Stock Markets Offer Insight on Surviving Crypto Winter

An exchange-inspired respite could be on the horizon for retail crypto investors plagued by high transaction fees.

As cryptocurrency markets experience an extended winter, consumers were able to get a break from the cold by looking at a stock market trend that began on May 1, 1975.

While Bitcoin fees have declined as the cryptocurrency’s price plummets to the low $20,000s, Ethereum fees have been 100 times higher than Visa’s average transaction earnings over the past year.

Lower fees and diversification are key to survival

For merchants using payment providers and merchants, the picture looks bleaker. Payments provider PayPal announced changes to its fee structure earlier this year, charging 1.8% for crypto transactions up to $1,000 and 1.5% for transactions over $1,000.

Coinbase charges a 1% fee on all cryptocurrency transactions, but costs vary around this point depending on the size of the transactions. Binance may charge up to 4.5% for debit or credit card purchases and 0.1% fee for trading and 0.5% for instant buy/sell.

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But the stock market offers a bright spot, as stock buyers and sellers haven’t paid even 1% to stockbrokers for many years. Stockbrokers are people or companies that charge a brokerage fee or commission to help clients buy and sell stocks.

On May 1, 1975, the US Securities and Exchange Commission ruled that stockbrokers could no longer charge fixed commissions for trading stocks, following a mass exodus of stock market investors five years earlier. This led to a 20% drop in commission rates between 1975 and the mid-1980s, which boosted trading revenues as trading volumes increased.

But the stock market also employed another powerful weapon when stock trading volume stagnated in the mid-1980s: diversification. Research, wealth management, and banking services broadened the revenue base of the securities industry, with ancillary services accounting for more than 80% of stockbroker revenues by the 1990s.

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Recently, Coinbase announced its staking service and a new focus on subscriptions to get it through the market winter. Subscriptions and services accounted for 18% of the exchange’s revenue in Q2 2022. Earlier this year, it also sold crypto tracking services to the US government.

Coinbase has also announced that the company has $6 billion on its balance sheet and that some mergers and acquisitions may be pending.

Only a handful of crypto companies have been able to offer lower fees and business diversification. FTX.US, the US subsidiary of FTX, recently began offering fee-free stock trading, offering Apple (AAPL) and Tesla (TSLA) stocks to clients. FTX Ventures, the VC arm of FTX, recently acquired a 30% stake in SkyBridge Capital from Anthony Scaramucci.

“Once the Wild West is over and the strongest players survive, you expect consolidation,” said Reena Aggarwal, a senior official at Georgetown University.

Regulatory problems threaten the survival of companies

Diversification into staking and derivatives could be hampered by regulatory hurdles. Recently, SEC Chairman Gary Gensler commented that the recent Ethereum merger could have turned the blockchain’s native token ether into a security, potentially leading to exchanges listing it registering as a security provider or removing it from theirs platforms would have to be removed. This would impact exchanges offering ETH staking.

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Mergers and acquisitions could be subject to scrutiny by consumer bodies such as the Federal Trade Commission, which seeks to protect consumers from anti-competitive practices and market abuse by dominant players.

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