The 2.3% was observed through my experimentation, which is by no means a fully controlled study. The percentage differences may vary. The goal of this article is to take into considerations factors beyond the trade fee that may affect the overall price of a Bitcoin purchase on Coinbase and Square’s Cash App.
This morning, I was speaking with a Discord user by the name of PhaTei regarding Square’s recent release of a no-fee Bitcoin buying option on its Cash App. He’s part of the Cosmic Trading Discord Community, which is a community for Cryptocurrency traders to discuss the latest prices, blockchain technologies, share signals, trading thoughts, etc.
On January 31, 2018, Square’s Cash App announced immediate availability for users to buy and sell Bitcoin on its app — the amazing part? No fees. At first glance, no fees sounds amazing — buying $10,000 worth of Bitcoin on Coinbase has a fee of $146.81, so that could mean a savings of $146.81 by using Square’s Cash App. But claims like this leave room for the imagination, so a quantitative comparison between a fee and no-fee world would be nice to really conclude what added benefit “no fee” actually means.
I set out to do a simple comparison between Coinbase and Square Cash: how much Bitcoin can I really buy with $100? This article compares buying Bitcoin on Coinbase Vs. Square Cash, and does not involve any comparison to exchanges. If you’re interested in trying out either one:
- Sign up for Square Cash: If you go through my link, we both get $5!
- Sign up for Coinbase: If you go through my link, we both get $10 after you make $100 in purchases!
Market Prices of BTC Are Comparable
The first thing I did was compare the market rates at the same time. Both Coinbase and Square Cash seemed to show comparable rates (these prices were recorded at 10:39AM EST as you can see on the top of the screenshots).
Coinbase and Square Cash have comparable market rates.
Coinbase takes its price from the market price of GDAX, its exchange. At the time, it was $8,789.00. Square Cash takes into consideration the prices of major exchanges and displayed a market price of $8,780.48. Market Cap and Coin Pricing websites like CoinLib (https://coinlib.io/) showed similar prices.
Exchange Rates Seem More Inflated on Square Cash
Here’s where it gets interesting.
Square Cash’s exchange rate was $62.21 higher than Coinbase’s exchange rate.
The first thing you’ll notice is that the price you actually buy at (i.e., the Exchange Rate), is different from the price that’s listed as the price of Bitcoin. This is because the exchange rate also adds in some wiggle room to account for things like potential volatility (Bitcoin could be worth $8,953 one minute and $8,923 the next). Bitcoin-purchasing services like Coinbase and Square need to account for this by adding additional cost as buffer — whether or not their buffers are excessive is subject for additional debate but not debated in this article. Anyway, that’s why the exchange rate will be higher than the market price.
But another thing you’ll notice is that the exchange rates vary by a noticeable amount between Coinbase and Square Cash. On Coinbase, I could make the purchase at $8,832.94, while on Square Cash, it was $8,895.53. That’s a $62.59 difference.
Square Cash, which does not have its own exchange, explains it methodology for price calculations vaguely:
Your exchange rate for buying and selling Bitcoin through the Cash App is calculated using the current market rate across the most popular U.S. exchanges, plus a spread determined by the size of your transaction and market volatility. The exchange rate may differ between transactions, and may also differ from exchange rates available to you from other buyers and sellers of Bitcoin.
“The most popular U.S. exchanges” is a very qualitative claim — popular based on what? User reviews? Total market cap? Trade volume? If it’s based on things like trade volume and total market cap, is it based on only Bitcoin’s volume and market cap? Or overall? A more transparent methodology would help buyers make more informed buying decisions (for those interested, Coinbase’s exchange rate calculation explanation can be found here: https://support.coinbase.com/customer/portal/articles/2109597).
Despite the $62.59 difference in exchange rates, I still could get 0.01124208 BTC on Square Cash for $100, while I got slightly less for the same amount of money on Coinbase: 0.01098275. In other words, while the exchange rate on Square Cash is higher, I got 2.36% more BTC on Square Cash when compared with the amount I could get on Coinbase after Coinbase fees.
