Coinbase
Key Takeaways
Pros
Easy to use.
Ability to trade a large number of cryptocurrencies.
Earn crypto rewards by participating in quick lessons to learn more about various cryptocurrencies.
Cons
Relatively high fees compared to other exchanges.
Currently there are limited interest earning abilities.
Tracking profit and loss is not that straight forward.
Coinbase is currently the largest US based cryptocurrency exchange and went public on the Nasdaq exchange in 2021. Coinbase has two exchanges under the Coinbase umbrella, Coinbase and Coinbase Pro. There are important differences that we will go into at the end of the article.
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Drawbacks and Downsides
Let's start with the fees. They’re high. Coinbase uses layered fees, first is a spread fee of approximately 0.5%. Second is their Coinbase fee which varies based on the amount of the transaction. It can range from $0.99 to $2.99. For transactions larger than $200 the fee is 1.49%. So what does this mean for you? Best case you can expect about 2% in fees (0.5% spread fee + 1.5% transaction fee) any time you buy or sell. This is not insignificant, especially for those looking to make smaller transactions where you may pay $1 in fees on a $10 transaction. Even with how successful crypto markets have been over the longer term, this still eats away at your returns. On Coinbase I recommend making most of your transactions at least $200 to keep fees to a minimum.
You can see the Coinbase fee schedule here.
Earning interest on cryptos is still relatively new. That being said, compared to other crypto exchanges, Coinbase has limited interest offerings and their interests rates are not as competitive. It's worth noting that crypto interest involves an additional level of risk that may not be for everyone.
This last drawback is more of an interface issue. When viewing your portfolio, it is not made obvious what profit and loss is for each of your positions. Is your Bitcoin holding up 20% or down 30%? This can be helpful when making the decision to buy or sell, especially around tax time. I suppose not showing profit and loss may help people hold their crypto longer term and not be tempted to buy and sell during larger market fluctuations.
Positives and Perks
First, the sign up and funding process is very quick and simple. Creating the account and connecting to your bank account should take less than ten minutes. In short, you’ll need to provide your contact info and verify your identity. As for funding you have several options in the US. You can link your bank account, debit card, wire transfer or a paypal account. You can expect fees to be higher for debit card purchases and wire transfer so be sure to check the most recent fee info before deciding. For most people, linking a bank account might make the most sense.
In addition to the quick sign up process, the Coinbase user interface is intuitive and easy to use (mobile and desktop). Buying and selling various cryptos is usually just a couple clicks away. Here you can read relevant crypto news, review your portfolio, check watch lists and keep current on Coinbase updates.
Coinbase also offers a rewards program where you can participate in short lessons to learn about a few cryptocurrencies. By answering some questions, Coinbase will send you a few dollars worth of each crypto you learn about. Rewards range from a couple dollars to about $10. It’s a nice incentive to educate yourself a bit more about some of the smaller cryptos, all while earning some money.
In addition to the rewards, Coinbase also allows you to convert some cryptocurrencies into another cryptocurrency. Surprisingly, not all exchanges allow you to do this directly. With some exchanges you would need to sell into cash (plus transaction fees), then buy the other asset with the cash (plus fees). This means you pay fees on the sell and the buy. A nice feature if you are planning to reduce holdings in one crypto and add holdings of another.
Coinbase supports a large amount of cryptocurrencies to trade, with new tokens being added regularly. Unless you are only interested in trading the major cryptos like Bitcoin and Ethereum, it is very nice to have a large selection to choose from. This is a quickly evolving space and when you do your research and find smaller tokens with great potential, Coinbase often supports these.
Coinbase Pro
There’s good news if the fees I mentioned above made you cringe a bit. Coinbase Pro offers much lower fees for trading. On Coinbase Pro the fees are about 0.50% per transaction (lower if you trade more than $10,000). Compared to roughly 2% per transaction on a basic Coinbase account, this is a huge improvement. Less fees mean your money gets to make more money.
What’s the catch? Well, the interface is a little more complicated than the basic Coinbase exchange. More charts and trading options that might be confusing to a novice investor. The good news is that even though it is a separate exchange, you can use the same sign in info for your basic Coinbase account.
This article has more detailed information on the differences between Coinbase and Coinbase Pro.
Final thoughts
There is a reason why Coinbase is one of the most popular Crypto exchanges, the basic app is easy to use and provides access to many of the most popular cryptocurrencies (large, medium and small). However, the ease of use comes at the cost of high relative fees. While they are comparable to other exchanges, it is something you will need to consider.
The Coinbase crypto rewards (quick lessons in exchange for earning cryptos) is a nice touch that I have not seen on any other exchange.
Coinbase Pro adds an interesting wrinkle. If you are very new to cryptocurrencies (or investing in general) the basic Coinbase app is what you will want to start out with. However, given the high fees I recommend taking the time to learn how to use Coinbase Pro and gaining a general understanding of more advanced trading terms like limit orders etc. There are plenty of video tutorials to help you along the way. Don’t be intimidated, Coinbase Pro will look complicated at first, but once you understand the interface, it’s still just a few clicks to buy and sell. It's worth it just to reduce your fees.
Overall I think Coinbase is a great exchange for beginning and intermediate crypto investors to gain exposure in the crypto markets.
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