If Bitcoin ETFs become a reality, it might not be good news for crypto exchanges like Coinbase. That’s because analysts think the fees these exchanges charge for transactions could go down, causing some challenges.
The crypto community is excitedly waiting for the potential approval of a Bitcoin exchange-traded fund (ETF) in the United States, with the value expected to be around $40,776. However, some experts caution that this approval might have not-so-good effects on cryptocurrency exchanges.
Spot Bitcoin ETF Approval: Potential Impact on Exchanges
Industry observers anticipate the trading debut of a spot Bitcoin ETF in early 2024, coinciding with Bitcoin’s upcoming block reward halving expected in April. Blockstream CEO Adam Back is optimistic, predicting this event could propel Bitcoin to $100,000.
Even more bullish, Bitcoin proponents like Jan3 CEO Samson Mow foresee the approval of a spot Bitcoin ETF in the U.S. driving Bitcoin to a staggering $1 million in the “days to weeks” following approval.
However, the outlook isn’t as rosy for centralized cryptocurrency exchanges, as noted by ETF Store president Nate Geraci and Bloomberg ETF analyst Eric Balchunas.
Once approved, Geraci believes a potential spot Bitcoin ETF in the U.S. could be a “bloodbath” for cryptocurrency exchanges. He explains that retail buyers and sellers of the spot Bitcoin ETF would benefit from institutional trade execution and lower commissions. In contrast, users of crypto exchanges would experience retail trade execution and commissions, prompting Geraci to emphasize the need for improvement in these areas to compete with a spot Bitcoin ETF.
Let’s check this 6mos after spot bitcoin ETFs launch…
Bet these tighten up pretty substantially. https://twitter.com/NateGeraci/status/1736561013720281499/photo/1
— Nate Geraci (@NateGeraci) Dec 18, 2023
Spot Bitcoin ETF and Its Potential Impact on Exchanges
Bloomberg ETF analyst Eric Balchunas points out a significant difference in trading costs between a spot Bitcoin ETF and popular exchanges. He highlights that trading a spot Bitcoin ETF would incur a 0.01% fee, which is the average cost for ETF trading. In contrast, exchanges like Coinbase charge higher trading costs, reaching up to 0.6%, depending on factors like the cryptocurrency, transaction size, and trading pairs.
If approved, the introduction of a spot Bitcoin ETF is expected to introduce more price competition in the crypto industry. This could redirect funds from exchanges that heavily invest in advertising, especially during events like the Super Bowl. Balchunas anticipates a shift in the industry landscape, stating that the launch of ETFs could mark the end of the era of high fees for some crypto exchanges.
He expressed this sentiment in an interview with industry journalist Laura Shin in September 2023, suggesting that the appeal of crypto exchanges, which profited significantly from their high fees, might decline with the advent of ETFs.
Coinbase, a major player in the exchange space, has traditionally earned a substantial portion of its revenue from transaction fees. In 2022, Coinbase generated $2.4 billion in transaction fees from both institutional and retail investors, constituting 77% of its total net revenue, which amounted to $3.1 billion. However, Coinbase has been actively diversifying its revenue streams, seeking to reduce its dependence on fees by offering additional income-generating services such as subscriptions.
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