If you’re checking the value of your balance using an app on your phone, or a website like CoinMarketCap, you might feel like you ended up with less in your Portfolio than you should have.
This is perfectly normal and exactly how currency exchange works… so come with me on an exciting journey through the world of finance!
Let’s say that you bought $100 worth of Bitcoin. At the time of writing this article (Jan 31st, 2018), that would have got you 0.006213 Bitcoin delivered to your Portfolio from Easy Crypto.
On your app, it says the rate for Bitcoin to NZD is $14,295. You use your handy calculator and figure out that at $14,295, you should have 0.00670 Bitcoin, but you only have 0.006213 Bitcoin. That’s an 11% loss!! This is an outrage, I demand answers!!!
The price you see on your phone app or CoinMarketCap is called the “spot rate”. This is the mid point between the buy and sell prices. Unfortunately you can’t buy at that rate, because nobody is going to sell to you at that rate.
So the first loss that you’ll experience is the difference between the buy and sell rate – what’s called the “spread”. The spread is the difference between what buyers are willing to pay, and what sellers are willing to sell for.
At the time of writing this article, sellers on the Independent Reserve bitcoin exchange are wanting $14,567 and buyers are willing to pay $14,023. If you were to buy and instantly sell, you would lose $544 on that transaction.
If we take our $14,567 and work out how much Bitcoin we should get for that price, the value is now 0.00686 (100 divided by 14,567). It’s closer than it was before, but it’s still not 0.006213… Where’s my money??
Well next up are the exchange fees. Exchanges charge between 0.1 and 0.2% to make each currency transaction. This isn’t an Easy Crypto charge, this is a charge from the external exchanges that we use to process your transaction. That brings us down to 0.00685 Bitcoin.
And lastly we have the withdrawal fee. Naturally you don’t want to leave your currency sitting on the exchange, you want it in your hot little hands! But each transfer on the Bitcoin network costs a “mining fee”. This is an unavoidable part of using cryptocurrencies.
The average fee at time of this article is 0.001 Bitcoin (or $15). Subtract that from our 0.00685 Bitcoin, and you now have 0.00585 Bitcoin.
“Wait a minute!”, I hear you say…. “0.00585 is LESS than 0.006213, how come I got more than I should have??”
Ahhh… well that’s due to the smart way we process transactions. Aren’t you glad you bought with us? 🙂