Over the past year, I’ve been suffering from a powerful case of FOMO. I’ve known about bitcoin since the beginning, but I never bought in. Everyone around me got rich off of bitcoin and other cryptocurrencies while I was urging caution. One of my coworkers just retired in his 30s as a cryptomillionaire. Seriously.
While he’s driving his Lambos to the moon, I’m driving my 12-year-old Civic to the dollar store.
So about a month ago, I gave in. I bought a piece of a bitcoin on Coinbase. Here’s what happened, and here’s why it mostly sucked.
During a juicy, tempting dip in the price of bitcoin, (to $13,500, lol), I signed up for an account on Coinbase. With more users than broker Charles Schwab, Coinbase is the closest thing America has to a mainstream crypto exchange — it’s where the average retail investor goes to buy bitcoin.
Sure, there are plenty of alternative exchanges (Kraken, Bitstamp), but Coinbase is noteworthy because it: (1) isn’t under federal investigation, (2) hasn’t been hacked, and (3) has an easy-to-understand user interface. It’s also one of the few that accepts deposits in U.S. dollars.
Giving Coinbase my cash was surprisingly easy. You can link a card or bank account and buy in minutes. And so I bought a hundredth of a bitcoin for roughly $137.
Once Coinbase actually had my cash, though, the process went downhill fast.
The biggest problem small investors will have with Coinbase are the fees. The site charges a “base rate” commission of 4 percent for all transactions, though this decreases with larger buys. I got hit with a $2.99 commission on my $137 purchase, which works out to 2.2 percent of my initial investment. (Meanwhile, I can buy index funds through my stock brokerage commission for free.)
There are also large, variable transaction fees to move my bitcoin out of Coinbase to my private wallet. At the time of my purchase on Dec. 22, these fees averaged more than $55 per transaction. So if I wanted to keep my bitcoin investment in cold storage at home, I’d have to surrender half my investment first.
That’s bad, but it gets worse: I’ll have to pay all those fees again when it comes time to sell. It no longer costs $55 to move bitcoin from a private wallet to Coinbase, but even today’s $6 transaction fee feels hefty on such a small amount. And don’t forget — there’ll be another $2.99 commission paid to Coinbase when I sell.
Had I kept my bitcoin outside Coinbase, its value would need to double before I’d break even. Had I decided to sell today, after fees, I’d get back roughly $16 of my initial $137 investment.
So I’ve decided to HODL my hundredth of a bitcoin rather than sell it. I don’t have much of a choice, really.
On Coinbase, you pay for your coins today, but you don’t get to take delivery of those coins for another week. My hundredth of a bitcoin took exactly 7 days to arrive. In the meantime, the value of crypto experienced dramatic, thousand-dollar price increases and even more shocking drops.
Imagine how helpless you’d feel if you were stuck in the middle of a historic crash, and you had no access to your assets. The value of your bitcoin could fall by 25 percent or more, and that’s before you ever get your hands on it.
Bitcoin is supposed to be fast. Coinbase is not.
I hear you, cryptoveterans: There are plenty of exchanges with nominal fees that deliver coins quick. But they’re not built for bitcoin newbs. Coinbase is a huge player in the retail market, even though — I know, I know, I know — it’s not the best. But it’s really easy to use.
And so I learned my first lesson about crypto: Convenience and ease-of-use is damn expensive. Perhaps big fees and long waits didn’t matter when everyone was getting paid in 2017. But now that the 2018 crypto market is tighter and less forgiving, they’re a non-starter.
No, if I want to become a true crypto baller, I’ve got to get smarter and put in the work. And to me, that means mining for my own crypto rather than paying someone else to do it for me.
More on that soon. Stay tuned.