The Potential Impact of a Spot Bitcoin ETF on Crypto Exchanges: Coinbase To Face Tough Times, Says Analyst

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As the cryptocurrency community eagerly anticipates the potential approval of a spot Bitcoin exchange-traded fund (ETF) in the United States, analysts are warning of potential consequences for leading exchanges like Coinbase. Meanwhile, the approval of a spot Bitcoin ETF, coupled with the upcoming Bitcoin halving in April 2024, may have significant effects on the crypto market.

Bullish Predictions

Prominent figures in the crypto space, such as Blockstream CEO Adam Back and Jan3 CEO Samson Mow, have expressed bullish sentiments, predicting substantial price surges for Bitcoin in the wake of a spot BTC ETF approval. 

They even suggest that Bitcoin price could jump to $1 million in the weeks following the announcement of the ETF approval.

However, the outlook is not as optimistic for centralized crypto exchanges, according to ETF Store president Nate Geraci and Bloomberg ETF analyst Eric Balchunas.

The Bloodbath Warning

In a recent statement on X, Geraci referred to the potential approval of a spot Bitcoin ETF in the U.S. as a “bloodbath” for crypto exchanges. He highlighted the advantage that retail spot Bitcoin ETF buyers and sellers would gain from institutional trade execution and lower transaction fees. 

Conversely, retail users of crypto exchanges would continue to experience retail trade execution and higher fees, emphasizing the need for exchanges to enhance their offerings to remain competitive.

Further Bloomberg ETF analyst Eric Balchunas emphasized that a spot Bitcoin ETF would carry a trading cost of 0.01%, the average fee for ETF trading. In contrast, major exchanges like Coinbase charge trading costs as high as 0.6%, depending on factors such as the cryptocurrency, transaction size, and trading pairs.

The introduction of a spot Bitcoin ETF is expected to intensify price competition within the crypto industry, redirecting funds from exchanges that traditionally charged higher fees. Balchunas believes this development could mark a shift in the industry, especially for exchanges that heavily invested in advertising, such as during events like the “Crypto Super Bowl.”

Coinbase’s Challenge

Coinbase, historically reliant on transaction fees for the majority of its revenue, could face challenges in this new landscape. In 2022, the platform generated $2.4 billion in transaction fees, constituting 77% of its total net revenue of $3.1 billion. 

While Coinbase has actively diversified its revenue streams to reduce dependence on fees, the potential approval of a spot Bitcoin ETF adds a new layer of competition and highlights the need for exchanges to adapt to changing market dynamics.