exchange has its own policy on fees. For instance, GDAX has no trading fees for limit orders. Apparently Robinhood will have no fees? Already 800,000+ people in the early sign-up queue though..

You shouldn't have to worry about miner fees for probably 27/30 of the top crypto-currencies.. if you are using one of the ~three with fees, try to plan it ahead and have plenty of time so that you can pay a smaller fee and wait a longer time for eventual settlement. For Bitcoin, here's a useful site that you can base your fee calculations: https://bitcoinfees.earn.com (so atm, to be in a block within the next six hours, you only have to pay .0003 mBTC per byte).

Another strategy, since you are buying so many different coins, would be to buy from the exchange with the lowest spot price (be sure to consider all other fees, though). https://coinmarketcap.com/currencies/bitcoin/#markets (replace bitcoin with whatever coin) shows different exchanges and spot prices. There are a lot of "crypto only" sites where sign up is easy and you could fund your account with litecoin (since it would be the lowest fee coin atm while also being relatively liquid and stable).

[daylen]

I pickup up a military grade Lenovo Thinkpad (T420) for $200 a yew years ago. They are cheap, durable, and compatible with Linux. Linux works better with a wide rage of crypto-curriences and is more stable. To fully diversify in this niche you really only need 3-6 (bitcoin cash, ethereum, litecoin, etc).

The future will slowly become more localized, and so the utility of decentralized currencies will depend on your local energy infrastructure. The demand for bitcoin is dominated by the drug trade that is powered by the communication infrastructure, therefore the local internet connectivity and local EROEI/trade will be the major predictors of return rate going into the future.

[bryan]

@daylen, From what I know, Bitcoin usage in drug markets has dropped off from its high about a year ago with Monero being the main one picking up the slack. Also, I'm not really sure what you mean regarding local connectivity/energy costs determining value.

Another tip to avoid a specific problem regarding fees: combine your smaller UTXO balances into one larger UTXO, preferrably w/ Segwit (I think BTC and LTC only, for now?), during times of low fees. This allows future transactions to be smaller, thus lower fees as a percentage of balances.

[Peterharrison]

Your trade fees will decrease if your transactions exceed a set target of, for instance, $100,000 dollars in a month. Mostly a set target is valid for a 30 day period. Do whatever you can to maximize business in those 30 days.

[PipSquack]

The route that I am considering is buying some CombiCoin (COMBI) through http://triaconta.com. Triaconta claims that CombiCoin will buy the top 30 coins by market cap and will rebalance every two months. New purchases will buy the component coins from the cheapest price across several exchanges and sales will sell at the highest exchange rate.

I'll point you to a seekingalpha instablog post, https://seekingalpha.com/instablog/2193 ... o-etf-coin, but be aware the new 10-day free viewing paywall window closes in a day or two.

I gather that CombiCoin sales have stopped while the company is restructuring but from what I saw in the comments sales will resume on March 8th. Get your ETH ready.

[almostthere]

@Bryan - good advice. Thank you especially for the coin market cap markets link. It was a good reminder of rule number one in any currency exchange - get the most currency possible in the other currency after fees. In other words, while minimizing fees is important, the actual amount of coins purchased is the most important.

As to GDAX, I need to give that a try, but I am really starting to sour on coinbase. The last five times I have logged in I have been unable to make any transactions because of system down time. I need to look into some alternatives.

I wish I understood this part:

Another tip to avoid a specific problem regarding fees: combine your smaller UTXO balances into one larger UTXO, preferrably w/ Segwit (I think BTC and LTC only, for now?), during times of low fees. This allows future transactions to be smaller, thus lower fees as a percentage of balances.

Also how can I tell when times of low fees are? I have noted websites that note current fees. I guess they just fluctuate and I need to learn what a normal amount is to see if it is a good deal or not?

As a related aside, what's the plan to get BTC's transaction fees down? If they stay this high, a rational person would just choose a wire transfer for large transfers b/c its cheaper and avoids any out of traditional financial system hassles. As soon as the market settles and I return to buying, I'll be using something like bitcoin cash with much lower fees to move money to exchanges.

@peterharrison - $100K in crypto? You must have balls of steel. The volatility I have experienced thus far on just $500 purchases is astounding. I wonder sometimes if I should even care about the cost because I buy $500 for $7 and it then fluctuates in the next ten minutes between $475 an $550.

@pipsquack - I was interested in a similar one Crypto20. It seems to sell at $3. That is $1 over its $2 NAV even in this selloff. Amazing. I think we'll start to see even more of these in the coming year. It will be even better when somebody figures out how to set up one to allow for arbitrage to keep it closer to NAV (similar to the way ETFs are set up).

Other ramblings - ShapeShift is a nice service. I do note that the price to exchange fluctuates. $500 of a BTC to ETH would fluctuate between $18 and $6 to exchange. Patience is a virtue. I want to try to Changlley as well.

Getting money into Binance, exchanging it, and getting it out is pretty reasonably priced - about $7 on a $500 BTC to LISK exchange. Binance is pretty transparent in its withdrawal fees. Using lower cost currency for transfers would have decreased that fee by almost $5.

