 Exchange market share, market makers, and murky behavior: The impact of no-fee trading on cryptocurrency market qualityJournal of Banking & Finance, 2024, vol. 165, issue C Abstract: This study examines the impact of zero fees on market quality. This issue is examined using a natural experiment in Bitcoin provided by the Binance exchange, which eliminated maker–taker trading fees for market participants in July 2022. I find that although zero fees increase investors’ willingness to trade, thereby prima facie increasing liquidity, their elimination encourages market makers to widen the bid–ask spread and provide a shallower market depth, which in turn reduces liquidity. Liquidity providers realize gains at the expense of liquidity takers, suggesting the emergence of new potential forms of unethical financial market conduct. Notably, despite the removal of trading fees, total transaction costs increased for customers. These outcomes, coupled with the boost in exchange market share, raise concerns about price integrity and investors’ protection in the highly unregulated crypto environment, in turn implying that the elimination of maker–taker fees is harmful to the market. Keywords: Bitcoin market; Cryptocurrency exchange; Unethical financial market conduct; Liquidity; Market microstructure; Zero-fee trading (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:165:y:2024:i:c:s0378426624001390 DOI: 10.1016/j.jbankfin.2024.107222 Access Statistics for this article Journal of Banking & Finance is currently edited by Ike Mathur More articles in Journal of Banking & Finance from Elsevier |
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