Why You Should Buy Bitcoin on Coinbase Pro and not Coinbase
When people think of buying their first Bitcoin, they often think of Coinbase. Since its founding in 2012, Coinbase has grown to become a cryptocurrency behemoth with millions of users and one of the most trusted platforms in the world for trading cryptocurrency. It's broadly available to US residents and its most popular listings are quoted in USD.
Coinbase offers a simple consumer platform and a professional trading platform. While the latter used to be called GDAX, in 2018 it was rebranded as Coinbase Pro. This has led to some confusion, as many people now refer to both the consumer platform and the professional trading platform as simply "Coinbase". So let's take a quick look at each and find out the difference between Coinbase and Coinbase Pro.
Below are the homepages for each platform. The main difference is that Coinbase appears to be very simple, while Coinbase Pro can appear fairly intimidating. But all trades take place on the Coinbase Pro engine, with Coinbase offering significantly higher fees for that simplistic interface.
- Available at coinbase.com or through the Coinbase app.
- Sometimes called Coinbase Consumer.
- Available at pro.coinbase.com or through the Coinbase Pro app.
- Formerly called GDAX.
Once you go to actually place a trade, you'll find that the mechanics behind the two platforms are basically the same. Clicking "buy" or "trade" on Coinbase will bring up the following interface. You need to make the following selections:
- Buy or Sell
- Asset, e.g. Bitcoin
- Amount, in USD
On Coinbase Pro, it's basically the same. As with Coinbase, you need to select an Asset (e.g. Bitcoin), Buy or Sell, and an Amount. However, the one difference is that you can specify an order type, which defaults to Market. Leaving the default of Market will make your order behave the same as with Coinbase; it will just fill you at the best available market price. However, as we'll see later, you'll pay a lot less. If you want to consider order types beyond Market, you can read about them here.
Say I want to buy $500 of BTC right now. The displayed price is $8761.38/BTC. However, I can easily see the price of BTC being quoted outside of Coinbase is roughly $8718. So the price has been marked up by 0.50%.
The default option is to pay with credit card, where you will be charged a "Coinbase fee" of $19.18, which is 4.0%(!). Let's say you buy, the price of Bitcoin goes up 10%, and then you sell. You end up paying 9% round-trip, locking in at most 1%. Coinbase gets 90% of your profit and you take 100% of the risk. Not optimal.
A better option is to fund from your US bank account, but you will still pay 1.5%. So in the example above, Coinbase keeps 40% of your profit.
All of this is disclosed in the fine print on their website, but not always obvious to the average trader.
This is just as easy as using Coinbase, just with more data and charts that you can just ignore if you want. In the previous example, you would pay $8718.00 (instead of $8761.38) and the spread between bids and asks is $0.01. The quoted fee is $2.50, which is 0.50%. Cheaper than 4.5% or 2% and a hell of a lot more transparent. On both platforms, all you need to do is fund the account, choose buy/sell, and specify an investment amount. Now if Bitcoin goes up 10% and you sell, Coinbase has taken 10% of your profits instead of 90%. Better, but still not ideal.
Consideration of Multiple Exchanges
Coinbase Pro is a great platform, but it's only one source of liquidity. Sometimes different exchanges can have better prices. And most other exchanges have fees lower than 0.50%. Exchanges sometimes advertise a low fee, but you'll note in the fine print that the fee is much higher for small traders, so be careful. There are many alternatives to Coinbase available.
Pro Tip #1: Beware the Easy Option
Sometimes companies offer an "easy" option, which sounds nice. However, it's just a way to identify the suckers, provide limited transparency, then gouge them on price. Many exchanges and vendors offer a basic version for "everyone" and a pro platform for "advanced traders". The differentiator is usually just price. And never use a credit card if you can avoid it.
Pro Tip #2: Watch out for Hidden Price Markups
Be careful about the quoted price. It might be the best price from an exchange order book or it might reflect a, sometimes massive, price markup. These markups are usually not disclosed in an obvious or transparent way.
Pro Tip #3: Look at Multiple Exchanges
In order to get the best price in the market, it's a good idea to consider opening multiple exchange accounts and/or using a price aggregation tool like CoveTrader that has the ability to route to the best price net of fees.
The main difference between Coinbase and Coinbase Pro is price. All trades are executed in the same place and your Bitcoin is stored with the same reputable custodian. While the order entry interfaces might look different, the main inputs are the same. The biggest difference comes down to fees, with Coinbase Pro being significantly cheaper than Coinbase. It's really easy to get a better deal with just a little research and effort. Most traders, even novices, will be much better off trading on Coinbase Pro and avoiding high fees. As traders become more comfortable, they should consider opening up multiple exchange accounts so that they can source the best liquidity at any point.