On April 26, Bloomberg reported an anonymous source familiar with the situation claiming that E*Trade, one of the more popular U.S.-based online trading platforms, was looking to integrate cryptocurrency into their client options.
The move would represent a substantial amount of adoption for the crypto markets, with E*Trade commanding 4.9 million brokerage accounts, according to the annual report filed with United States Securities & Exchange Commission (SEC) as of Dec. 31, 2018. E*Trade has assets totaling over $65 billion and a total margin balance of $9.6 billion, in addition to being one of the most recognizable trading platforms for the casual investor.
E*Trade is likely looking to the competition generated by Robinhood in its decision to pursue cryptocurrency, as the zero-fee trading platform has posted substantial growth over the last year by integrating cryptocurrency trading into traditional stock options. However, for a platform like E*Trade which thrives off of collecting trading commission, is the minimal fee model going to work?
For one, the crypto markets and its investment base function by being able to execute numerous and frequent trades, with the average trader capable of executing tens of trades–or more–in the span of 24-hours. Cryptocurrency exchanges have traditionally handled this by skimming minimal fees on trading, making their money off the aggregate action as opposed to individual trades. Most exchanges also impose an elevated fee on transferring funds off-exchange, collecting a premium above the amount used for the transfer fee.
E*Trade, on the other hand, has traditionally imposed what would appear by crypto standards as a massive fee on trading. Trading stocks or exchange-traded funds costs users $6.95, with the number dipping to $4.95 for more active users. While E*Trade’s fees are similar to that of other brokerage firms, the market of cryptocurrency is going to require a substantial departure–one that can’t be emulated just by following Robinhood’s success.
E*Trade will have to get creative in integrating cryptocurrency trading to their platform. While they could attempt to create a separate “crypto-only” portal, it’s more likely that the company will want to add BTC and ETH to their current client tools. Robinhood never had to contend with the murky landscape of crypto-trading fees because they collect zero fees–a feature they extended to the newly integrated digital currencies. E*Trade will be in a different position.
While the company will want to offer minimal fees in an attempt to stay competitive with exchange like Binance, they will also have to balance their client options in the face of traditional stock-trading prices. In the digital age of computer-executed trades, the long-standing brokerage fee–even at the substantial discount of $6.95 compared to historic prices–is a tough pill to swallow for millenial and younger traders. Seeing crypto fees, which typically run around one-quarter of a percent, makes the steep fees of the traditional markets appear all the more egregious.
Instead, E*Trade could experiment with a format similar to that of Coinbase proper. While Coinbase hosts their Coinbase Pro trading platform (formerly GDAX), which functions similarly to most cryptocurrency exchanges, the company’s main site and app imposes much higher market-based fees on trades. These fees can range from $0.99 to $2.99 on a variable scale, which is significantly more than the competition. E*Trade might be tempted to try these higher price brackets, at least initially, to capitalize on traders accustomed to traditional brokerage fees and inexperienced with the cryptocurrency model.
At the very least, E*Trade getting into the game of cryptocurrency will amount to substantial investor adoption, even if their fee schedule takes time to adjust to the market.