Bitcoin Custody Provider Fees

Professional Custody Service Fee Structures

This memo is published by CustodyStress, an independent Bitcoin custody stress test that produces reference documents for individuals, families, and professionals.

Percentage-Based Annual Fees

A holder researches professional custody services for bitcoin. Providers advertise their offerings. Fee structures appear in marketing materials. The holder compares options trying to understand total costs over time. Bitcoin custody provider fees involve multiple components charged at different intervals using varying calculation methods.

What looks simple in promotional materials becomes complex when examined closely. Percentage-based fees apply to different values. Flat fees recur at different frequencies. Transaction fees vary by type and urgency. Minimum fees create floors below which percentage calculations do not apply. Understanding actual costs requires projecting scenarios across years while accounting for price volatility and usage patterns.

---

Percentage-Based Annual Fees

Many custody providers charge annual fees as a percentage of assets under management. A provider charges one percent annually. A holder deposits bitcoin worth one hundred thousand dollars. The annual fee is one thousand dollars. This seems straightforward until bitcoin prices change.

Bitcoin appreciates to two hundred thousand dollars. The one percent fee now equals two thousand dollars. The holder did not acquire more bitcoin. The fee doubled because the value changed. Over a decade, if bitcoin appreciates significantly, the annual fee can become larger than the initial bitcoin value despite the percentage remaining constant.

Fee calculation timing affects amounts charged. Some providers calculate fees quarterly based on average balances. Others calculate monthly. A few calculate daily and bill monthly. During volatile periods, daily calculation can result in higher fees than quarterly calculation if prices spiked during the measurement period.

Providers define "assets under management" differently. One provider includes only bitcoin. Another includes bitcoin plus the dollar value of any stablecoins held. A third includes unrealized gains. The same percentage rate produces different fee amounts depending on what gets included in the base calculation.

---

Minimum Fee Structures

Percentage-based fees often have minimums. A provider charges one percent annually with a five thousand dollar minimum. For accounts below five hundred thousand dollars, the percentage calculation produces less than the minimum. These accounts pay the flat five thousand regardless of actual holdings.

Minimum fees create breakpoints where cost efficiency changes abruptly. An account holding four hundred thousand dollars pays five thousand in fees - effectively one point two five percent. An account holding six hundred thousand dollars pays six thousand in fees - exactly one percent. The larger account pays more total dollars but a lower percentage of holdings.

Some providers waive minimums for the first year. Marketing emphasizes "no minimum fees." The holder signs up. Year two begins and minimum fees apply. The account did not reach the threshold where percentage calculations exceed minimums. Annual costs jump significantly despite no service changes.

Minimum fees do not decrease if bitcoin prices fall. A holder starts with assets meeting the percentage calculation threshold. Bitcoin prices drop fifty percent. The account now falls below the minimum threshold. Fees remain at the minimum amount even though the holder's wealth has halved. The percentage of assets consumed by fees has doubled.

---

Transaction Fee Layers

Custody providers charge transaction fees separate from annual custody fees. Deposit fees apply when bitcoin arrives. Withdrawal fees apply when bitcoin leaves. Trading fees apply for conversions between bitcoin and other assets. Each transaction type has its own fee schedule.

A holder deposits bitcoin. The custody provider charges a deposit fee calculated as a percentage of the deposit amount or a flat fee per transaction, whichever is greater. The holder later withdraws a portion. Withdrawal fees apply using the same calculation structure. Every movement of bitcoin incurs fees separate from the ongoing custody charges.

Transaction fee structures favor inactivity. A holder who deposits once and never withdraws pays only one transaction fee plus ongoing custody fees. A holder who rebalances frequently pays transaction fees each time plus the same custody fees. The active manager pays significantly more for the same custody service.

