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| HEALTH, WEALTH, AND HAPPINESS |
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Blockchain Investing, Without the Fees. You can buy a copy of our bestselling blockchain investing book from Amazon or Audible ... or you can request it from your local library, for free. Click to hear a free sample. |
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Let’s talk about fees. Since the beginning of blockchain, we’ve painted this vision of crypto: “Imagine sending money around the world, instantly, with no fees!” What’s more, we’ve railed against old-school financial institutions with their sky-high fees. “Credit card companies take 3% of your transaction!” Today, the reality is that most crypto transactions take a far bigger percentage in fees. This week, Ethereum got an upgrade. One of the primary improvements was the fee structure, so I was excited to try it out – especially since Ethereum is increasingly the dominant platform in blockchain, as I explained last week. I swapped $1000 of DAI for ETH, and paid almost $100 in fees. That's a 10% fee. First I tried Uniswap, which charged me $12 for the initial smart contract transaction of allowing Uniswap to use my DAI. After the transaction went through, I still couldn’t swap. So I used Metamask’s swap feature, which finds the best price automatically, which in this case was $86. Eighty-six dollars in fees. If the Ethereum upgrade is supposed to help reduce fees for investors, we’ve still got a long, long way to go. As it stands, fees are the silent killer of wealth. Fee vs. Free The only transaction that’s free is just handing cash from one person to another. Even then, you may have paid fees to get money out of the ATM (average fee is around $3 or $4, according to Bankrate). You may have also paid monthly fees to the bank: an average of $15/month on an interest-bearing checking account. Everything else takes fees. Credit cards. Stripe. PayPal. Wire transfers. Either you’re paying it, or the merchant is paying it. For most transactions it’s around 3%, or sometimes a flat fee (around $30 for wire transfers, according to NerdWallet). The people who have it worst, of course, are those who keep low balances in their accounts. Banks will sometimes waive fees for larger customers: the minimum amount for "no-fee accounts" has soared to over $7,500 on average. Everyone else pays monthly fees.
And for those who occasionally withdraw more money than they have in the account, they pay a whopping average $33 each time they overdraft: |
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It’s easy to see this system as another way that the rich get richer, while the poor get poorer. If you have money, the system is free. If you don’t, the system is fees.
Free vs. Fee. Blockchain is supposed to solve all this, right? While cheaper blockchains do exist, the average fee for an Ethereum transaction – where all the action is happening – is about $15. Let’s visualize all this data by comparing average fees on a $100 transaction: |
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What’s worse, Ethereum fees are not proportional to the amount transferred. You pay the same fee, regardless of whether you're transferring $100 or $100,000 in ETH. This makes it prohibitively expensive to transfer small amounts. What's even worser: the fee is more expensive when the price of Ethereum goes up – which is exactly when most people want to buy and sell, because they’re fueled by FOMO.
Look, this is not because shadowy faceless super-coders are trying to profit off higher fees, it's just a flaw in the way the system was designed. It's a huge, gaping flaw for those of us trying to build long-term wealth. Of course, there are many alternative blockchains with lower fees than Ethereum. But because Ethereum is where the action is (DeFi, NFTs, and all the other cool stuff), Ethereum is where the problem is. Fees are the huge, unspoken secret of crypto. That’s why I’m speaking out.EIP-1559 is clearly not enough. Developers, miners, Vitalik Buterin: you’ve got to do better. We've all got to do better. In our quest to beat the banks, we’ve got a long way to go. |
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The Blockchain Investor Takeaway Fees are just another reason we want to invest for the long-term. Every time you swap one token for another, every time you move money in or out of crypto, you’re paying these outrageous fees. (A bank would never be able to legally charge you 15% -- unless of course you are poor. Then they can overdraft away.)
There’s another reason to hold for the long term: every time you make a transaction, it’s a taxable event. (At least in the U.S.; forward-thinking countries may differ.) This means if you made money, you’re paying taxes on the gain: 15-20% for most people. Think of this as a government fee. Let's say you buy some UNI, make $1,000 in profit, and decide to cash it out. You’ll pay $15 in average ETH fees (if you’re lucky – remember, I paid $86 yesterday), plus you’ll pay an additional $150 or $200 to the government. Here it is visualized: |
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| Now let’s say you’re taking only $100 in profit, where the numbers get even worse: |
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| To summarize: Once you’ve got your investments in crypto, avoid moving them. It’s tempting because it’s so easy: all you have to do is click the “Swap” button in your Metamask wallet. Avoid this temptation. (Metamask should offer a no-swap version of their plug-in for those of us building wealth.) The famous investor John Bogle, who founded Vanguard Investments, spent his life crusading against mutual fund fees. He constantly argued on behalf of investors, whose profits could be eaten away over a lifetime by financial institutions that constantly nibbled away by charging fees. Blockchain is not taking nibbles, it’s biting off huge chunks. Today, blockchain fees are unreasonable, which does not mean we stay away from crypto completely, as the potential profits are too great. It does mean, though, that we avoid moving money until the developers finally get this fixed. If we can make smart blockchain investments, and leave them alone, we can build wealth faster. When there’s no transactions, there’s no transaction fees. That means your growth is free, and you're free to grow. Free, not fee. |
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| Health, wealth, and happiness, |
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| John Hargrave Publisher Bitcoin Market Journal |
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Hey Everyone,
You gotta admit they had us in the first half of the week with incredibly weak ADP payroll numbers, but the official jobs report provided by the Bureau of Labor Statistics provided a huge upside surprise. |
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Nearly a million jobs in a month is certainly a big number, and these figures helped show that the U.S. hospitality sector is coming back online.
Bars and restaurants alone account for more than a quarter million of these positions. The unemployment number also dropped from 5.9% to 5.4%.
Wages rose 0.4%, again strengthening the narrative that inflation is persistent and not transitory.
Some economists have pointed out that these figures do not reflect the most recent surge in coronavirus delta variant cases, but all things considered, these numbers are fantastic, and the markets have responded in kind.
The only ones who may be a bit squeamish today are Federal Reserve officials, who are coming under increasing fire for unnecessarily boosting markets.
A clearly emotional Mohamed El-Erian was on Bloomberg TV today, blaming the Fed for making housing unaffordable to average Americans.
This Saturday, the U.S. Senate will hold a vote on President Joe Biden's $550 billion infrastructure bill.
The hastily conceived crypto tax that was in the first draft of the bill now has two contending amendments.
The first one, introduced by Sens. Ron Wyden, Pat Toomey, and Cynthia Lummis, is the amendment that most broadly supports the crypto industry at large.
The second, proposed by Portman and Warner, would grant favor to bitcoin and other proof of work blockchains, but not those that harness proof of stake.
For some strange reason, the Biden administration, despite their staunch stance on climate change, has actually shown support for the Portman and Warner bill.
We hope someone will point this out to Biden so he can back the correct bill tomorrow.
For those of you who are accustomed to lobbying your public representatives, now would be a good time to give them a call and show support for the amendment proposed by Wyden, Toomey and Lummis.
Those of you who are not should probably give a quick prayer for the future of DeFi.
It's not like they can stop the revolution, but friendly tax regulations could be a huge boon for the industry.
As analyst Alexandre Lores told CoinDesk TV today, none of the DeFi tokens are reacting to any of these developments at the moment.
Have a lovely weekend! |
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| Mati Greenspan Analysis, Advisory, Money Management |
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