Even money 'lost' so far in this decline has been worth it for the education. If one thinks that crypto is just BTC, one doesn't get it. There are currencies that have high quality teams working for the currency. Imagine that - people working for and promoting a currency. Astounding

[bryan]

I wish I understood this part:

Another tip to avoid a specific problem regarding fees: combine your smaller UTXO balances into one larger UTXO, preferrably w/ Segwit (I think BTC and LTC only, for now?), during times of low fees. This allows future transactions to be smaller, thus lower fees as a percentage of balances.

Also how can I tell when times of low fees are? I have noted websites that note current fees. I guess they just fluctuate and I need to learn what a normal amount is to see if it is a good deal or not?

There should be resources online (e.g. bitcoin wiki) but basically: 1) spending Bitcoin means creating a transaction which can be made up of multiple input and output addresses. The more addresses involved, the larger the transaction (it has nothing to do with the amount of BTC being sent). Transaction fees are calculated with transaction size. So reducing the number of addresses you use for BTC means lower fees in the future. 2) Segwit is a bit more complicated. Here's a resource: https://bitcoincore.org/en/2016/01/26/segwit-benefits/ (as a user, at this time, you should just try to prefer to opt-in to it via wallets you use etc.)

That link I shared earlier helps show what current fees are and what fee per byte to use for some rough probabilistic chance of it clearing. I'm not aware of a site that presents more of a historical analysis of fees (which would be useful to decide if "fees are low now" or "fees are high now").

As a related aside, what's the plan to get BTC's transaction fees down? If they stay this high, a rational person would just choose a wire transfer for large transfers b/c its cheaper and avoids any out of traditional financial system hassles. As soon as the market settles and I return to buying, I'll be using something like bitcoin cash with much lower fees to move money to exchanges.

Well the current plan-in-action is 1) lightning (a routing layer above Bitcoin which requires having coins locked for a period of time to enable cheaper, faster, numerous transactions since it only touches Bitcoin layer twice) and 2) alt-coins.

Just be careful about storing your coins outside of your control e.g. at exchanges. It's a trade-off between security, convenience, etc.

Even money 'lost' so far in this decline has been worth it for the education. If one thinks that crypto is just BTC, one doesn't get it. There are currencies that have high quality teams working for the currency. Imagine that - people working for and promoting a currency. Astounding

Yeah, super interesting how this Bitcoin thing has re-invigorated everyone on the financial/monetary/banking/whatever system, a domain long ripe for innovation and disruption. I think we will continue to see historical experiments, lessons pop up and perhaps we will take different forks in the road this time.

[daylen]

@daylen, From what I know, Bitcoin usage in drug markets has dropped off from its high about a year ago with Monero being the main one picking up the slack. Also, I'm not really sure what you mean regarding local connectivity/energy costs determining value.

I meant to say cryptocurrency in general was dominated by the drug trade, but that might not be true anymore either due to the recent surge in popularity.

Cryptocurrency requires a significant amount of energy (not just from mining). In the near future energy will be more expensive and less mobile. Hence, the future value of cryptocurrency will be dependent upon local conditions. The local cost of energy will reflect the demand, and the local connectivity (internet infrastructure) will affect the number of potential users.

[bryan]

The energy for Proof-of-Work mining (not the only mechanism for crypto-currencies, but the most popular) tends to be done in places like China, Iceland, Venezuela for extremely low cost exactly because mining is quite independent of actually using the protocol. The local cost of energy will only reflect the local demand to mine the coin, not use the coin (other than being some aligned incentives there.. e.g. the miners might want locals to accept it as money). Energy for mining doesn't have to be in dense form, just cheap.

Connectivity seems important, for sure. Granted, Bitcoin (not running a full node) isn't very data hungry (you just need _some_ connection; I even heard there is/will be a Bitcoin satellite!). So yeah, Bitcoin may have more value near towns than in the wilderness (then again, so do dollars).

[daylen]

What if the costs of maintaining a globally connected internet become too high? The internet could potentially become fragmented as the american empire collapses.

[bryan]

That's quite a big what if (humans "not having the internet"). It's like saying we won't have telegrams, radio, cellphones, etc. Bitcoin fits in there except it communicates/transfers monetary value directly. You might want to narrow the failure mode a bit more? AFAIK (not my expertise) the internet is decentralized at its base level and designed to be failure tolerant. Obviously there are some concerns you could point to (great firewall of china, cyber attacks, centralization of services e.g. Comcast, Facebook, Amazon AWS) to envision some version of collapse.

[daylen]

@bryan The big "what if" questions are the most interesting!

I'm not saying that the internet will fail, but that the internet could potentially cost too much to maintain connected over long distances (ocean). The World-Wide-Web could become World-Wide-Web's.

[bryan]

Of course, it already exists (intranets, access controlled endpoints, foreign languages, etc). Sure it could get worse. Technically, it is "easy" to have digital bridges/tunnels/piggy-backs to keep everything connected to some level.. Though at that point it's not the default way of things, which counts for a lot, and we lose some efficiencies (resulting in higher latency, lower bandwidth, and disabling use-cases that rely on the opposite). Bitcoin is not such a low latency, high bandwidth demanding use-case (if not running a full node, at least).

[James_0011]

An index fund could be an option: https://crypto20.com/

I read that US investors can't liquidate though, so you have to use an arbitrage bot.