Network transaction fees get passed through or marked up. When bitcoin moves on-chain, miners receive transaction fees. Some custody providers charge the exact network fee. Others add a markup or administrative handling fee. A blockchain transaction that costs ten dollars in network fees might appear as fifteen dollars on the custody provider's invoice when markups and handling fees are included.

---

Service Tier Pricing

Providers offer multiple service tiers at different price points. Basic custody costs less than premium custody with additional features. A holder examines options. Basic custody charges fifty basis points annually. Premium custody charges one hundred basis points but includes insurance, multi-signature options, and dedicated support.

Features described as "included" in premium tiers may have usage limits. Insurance covers up to a certain amount. Exceeding that amount requires additional insurance riders with separate fees. Multi-signature setup is included but changing signers costs extra. Dedicated support includes a set number of hours annually with overage charges for additional time.

Holders initially choose basic tiers expecting to upgrade if needed. Later, they discover that upgrading requires moving bitcoin between internal custody systems. This movement triggers transaction fees and potential tax events if the transfer involves temporary conversion to dollars. The cost of switching tiers exceeds the annual price difference between tiers.

---

Setup and Onboarding Costs

Initial setup fees apply before ongoing custody begins. A provider charges five thousand dollars for account setup and onboarding. This covers identity verification, wallet creation, and initial configuration. The setup fee is separate from annual custody fees and transaction fees.

Onboarding timelines affect when custody fees begin. Setup takes two months. During this time, the holder's bitcoin remains in their personal custody. Annual custody fees start when setup completes and bitcoin transfers to the provider. But the setup fee was paid at the beginning. The holder paid for two months of service they did not receive.

Complex custody arrangements incur higher setup fees. Multi-signature with multiple parties requires coordination meetings and legal documentation. Customized reporting or integration with the holder's accounting systems adds technical setup work. Providers quote setup fees that can reach tens of thousands of dollars for arrangements beyond standard offerings.

Setup fees are typically non-refundable. A holder pays setup fees and begins onboarding. Midway through, they decide the provider is not suitable. They want to cancel. Setup fees are not returned. The holder has paid for a service they will never use and must now pay setup fees to a different provider.

---

Inactivity and Dormancy Fees

Some providers charge inactivity fees for accounts that remain dormant. A holder deposits bitcoin and stops making transactions. After six months of no activity, monthly inactivity fees begin. These fees continue until activity resumes or the account is closed.

Inactivity fee logic contradicts the purpose of long-term custody. A holder chooses professional custody specifically for long-term holding without active trading. The custody provider's inactivity fees penalize exactly this use case. The holder must execute unnecessary transactions periodically to avoid inactivity fees.

Dormancy fees escalate over time. Initial inactivity fees might be modest. After a year of no activity, dormancy fees increase. After two years, they increase again. A holder who intended to hold bitcoin for a decade faces escalating fees specifically for doing what they planned to do.

Defining "activity" varies across providers. One provider considers any login to be activity. Another requires actual bitcoin transactions. A third counts only transactions above a minimum size. The holder logs in monthly thinking this prevents inactivity fees. It does not. The provider's definition required transactions not logins.

---

Insurance Premium Pass-Through

Custody providers obtain insurance covering bitcoin holdings. Some providers include insurance costs in their base fees. Others pass insurance premiums directly to account holders. A holder chooses a provider advertising comprehensive insurance. The fine print reveals that insurance premiums are billed separately based on account size.

Insurance costs increase as bitcoin appreciates. The insurance policy covers a specific dollar value. As bitcoin prices rise, maintaining the same coverage requires higher premiums. The holder's bitcoin custody provider fees include insurance premiums that grow with the bitcoin value even though no additional insurance was purchased.

Coverage limits create gaps. A holder's bitcoin appreciates beyond the standard insurance coverage limit. The provider offers excess insurance for amounts above the limit. This excess coverage has higher premiums per dollar of coverage. The effective insurance cost becomes tiered with the highest tier costing significantly more than the base coverage.

