It has been several long years since the cryptocurrency market peaked. While some traders are capitulating, others are preparing for the moment they can jump back in with both feet, grab their favorite cryptocurrencies at low prices, and buckle up for the next wave.
There is a lot to learn as a new crypto user. One of the most important questions being, “Where should I purchase Bitcoin?”
As we speak, there is an epic battle taking place. This is the battle between Kraken and Coinbase for market share of the fiat-to-crypto transactions. Both of these exchanges have been dominating the US market when it comes to being an on-ramp to cryptocurrency.
Due to the complex and expensive regulatory requirements for becoming an exchange in the US, these two companies have nearly exclusive control over the way US customers access the crypto market.
In this article, we will answer the question “which exchange is the best for buying Bitcoin”, as well as other important questions regarding these two popular exchanges. This will set you on the path to acquiring your first cryptocurrency.
Let’s face it, nobody likes paying fees. Companies today love taking their cut from everything we do. They reach into your wallet when you least suspect it and yank out a few extra dollars. They are looking for every bit they can get their fingers on. This has caused us to become more and more averse to companies that gouge customers with unreasonable fees.
There are enough Ticket Master’s in the world, so we want to recommend companies that actually make you feel good about your purchase.
Unlike many exchanges that have taken a liking to percent based fees for digital asset purchases from fiat currencies, Kraken has diverged from the norm by offering flat fees on crypto purchases.
This is exciting for people who are looking to make large deposits into the market since a flat fee can translate to a relatively low percentage of the entire purchase amount.
The standard deposit fee for Kraken is 5 USD. That amounts to only a 1% fee if you make a deposit of $500.
We expect this decision was strategically made to draw the attention of larger institutional players. After all, if all the institutions use your exchange to purchase cryptocurrency, they will likely also use your exchange for trading. The post-purchase trading activity may make up for their low initial purchase fee.
In contrast to Kraken, Coinbase has stuck with a percentage based fee that starts at 1.49% for bank transfers. Using a debit or credit card will drastically increase the fee to 3.99%.
While most consumers would be willing to pay the percentage-based fee due to the convenience of on-boarding with Coinbase, many institutions may be hesitant. Large percentage-based fees can quickly eat into the performance of your portfolio.
Although there is likely a good reason for having such a high fee for debit / credit card purchases, it still hurts to imagine paying these fees.
Coinbase is only a better option when small cryptocurrency purchases are made. When using your bank account, the purchases would need to be less than $335 to have better fees than Kraken.
If you are using a credit or debit card, this amount drastically reduces to $125. That means a purchase over $125 on Coinbase would have ended up being better if it had been purchased on Kraken.
People who are looking to pay the lowest fees and maximize the value of their cryptocurrency holdings should use Kraken. Although there is a small window where Coinbase has better fees, the vast majority of people will get better rates by using Kraken.
On the other hand, if you are strictly looking to make small deposits, it may be better for you to use Coinbase. For example, if you plan on making $50 deposits once a week over the course of the next year, Coinbase would be the place to do that.
Whether you’re a global institution or individual dabbling with cryptocurrency for the first time, the UI is important for providing a sense of security, clarity, and comfort.
When dealing with money, it’s never a pleasant time if you don’t know what you’re doing. The onset panic of thinking you did something wrong can bring undesired anxiety into managing your crypto portfolio.
These two exchanges are both leading the market when it comes to the user experience. Each feature has been carefully tested and evaluated to ensure the most pleasant experience. However, although both of these exchanges are cleanly designed, they both target slightly different groups of people.
The registration for Kraken is smooth. They will carefully direct you through the process so you are never lost. At each step, they include helpful information on how to complete the step without any hiccups.
Once you complete the registration process, you will be thrown right into the exchange. The steps to purchase and trade Bitcoin on Kraken are a little less straightforward. They require an understanding of how trading works, which is not a common skill to possess.
Although it feels less convenient from a consumer’s standpoint, it may be desirable for institutions who want to get right into the action without needing extra steps to transfer funds.
