The Anatomy of a Fee Change - Evidence from Cryptocurrency Markets

Abstract

A maker fee is the fee charged to submitters of limit orders that execute. This could increase the cost of supplying liquidity and be reflected in bid-ask spreads and prices more generally. We analyze the introduction of maker fees on Coinbase Pro, a leading cryptocurrency exchange. We perform a difference-in-differences analysis using data from Bitfinex, another leading cryptocurrency exchange, as a control sample. Our study is different from previous papers in that:

(1) it analyzes cryptocurrency rather than equity markets,

(2) uses both low-frequency (daily) and high-frequency (minute-by-minute) data and,

(3) studies how the introduction of a maker fee affects liquidity beyond the best quotes.

We find that, upon the introduction of the maker fee, quoted spreads increases while depth and trading activity decrease. Liquidity beyond the best quotes also decreases.

Keywords: cryptocurrencies, trading fees, market liquidity, maker-taker fees

JEL Classification: G12, G14