Claims affect future premiums. The custody provider experiences a security breach affecting multiple clients. Insurance pays claims but raises future premiums across all accounts. Individual holders who were not affected by the breach pay increased insurance costs in subsequent years due to the provider's claims history.

---

Reporting and Statement Fees

Standard account statements come at no additional charge. Tax reporting documents cost extra. A holder needs detailed transaction reports for tax preparation. The custody provider charges per report. End-of-year tax packages have fixed fees ranging from hundreds to thousands of dollars depending on account complexity.

Report formats determine costs. PDF statements are included. Excel exports of transaction data cost extra. API access for automated data retrieval requires enterprise tier service at higher base fees. The holder who wants to integrate custody data with their accounting system must pay for enhanced access.

Historical data retrieval faces charges. A holder needs transaction records from three years ago. The provider maintains recent data online at no charge. Retrieving archived historical data triggers retrieval fees. Each request for old records costs money even though the data belongs to the holder.

---

Early Termination Penalties

Custody contracts include minimum commitment periods. A provider requires a two-year minimum commitment. A holder signs the agreement. After one year, they want to move to a different provider. Early termination penalties apply equal to the remaining year's annual fees.

Termination penalties can exceed remaining fees when calculated as liquidated damages. The contract states early termination results in a penalty equal to one hundred percent of the initial year's fees regardless of time remaining. A holder who terminates after eighteen months pays a penalty based on the full first year's fees, not the six months remaining in the commitment period.

Some contracts auto-renew with new commitment periods. The initial two-year term ends. The contract automatically renews for another two years unless cancelled with ninety days notice before expiration. The holder missed the notice deadline. They are now committed for two more years or face early termination penalties.

---

Foreign Exchange and Wire Fees

International custody providers charge fees in foreign currencies. Annual fees are quoted in Euros or Swiss Francs. The holder pays from US dollars. Currency conversion fees apply. Exchange rates vary from market rates by spreads the provider captures.

Wire transfer fees compound currency costs. Sending dollars to pay Euro-denominated fees requires international wire transfers. Banks charge outgoing wire fees. Recipient banks charge incoming wire fees. Currency conversion happens at unfavorable rates. A fee quoted as one thousand Euros costs the equivalent of eleven hundred dollars after all intermediary charges.

Fee timing creates currency risk. Annual fees are billed quarterly. The Euro strengthens against the dollar between when fees were quoted and when payment is due. The dollar cost of the same Euro-denominated fee increases by ten percent due to exchange rate movements. The holder's costs vary with currency markets regardless of custody service quality.

---

Multisignature Coordination Costs

Multisignature custody involves multiple keyholders. A provider offers multisig service where they hold one key, the holder holds another, and a third party holds the third. Each keyholder charges fees. The custody provider charges their standard fees. The third-party keyholder charges separate fees. Total custody costs are the sum of all participants' fees.

Coordination overhead adds soft costs. Executing transactions requires communication among keyholders. Time spent coordinating signatures is time not spent on other activities. While not direct custody fees, coordination costs represent real economic costs of multisignature arrangements.

Keyholder replacement triggers setup fees again. One keyholder wants to exit the arrangement. Replacing them requires reconfiguring the multisig wallet. All participants charge setup fees for the new configuration. What was a one-time setup cost recurs whenever the multisig participants change.

---

Tiered Fee Schedules

Providers use breakpoint-based fee schedules. The first one million dollars in custody is charged at one percent. The next four million is charged at seventy-five basis points. Amounts above five million are charged at fifty basis points. This creates complexity in projecting total fees as account values cross breakpoints.

Breakpoint calculations happen dynamically. Account values fluctuate daily with bitcoin prices. Fee calculations at month-end determine which portions fall into which tiers. During volatile months, the effective blended rate varies significantly from prior months even though the fee schedule did not change.

