Beware Withdrawal Fees On Exchanges

I've been in cryptocurrency since 2013, and have seen many exchanges collapse. A key advance indicator that they're having problems is that they raise their withdrawal fees to discourage people from withdrawing bitcoin. Users tend to respond by using an alt to withdraw - say litecoin or doge, and the exchange limps on, until their stock of those alts dry up too.

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The first exchange I saw exhibiting this pattern was Vircurex. It was a nice simple exchange that listed all 8 alts that existed in early 2013 (yup, back then the alt space was tiny!). But their withdrawal fee for bitcoin was 0.001 BTC and transaction fees were about 0.5%. In my innocence I didn't think anything of it - till they announced about a year later that they'd been hacked, had tried to make up the money through fees, but couldn't, so they were freezing people's bitcoin balances till they raised enough to pay them back. Those with alts withdrew their coins, and volume on the exchange collapsed. I don't think those with frozen bitcoin ever got their money back, though Vircurex limps on, trying to eke out a living.

And then of course there was Cryptsy. It raised it's withdrawal fees from 0.0001 btc (the normal miners fee at the time) to 0.0005 btc. Then it decided to provide fee free trading but take an eye-watering 0.5% of the entire amount you withdrew. Within a few months they'd closed shop.

So what are the withdrawal fees on the remaining exchanges?

Poloniex Polo has a low 0.0001 btc withdrawal fee ($0.34 at the current bitcoin price of $3400). They're able to maintain this by sending withdrawals out in batches, so that the total fee on the batch is high enough for the miners to pick it up. I know new accounts have had problems withdrawing, awaiting manual approval, but my withdrawls go through automatically (though I never withdraw more than half a bitcoin at a time, and my Polo account is about three years old).

Bittrex I've never heard of anyone having any problems with Bittrex. But their bitcoin withdrawal fee has increased from a low 0.0002 btc ( $0.68) to 0.001 btc ($3.40 at the current bitcoin price of $3400). This could be because miner transaction fees have risen. Or because they've taken a decision to discourage withdrawals for whatever reason.

Shapeshift They famously got hacked in 2016. They said that no customer funds were lost, but increased their bitcoin withdrawal fee to 0.001 btc ($3.40 at the current bitcoin price of $3400).

Kraken Their withdrawal fee for Bitcoin was 0.001 btc ($3.4) but they've raised it to 0.0025 btc ($8.50 at the current bitcoin price of $3400) in June 2017. They say this was because miners fees rose.

Bitfinex They've famously been hacked several times too. Their bitcoin withdrawal fee is 0.004 btc ($13.60 at the current bitcoin price of $3400). Alarm bells should be ringing here. I've no idea why anyone uses this exchange.

Other indications that an exchange is in trouble

I thought the response of various exchanges to the hard fork into bitcoin and bitcoincash were interesting. Some exchanges told customers that they were unsure about BCC, so if customers wanted their forked coins, they needed to withdraw their bitcoins - both Coinbase and Poloniex did this. And both exchanges experienced lots of people withdrawing coins.

Other exchanges immediately announced they'd credit the BCC - Bittrex and Kraken among them - to discourage people withdrawing bitcoins from their exchange.

I leave you to conclude what that means about the health of the various exchanges.

Be safe out there!