Stock Markets Offer Glimpse of Crypto Winter Survival

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A stock market-inspired respite could be in sight for retail crypto investors beset by high transaction fees.

With cryptocurrency markets experiencing an extended winter, consumers could shake off the chill by looking at a stock market trend that began on May 1, 1975.

While bitcoin fees have fallen as the cryptocurrency’s price languishes in the $20,000s, Ethereum’s fees last year were 100 times higher than Visa’s average transaction revenue.

Lower fees and essential diversification for survival

The situation looks grimmer for merchants using payment providers and merchants. Payment 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 above $1,000.

Coinbase charges a 1% fee on all cryptocurrency transactions, but costs vary around that point depending on transaction size. Binance may charge up to 4.5% for debit or credit card purchases, and 0.1% fees for trading and 0.5% for instant buys/sells.

But the stock market offers a silver lining as buyers and sellers of stocks haven’t paid stockbrokers up to 1% for many years. Stock brokers are people or companies that charge brokerage fees or a commission to help customers buy and sell stocks.

On May 1, 1975, the United States Securities and Exchange Commission ruled that stockbrokers could no longer charge fixed-rate commissions for trading stocks following a mass exodus of stock market investors five years earlier. This led to a 20% decline in commission rates between 1975 and the mid-1980s, causing trading revenue to skyrocket as trading volume increased.

But the stock market also took advantage of another powerful weapon when stock trading volumes plateaued in the mid-1980s: diversification. Research, wealth management, and banking broadened the revenue base of the securities industry, propelling ancillary services to over 80% of brokerage revenue in the 1990s.

Coinbase recently announced its staking service and a new focus on subscriptions to support it during market winter. Subscriptions and services accounted for 18% of the exchange’s revenue in Q2 2022. It also sold crypto tracking services to the US government earlier this year.

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

Only a handful of crypto firms have been able to offer lower fees and business diversification. FTX.US, the US operation of FTX, recently began offering stock trading at no cost, offering its clients shares of Apple (AAPL) and Tesla (TSLA). 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 would expect there to be consolidation,” said Reena Aggarwal, a senior civil servant at Georgetown University.

Regulatory issues threaten business survival

Diversification into staking and derivatives could be blocked by regulatory hurdles. Recently, SEC Chairman Gary Gensler said that the recent Ethereum merger could have turned the native blockchain token ether into a security, possibly requiring exchanges to register as a provider. titles or encouraging them to remove it from their platforms. This would affect exchanges offering ETH staking.

Mergers and acquisitions could face scrutiny from consumer agencies like the Federal Trade Commission, which seeks to protect consumers from anticompetitive practices and market abuse by dominant players.

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