The registration process for Coinbase is also a breeze. Like Kraken, they have mastered the experience for new users. Each step is clearly defined, articulated, and guided through the entire process. It’s difficult to get lost, so you will always know what you need to do next.
The major difference between Coinbase and Kraken is the wallet experience. Coinbase has completely separate services for its exchange and wallets. That means when you sign up for Coinbase, you don’t need to understand trading. The steps to purchase your first Bitcoin is more simple.
Institutions may have mixed feelings about the way Coinbase has separated its exchange and wallet services. Transferring funds between the wallets and the exchange is a little inconvenient. However, it does provide a clear separation between the funds you would like to hold and those you would like to trade.
If you’re a new user in the crypto market, Coinbase has the easiest experience of any exchange. They make it simple to get started, educate you at every step of the process, and don’t over complicate your life with trading features.
Kraken on the other hand may be more convenient for experienced traders and institutions. Getting funds straight into the exchange may feel more natural for those users. They will then be able to quickly start trading without having to migrate and manage everything across both the wallet and exchange services.
With everything said, we would consider Coinbase to have the best user experience in the crypto space. Beyond these two exchanges, we don’t see ANY cryptocurrency exchange having a better UI than Coinbase.
At the end of the day, it doesn’t matter how much cryptocurrency we own if it gets hacked. Whether we have 1 BTC or 100 BTC, we need to make sure we use the most secure products and services to ensure the funds are not lost.
Thankfully, both Kraken and Coinbase have impressive track records when it comes to security. Neither of these exchanges have had any major security breaches. With an industry plagued with hacks, this is re-assuring.
Kraken has been widely known for its strict focus on security. In fact, when reviewed by ICORating’s exchange security audit they were ranked as the #1 most secure cryptocurrency exchange.
Like many of the other most secure exchanges, Kraken keeps 95% of its assets in air-gapped cold storage. They have also implemented strict surveillance across their exchange platform to ensure every transaction, deposit, and withdrawal is monitored.
On the user’s side, the list of security features remains impressive. Every user has access to 2FA, withdrawal email confirmations, precise API key permission control, SSL encryption, and so much more.
As a user, it’s important to take full advantage of each and every one of these security features to ensure we never jeopardize our funds. Security is not only the exchange’s responsibility, but it’s ours too. Never give anyone access to your account, passwords, or codes.
Coinbase is no less impressive than Kraken. 98% of the digital assets held by Coinbase are in air-gapped cold storage. Additional security is provided through splitting the data and securing it using AES-256 encryption before copying to paper and FIPS-140 backups. These backups are then geographically distributed around the world.
As we previously mentioned, user security is also critical for securing our funds. For this reason, all users are required to enable 2FA. In addition, the assets not held in cold storage by Coinbase are privately insured. The policy covers a range of incidents that further help ensure the safety of funds.
Finally, Coinbase has also been able to provide FDIC-backed insurance for USD balances up to $250,000.
When it comes to security, these exchanges are neck and neck. While both of these exchanges have slightly different security features, they are both exceptional in their own right.
Since we have not heard about any major hacks targeting these exchanges after their over 7 years in business, we believe this is proof of a heavy focus on security. We feel comfortable recommending both of these exchanges due to their track record of securing user funds.
Coinbase and Kraken both provide exceptional security, so we must call a tie.
In order to trade cryptocurrency, many users opt to leverage the spot markets provided by these two exchanges. Since many users will see the benefits of being able to quickly adjust their portfolio through the trading features, we wanted to examine the liquidity of the markets on these two exchanges.
Order book liquidity is important for traders to ensure they can quickly move in and out of positions at the going market rates.
As one way to evaluate the liquidity of these exchanges, we collected tick-by-tick trading data for both of these exchanges. We will use this data to construct a small study on how the liquidity differs between these two exchanges.
Our team analyzed 105,913 trades for the XBT/USD (Bitcoin / US Dollar) trading pair on Kraken. The data collection began on November 25th, 2019 and concluded on December 1st, 2019.
Each of these individual trades were then grouped into orders that were likely placed. This was determined based on the timestamp of when the trades were executed.
