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It’s no secret that Coinbase has performed an instrumental position in bringing new customers into the crypto house. Coinbase’s pleasant onboarding course of and standing as a publicly traded firm permit it to look as a extra conventional funding platform to non-crypto savvy buyers, resulting in larger belief.

Nonetheless, it appears nearly weekly that one other article hits the web about Coinbase and its extreme charges for retail {and professional} merchants and buyers. The gripe typically unfolds with a comparability of pricing between a few completely different exchanges. With elevated competitors, the strain for Coinbase and exchanges around the globe to decrease charges is mounting. Nonetheless, the largest pricing problem going through Coinbase and different exchanges is much larger than merely payment buildings.

Commoditization and value

Commodities are items which can be fungible. In different phrases, the market treats items of their numerous appearances as successfully equal. When a superb or service is commoditized, there is no such thing as a additional differentiation between sellers, and all negotiation relies solely on value.

Dialogue about buying and selling charges is rooted in a perception that the worth of cryptocurrencies is static throughout all exchanges — a commodity. If Bitcoin (BTC) have been a real commodity, buying and selling charges can be the one problem at play and the dialogue round Coinbase’s payment construction can be legitimate.

Associated: Crypto needs a decentralized daily reference rate

Nonetheless, this view of Bitcoin belies an underlying downside throughout the market. The worth of Bitcoin will not be a static quantity and may typically fluctuate throughout exchanges. Due to market fragmentation, shoppers are sometimes over or underpaying with out even realizing it.

Fragmentation and true value

Market fragmentation happens when contact and interplay between exchanges are poor. This ends in variations in pricing between exchanges and a dearth of liquidity out there at massive.

When these value variances are massive, they quickly subsume any variance in charges between exchanges. Traders and merchants have been educated to solely see the worth on a single alternate. However this fragmentation implies that the true value of any cryptocurrency is its value on a single alternate plus the charges on that alternate, in contrast with the identical calculation on one other alternate.

Associated: Trust is still a must in the trustless world of cryptocurrency

If the worth of Bitcoin is comparatively low on one alternate, it issues little or no if that alternate has zero charges. Why?

If the worth of Bitcoin is $60,000 and the payment is 0.50% on one alternate, one may pay for a Bitcoin on one other alternate at $60,120 with a 0.30% payment. Sure, with a whole lot of exchanges out there, the worth hole can get this huge at instances. This variance has led to a proliferation of arbitrage investing — shopping for Bitcoin on one alternate at a decrease charge, after which reselling the identical cash after a switch to a different alternate for a better value.

The largest problem this causes, nonetheless, is that Bitcoin is now not a commodity. With too many pricing variances, Bitcoin turns into nonfungible, and the market stagnates. This movement away from commoditization will finally trigger a possible market implosion. However there may be hope for change.

Market stabilization

The sort of market chaos will not be new nor remoted to the cryptocurrency market. The identical points have occurred in bonds and equities markets, however have been solved over time by way of regulation. For instance, america Securities and Trade Fee has a coverage referred to as Nationwide Greatest Bid and Provide, or NBBO. This regulation requires all brokers to execute trades at the very best accessible ask value nationally when an investor needs to purchase a safety, and the very best accessible bid value nationally when an investor needs to promote.

On this method, the regulation stabilizes the market and protects shoppers from overpaying on any given alternate. Brokers are held in test, and market forces work cooperatively slightly than unilaterally.

The cryptocurrency market, nonetheless, as a result of it stays in its infancy, doesn’t have this time of normalization in place. Exchanges perform with relative autonomy, and the market’s present state of fragmentation implies that retail and institutional buyers typically pay completely different costs based mostly on these exchanges.

The issues with implementation of this technique within the cryptocurrency market are manifold — lack of communication, restrictive regulatory compliance and dry liquidity swimming pools holding again any significant change.

Constructing a really unified international crypto market

The foundation reason for the problem out there is an absence of communication or interoperability between exchanges, leading to a excessive diploma of market fragmentation. Nonetheless, the present digital infrastructure is substantial sufficient to assist fixed alternate interplay. However for markets to scale globally, this interoperability between exchanges have to be seamless.

Associated: Trustless bridges may be the key to blockchain interoperability

Bitcoin is a worldwide asset, arguably much more so than Apple or Tesla inventory. So it’s unfair that merchants can not get the very best bid and supply at any given time, because the NBBO offers for conventional equities. Extra enterprise-grade applied sciences and liquidity can even assist mature digital asset buying and selling. All of this might finally permit for one unified international buying and selling market in an analogous method that conventional shares are traded on exchanges just like the Nasdaq or the NYSE.

With out these options to cut back fragmentation, buying and selling payment arguments and debates are misdirected and don’t inform the whole story. It’s time to stage the taking part in discipline of equity with the correct regulation and know-how in place. Finally, it’s not a race for decrease buying and selling charges, it’s a race for one thing just like the NBBO in crypto — a really international finest bid and supply.

This text doesn’t comprise funding recommendation or suggestions. Each funding and buying and selling transfer includes danger, and readers ought to conduct their very own analysis when making a call.

The views, ideas and opinions expressed listed below are the writer’s alone and don’t essentially replicate or signify the views and opinions of Cointelegraph.

Haohan Xu is CEO of Apifiny, a worldwide liquidity and monetary worth switch community. Previous to Apifiny, Haohan was an lively investor in equities markets and a dealer in digital asset markets. Haohan holds a Bachelor of Science in operations analysis with a minor in laptop science from Columbia College.