Cryptocurrency exchanges can generate income in a number of ways, such as by collecting on/off ramping charges, lending to margin traders, and liquidation fees. However, collecting a fee from transactions continues to be the main source of income.
There are numerous different transaction types, which leads to a wide variety of transaction costs. The information revealed that exchanges favour using the former to move currency internally when comparing differing transaction fees on the Bitcoin and Ethereum chains.
Todayq News analyzed on-chain data from GlassNode and revealed an irregular pattern in the fees that exchanges charged for processing Bitcoin transactions. The chart below evident that fees experienced a significant increase by the end of 2017 when BTC reached its prior cycle peak of $20,000.
Although somewhat less than the 2017 bull, the 2021 bull market had another fee rise in April 2021 when BTC surpassed $65,000.
Strangely, there was no further fee surge at the top of the most current bull market, which reached $69,000 in November 2021, indicating that there was less exchange activity than in April 2021. However, Bitcoin transaction fees have decreased considerably and are still reduced since April 2021.
The percentage of total transaction fees paid in relation to on-chain exchange activity is the Exchange Fee Dominance measure. The metric is further divided into the several types of transactions that generated fees (deposits, withdrawals, internal, and inter-exchange).
The graph below shows that 36% of all exchange revenue sources related to BTC came from Bitcoin transaction fees. Deposits make up 21% of the 36%, withdrawals 4%, in-house 10%, and inter-exchange 1%. The categories of deposits and in-house have experienced exponential growth during the last five years.
A significantly different picture is painted when the dominance of Ethereum’s exchange fees is analysed. At the moment, 5% of ETH-related exchange revenue comes from transaction fees. Since July 2017, withdrawals have been the major category of transaction charge type.
As for transferring money between internal wallets, exchanges might not prefer to use Ethereum, as seen by the relative lack of in-house fees when compared to Bitcoin.