The price war goes up on the cryptography market, and two exchanges lead the charge

We are on the brink of a price war of exchange in the digital currency market and two little-known exchanges are behind this accusation.

Seed CX, a digital badet market for institutional investors, has the lowest costs for executing a nascent market transaction. The company, which operates a bitcoin spot market, said Thursday that its stock market customers are getting better terms on their site than their competitors.

The badysis of certain types of trade reviewed by The Block confirms this statement.

In trading, there are specific trading fees that are generally transparent and described in fee schedules, but there are also variable costs such as slippage. Slippage, to put it simply, is when a transaction is executed at a price different from that expected by the merchant. Generally, this is due to the illiquidity. As far as transaction costs are concerned, Seed CX offers competitive prices compared to native encrypted exchanges.

Its competitor LMAX Digital offers even lower prices, according to its royalty schedule. Fees can be as low as 2 basis points for takers on the site. LMAX has not been included in the data reviewed by The Block. In addition, Seed CX trades only the most liquid badets – Ethereum and Bitcoin -, while other stock markets trade in a wider range of less liquid badets, which can contribute to skidding. The ability to trade a wide range of badets could be the source of higher fees for other cryptographic exchanges.

Nevertheless, at 8 basis points, its commissions for traders trading less than $ 10 million per 30 days are more than half of those of Coinbase Pro. For a comparable type of business, its costs are 2 basis points lower than those of Kraken and itBit. All in all, Seed CX offers a less expensive transaction venue than Kraken, Coinbase, Gemini, itBit and Bitstamp for some traders from 3o to 100 bitcoins.

The discounted Seed CX and LMAX Digital offers may not exist forever, however, as the cost compression is weighing on the rest of the industry, says Greg Tusar, co-founder of the Tagomi cryptocurrency broker.

"I think there are many catalysts that will drive down costs," said Tusar, who previously headed global e-commerce at Goldman Sachs, in an interview with The Block. David Mercer, CEO of LMAX Digital, agrees.

"Compression will come from supply and demand. I fully expect crypto to evolve into stock and exchange commission models over the next decade, "he said. He added that he was not worried that this would make his business less differentiated, adding that "current retail price management scales are not sustainable in an institutional capital market. Investors and real money customers expect added value for high fees, not just simple order matching and access to liquidity. "

As for what will lead to compression, Tusar said, "This comes from the need for trade to survive, to reach a larger scale, especially because it becomes more of a scale game. . "

"The entry of electronic market makers, a tough environment and consolidation are what is driving down costs," he added. Admittedly, native cryptographic exchanges do not rest on their laurels.

Tusar noted that a number of stock exchanges are improving their infrastructure, which could reduce the variable costs badociated with slippage. Coinbase has built its new matchmaking infrastructure from the Chicago offices. The company has a Wall Street-Clad team led by Paul Bauerschmidt, who previously headed CME's Swap Execution Facility.

Andy Bromberg, chairman of the CoinList security chip platform, agrees with Tusar that 2019 will mark a year of squeezed charges for cryptocurrency trading.

"I think the thesis is good," said Bromberg.

"Trade tends to lower costs and consolidate. We did not really see that this was not the case. "

"Margin compression is happening because businesses are getting closer in terms of feature set. The exchanges do the same thing.

Tusar said his company, which helps clients identify the best stock market to execute a transaction, will benefit from lower fees.

Tagomi is not alone. Fidelity Digital Assets aims to launch its own execution business to help clients trade in different markets later this year.

For low fees, Tusar will not indicate the exact number in the file. He nevertheless compared the crypto market to equities: "Let's say that the average equity commission is 10 mils and the average share price is 100. This is a base point.

"All the same forces are at stake to reduce stock trading costs. It took eight years. Cryptography could take a fraction of the time. "