Total Purchase Amount Had Unnoticeable Effect on Exchange Rate on Square Cash.
I wanted to take it a step further and see if I could get a better rate. Looking back at Square’s statement on how it calculates the exchange rate, another statement stood out:
…plus a spread determined by the size of your transaction and market volatility.
While I can’t control market volatility, I can control the size of my transaction. So as an additional step, I scaled back my purchase amount from $100 to $10 to see if there was any change in the exchange rate.
It did not differ by more than a few cents: $8,895.53 @ $10 and $8,895.15 @ $100. As I mentioned earlier, due to the limitations of this quick experiment, there are some additional factors I couldn’t control for that might’ve affected the exchange rate such as the time between changing the price from $100 to $10. The price savings of 0.0043% can’t be confidently attributed to the difference in purchase amount. This gives a bit of insight into how much an intended purchase amount actually impacts (or doesn’t impact) the overall exchange price.
Factors Beyond 2.3% to Consider
Just because I got 2.3% in my quick examination doesn’t mean it’s a guaranteed rate. When making your next Bitcoin purchase, do some quick examination of your own. Let me know if you see anything drastically different by mentioning it in the comments below or DM me on Twitter. Maybe someone can try with $10,000 (I didn’t attempt it because Square requested a $10,000 deposit into the app, which I’m not comfortable doing at this time considering I just downloaded the app this morning).
Currently, Square Cash only allows you to buy Bitcoin. Coinbase gives you the option to buy Bitcoin, Ethereum, Litecoin, and Bitcoin Cash without having to transfer out Bitcoin, which has a fee for the blockchain transaction. Yes, Square Cash does let you transfer Bitcoin out as pointed out by Wohl Fraud.
All in all, I’m happy to see that the no-fee trades on Square’s Cash App did give me some extra Bitcoin compared to if I had purchased it on Coinbase. If I intended on purchasing Ethereum, Litecoin, or Bitcoin Cash, I might still go through Coinbase depending on the size of my order because Square Cash doesn’t support those cryptocurrencies yet, so I would have to move money to other exchanges, which would incur a blockchain fee anyway.
A new generation of fiat-to-cryptocurrency options are coming into the market and challenging Coinbase’s dominance for mainstream users. I’ve also signed up for Robinhood’s waitlist to try out its cryptocurrency app, but I haven’t gotten access to it yet so I can’t include it in this comparison. I’m excited, though, for the fact that Robinhood gives its users access to cryptocurrencies beyond Bitcoin.
Looking to try out Coinbase or Square? Sign up with my links and we can both receive payment:
- Sign up for Square Cash: If you go through my link, we both get $5! http://bit.ly/2Ed0nU7
- Sign up for Coinbase: If you go through my link, we both get $10 after you make $100 in purchases! http://bit.ly/2BOZqMA
- Sign up for Robinhood: It’s coming out with its own fee-free exchange, but I’m on the waiting list right now so I can’t try it out and compare. If you use my link, we will both get moved up the waiting list, which means we can try it sooner! http://bit.ly/2BNSoHH
Exchange Rate Information as officially stated by each service:
If you want to start buying altcoins, Bittrex and Binance are the most-recognized exchanges for it. Unfortunately, Bittrex signups are closed right now but you can still sign up through Binance:
- Binance sign up: http://bit.ly/2BQH5i1
- A very in-depth guide (written by yours truly) on how to make your first Bitcoin purchase and move it over to an exchange like Binance to start buying altcoins like NEO or Ripple: https://hackernoon.com/0-to-pro-crypto-trader-your-ultimate-guide-to-bitcoin-and-altcoin-investing-e3d7b3840125
Do you have any additional questions? DM me on Twitter! Like articles about Bitcoin and cryptocurrency trading? Follow me on Medium:
I Got 2.3% Extra Bitcoin with Square Cash vs. Coinbase. was originally published in Hacker Noon on Medium, where people are continuing the conversation by highlighting and responding to this story.