Some statistics:
On the Coinbase Pro BTC / USD (Bitcoin / US Dollar) trading pair, we analyzed 108,824 trades from November 25th, 2019 to November 26th, 2019.
Using the same grouping strategy to determine orders, we determined the following statistics.
The results suggest both exchanges have strong liquidity. Under normal conditions, the majority of traders executed on each platform were producing minimal to no slippage. Only during high volume trades did we begin to see signs of large slippage.
Although Kraken experienced larger peak slippage, this was the result of an order that was far larger than anything placed on Coinbase Pro. Also, when looking at the percentage of orders that were slipping, the values are nearly identical.
We can’t find any profound differences between the liquidity of these two exchanges. When it comes to liquidity, it would be difficult to pick one of these exchanges over the other. It’s too close to declare one exchange more liquid than the other.
Now that we have a grasp of the liquidity across these two exchanges, it’s time to evaluate the trading fees.
Note: Trading fees are not the same as the fees we previously discussed for purchasing cryptocurrency with a fiat currency like US dollars.
Every time a trade is made from one asset to another, a fee is incurred. For both of these two exchanges, the fee you pay depends on the trading volume you have executed over the last 30 days.
Kraken has traditionally maintained a trading fee tier list that aligns well with other exchanges in the US market. While exchanges outside the US sometimes offer significantly lower trading fees, we generally expect to see fees ranging from 0.2% to 0.3% for US exchanges.
The trading fees for Kraken start at 0.26% for taker orders and 0.16% for maker orders. Both maker and taker fees decrease as your 30-day trading volume increases. At the lowest levels, Kraken users can place free maker traders and 0.10% taker trades if they have a 30-day volume greater than $10,000,000.
Coinbase Pro has recently increased their fees drastically. At lower trading volumes, the fees start at 0.50% for both maker and taker. This is extremely expensive compared to other exchanges in the market.
Similar to Kraken, the trading fees for Coinbase Pro decline as you increase your 30-day trading volume. Trading under $10k over a 30-day period means you will incur 0.50% fees on every trade. Once you reach $1b or more, these fees are reduced to 0.04% for taker and 0.00% for maker.
The winner is clearly Kraken when it comes to trading fees. The 0.5% trading fees from Coinbase Pro are outrageously high. Although the fees decrease as you execute more volume, there are only a handful of people who will ever see these reduced rates.
99.99% of traders will experience lower fees by using Kraken.
After evaluating each of these key aspects for both Coinbase Pro and Kraken, it is obvious that both of these exchanges are exceptional in their own way. While they may target slightly different audiences, they have not skimped on security, liquidity, or user experience.
Our analysis suggests Kraken would be superior for institutional investors. Kraken has fees that are better suited for large purchases, their onboarding process puts you straight into the action, and you have all the funding options you could ever want.
On the other hand, Coinbase is perfect for consumers. Anyone who wants to simply purchase crypto and hold it without worrying about the complexities of trading, is right at home on Coinbase. Their experience is simple and perfect for most average people.
The tipping point came for us after reviewing the fees. Due to the similarity in every other category, the largest discrepancy was in the fees category.
Under normal conditions, Coinbase has significantly higher fees. Whether you are trading or purchasing your first Bitcoin, Coinbase will take more of your hard-earned money.
So… The honor of being crowned “The King of US Exchanges” goes too…
Kraken!
Kraken has exhibited exceptional growth over the last few years. The user experience has become sleek and welcoming. They have carefully selected their fees and the liquidity is top-notch.
For all these reasons and more, we place Kraken in the top spot for US exchanges to use for purchasing Bitcoin.
Whether you ultimately use Kraken or Coinbase, it will matter very little. They are both exceptional exchanges and you should feel comfortable with your decision.
Each person will have their own preference, different understandings of crypto, and varying trading skills. Slightly more advanced users may prefer Kraken, while first-time users may favor Coinbase.
We don’t see any wrong answer. We ultimately recommend both exchanges. They have been the cornerstone of the US market for years now and we expect to continue seeing both of these exchanges dominate in the decade to come.
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