What impact do high transaction fees have on Bitcoin?

The three major domestic Bitcoin trading platforms almost simultaneously announced adjustments to Bitcoin transaction fees, and the adjustments were made to a relatively high 0.2%. What impact will this have on the Bitcoin trading market?

First, let’s look at a sentence that is common in announcements from various exchanges:

In order to further curb speculation and prevent sharp price fluctuations,…

Almost all trading platforms use this standard phrase, which has made the reason for this collective adjustment of fees very clear. "Further curbing speculation" is the fundamental purpose.

Why is it called "further"? Because the previous step of financing and currency has been stopped, this is the second step, so it is called "further", there is nothing wrong with it!

So what kind of market speculation will be further curbed this time?

High frequency trading!

In a market without handling fees, if you have enough funds and sufficient technology, you may be able to make a profit without losing money. The main ways to make a profit without losing money are:

Using high-frequency trading to generate huge trading volumes makes it difficult for ordinary users to judge the true trading volume of the market;
Use high-frequency trading algorithms to buy low and sell high in small bands, and make profits by taking advantage of the market's spreads.

High frequency trading brings two problems:

The inflated trading volume, on the one hand, misleads ordinary traders, and on the other hand, actually attracts the attention of regulators, who are unable to figure out the proportion of trading volume brought about by high-frequency trading.

It may not sound nice to say that market funds are flowing out, but this is a problem in fact. High-frequency traders bring funds when they participate in market transactions, but this part of the funds will eventually be withdrawn by continuously making money in the market. After all, we cannot require that every high-frequency robot that comes to participate has faith behind it, right?

A transaction fee of 1,200 yuan can almost kill most high-frequency transactions and can indeed play a role in curbing market speculation. So what other impacts does such a high transaction fee have on the market?

1. The price difference between different trading markets will become larger.

The reason why the price difference becomes larger is that if the price difference is too small, there is no room for professional arbitrageurs. When there is enough price difference space, the arbitrage robots will naturally run, and ordinary users can still participate in arbitrage between markets.

2. The brokerage fees for over-the-counter transactions will increase.

Transaction fee + withdrawal fee, the fee for buying Bitcoin on major platforms is about 0.5%. In addition, the liquidity is affected and the bid-ask spread will become larger. Users who do OTC on localbitcoins may need to increase the quote by one point to cover the increased cost.

3. It is a long-term benefit to real investors.

The collection of transaction fees this time can be seen as the exchange making money from high-frequency trading. After all, exchanges belong to this industry, and it is a fact that profitable exchanges are less likely to run away, and users' funds are safer.

Charging transaction fees makes market trading volume more real. For retail investors, it allows them to see a more realistic market. For technical analysts, this is very valuable.

The actual trading volume is obviously much smaller, and the central bank’s limited interest in a small-scale market has to some extent promoted the healthy growth of the entire industry.

4. It has no long-term impact on the development of Bitcoin.

The short-term impact is also limited. It is possible that the partial withdrawal of high-frequency trading funds will bring about a slight fluctuation in prices, but it may not be visible. After all, as long as the machine runs fast, 100 yuan can generate a transaction volume of 100 million.

In a healthy market, more people will join for investment purposes, and the scale of new investment funds will definitely exceed the scale of high-frequency trading funds.

5. The pricing power of Bitcoin may be transferred overseas.

Since China's transaction fees + withdrawal fees are already higher than those of overseas markets, overseas markets have gained new development opportunities. The future price of Bitcoin may be determined by overseas markets, and the domestic market may become a follower of the market.