Consolidated account discounts require minimum relationships. A holder has multiple accounts with the same provider. The provider offers tiered pricing based on total relationship size across all accounts. But this consolidation only applies if all accounts are held in the same entity name. Accounts held in different trusts or entities are not consolidated for fee calculation purposes.

---

Technology and Platform Fees

Access to custody provider platforms involves technology fees. Basic web access is included. Mobile app access costs extra. API access for programmatic interactions requires higher service tiers. The holder who wants comprehensive access across all platforms pays premium technology fees.

Advanced features carry separate charges. Two-factor authentication via SMS is free. Hardware key authentication costs extra. Biometric authentication requires enrollment fees plus monthly charges for maintaining the biometric data infrastructure.

Integration with external systems incurs development fees. A holder wants custody data to flow into their wealth management software. The custody provider charges for building the integration. Then they charge monthly maintenance fees for keeping the integration operational as both systems evolve.

---

Comparison Difficulty

Comparing bitcoin custody provider fees across providers faces methodological challenges. One provider quotes annual percentage fees. Another quotes monthly flat fees. A third uses a hybrid structure. Converting all quotes to comparable terms requires assumptions about account size, transaction frequency, and price movements.

Fee schedules omit certain charges. A provider's published fee schedule shows custody fees and transaction fees. It does not mention reporting fees, insurance pass-throughs, or currency conversion markups. Total cost of ownership includes all these components but comparing published fee schedules captures only a portion.

Promotional rates expire. A provider offers the first year at reduced fees to attract new clients. Year two pricing is substantially higher. Comparing this provider's first-year promotional rate to another provider's standard rate creates false equivalencies. The long-term cost comparison requires looking beyond introductory pricing.

Service definitions vary making comparison imprecise. "Full custody" means different things to different providers. One includes insurance and tax reporting. Another charges separately for those. Comparing percentage rates without understanding service definitions compares unlike things.

---

Fee Compounding Over Decades

Bitcoin custody can span decades. Annual fees compound over long periods. A one percent annual fee appears modest. Compounded over thirty years, it consumes a significant portion of holdings. If bitcoin appreciates during that time, the fee amounts grow even though the percentage stays constant.

A holder deposits bitcoin worth one hundred thousand dollars. Custody fees are one percent annually. Bitcoin appreciates seven percent per year on average. After ten years, the bitcoin is worth nearly two hundred thousand dollars. Cumulative fees over that period exceed twenty thousand dollars. After thirty years, cumulative fees approach one hundred thousand dollars - equivalent to the entire initial deposit.

Transaction fees compound differently. A holder rebalances quarterly. Each rebalance incurs transaction fees. Over thirty years, one hundred twenty rebalances occur. Even modest per-transaction fees accumulate significantly. Combined with annual custody fees, total fees can exceed fifty percent of initial holdings over multi-decade periods.

---

Conclusion

Bitcoin custody provider fees involve percentage-based annual charges that grow as bitcoin appreciates, minimum fees that create cost floors, transaction fees for every movement, and setup costs for initial onboarding. Inactivity fees penalize long-term holding. Insurance premiums pass through and increase with asset values. Reporting fees add costs for tax documents.

Early termination penalties lock holders into contracts. Foreign exchange fees compound international custody costs. Multisignature arrangements multiply fees across participants. Tiered fee schedules create complexity in projections. Technology and platform fees charge for access features. Comparison across providers is difficult due to varying structures and incomplete disclosure.

Over decades, fees compound. What appears modest annually becomes substantial cumulatively. Understanding these dynamics requires examining fee schedules closely, projecting scenarios across time, and accounting for bitcoin price volatility that affects percentage-based calculations. Bitcoin custody provider fees represent ongoing costs that accumulate throughout the custody relationship potentially consuming significant portions of holdings over long periods.

---

System Context

Bitcoin Custody Failure Modes

Bitcoin Wallet Firmware Trust

Bitcoin Wallet Compromise Signs

← Return to CustodyStress