Cost Management in the Crypto World
A common trope in the “get rich” world is that it is about how much you earn, not how much you save. To rephrase that, it is far more important to increase your earnings than it is to penny pinch on a few minor line items.
Applying this to cryptocurrency investing, that would mean the choice of cryptocurrency you invest in matters far more than saving a few bucks on a transaction here or there. This is probably true in some sense. Getting 100x on a coin you bought at the right time before the next bull market is far more important than penny pinching on that limit order.
The Argument for Optimizing Systems
The only time I would recommend worrying about saving money on the small things is when you believe you are going to repeat that one thing enough times that it will make a difference. One example would be learning how to time your trades better or distribute your buys/sells over time to get yourself the best price. You’ll repeat the action enough to make it truly worthwhile to your bottom line. And that added bottom line will go on to compound over and over as you repeat the action and your profits earn additional returns.
Another time where you can benefit greatly from monitoring your costs is when you’re moving money from fiat to altcoins. This usually takes a few steps, and the fees can add up.
Once or twice a month, I dollar cost average into a few “blue chip” coins and some altcoins. To acquire altcoins, it is necessary to purchase Bitcoin or Ethereum over a larger exchange, transfer that sum to Binance (or another exchange of your choice), and then make the purchase. That is 3 transactions, and fees can quickly add up if you aren’t smart about it.
Bitcoin Transaction Fees
In late 2017 and early 2018, the transaction fees on Bitcoin were much higher. This was due to the high level of congestion at the time. Since there is a limited number of transactions per block, miners weren’t able to confirm all the transactions at that time. The only way to ensure your transaction was confirmed was by raising the transaction fee you are offering miners. At this time, it made much more sense to use Ethereum for the transactions, since the fees were much cheaper. However, on exchanges like Binance, many currencies are now solely paired with Bitcoin, which would make an additional transaction from Ethereum to Bitcoin necessary before buying an altcoin.
Since then, there has been a considerable slowdown in the market, and Bitcoin fees have dropped rapidly over the last year. Although no backlog of unconfirmed transactions has emerged yet, it is very possible, especially with the lower Bitcoin Memory Pool. The scalability debate is outside the scope of this article, but even with Lightning Network showing promise, it still needs to be implemented before we hit the next bull market. However, for the time being, Bitcoin is the cheapest intermediary currency for purchasing altcoins.
The Holistic Approach
The top thing you should take away from this is that even though Bitcoin is the best way to execute these trades now, that wasn’t the case at the beginning of 2018 and probably won’t be the case next year.
Every few months, I split my order into halves and execute the second half in a different way that I think has the potential to be cheaper. Whether this means transferring a different cryptocurrency or using a different exchange, it is always worth testing. Yes, you can get quotes ahead of time on the costs and fees, but things change and are inexact. The only way to know for sure is by trying something different and comparing your results.
Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.
Featured image courtesy of Shutterstock.