When Spot Bitcoin ETFs Are Approved in the US, Exchanges Will Face Challenges

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• Figures like Blockstream CEO Adam Back and Jan3 CEO Samson Mow have displayed bullish market trends, predicting significant price increases for Bitcoin after the approval of a spot BTC ETF.
• However, according to ETF Store President Nate Geraci and Bloomberg ETF Analyst Eric Balchunas, the outlook is not as optimistic for centralized crypto exchanges.
• Bloomberg ETF Analyst Eric Balchunas emphasized that a spot Bitcoin ETF would have a 0.01% transaction fee, pointing out that this amount is the average fee for ETF trading.

While the crypto world focuses on whether spot Bitcoin ETFs will be approved in the United States, ETF analysts are drawing attention to another issue.

Spot Bitcoin ETFs and Crypto Exchanges

While the cryptocurrency community eagerly awaits the potential approval of a spot Bitcoin exchange-traded fund (ETF) in the United States, analysts are discussing potential outcomes for leading exchanges like Coinbase. Simultaneously, the approval of a spot Bitcoin ETF and the Bitcoin halving in April 2024 could have significant effects on the crypto market.

Prominent figures in the crypto space, such as Blockstream CEO Adam Back and Jan3 CEO Samson Mow, have displayed bullish market trends, predicting significant price increases for Bitcoin after the approval of a spot BTC ETF. Some even suggested that the price of Bitcoin could reach $1 million within weeks of the ETF announcement.

However, ETF Store President Nate Geraci and Bloomberg ETF Analyst Eric Balchunas suggest that the outlook is not as optimistic for centralized crypto exchanges. Geraci, in his recent statement evaluating the potential approval of a spot Bitcoin ETF in the U.S., indicated that this could be a “bloodbath” for crypto exchanges. He emphasized that retail spot Bitcoin ETF buyers and sellers would gain advantages in terms of institutional trade execution and lower transaction fees.

In contrast, retail users on crypto exchanges will continue to experience retail trading execution and higher fees, emphasizing the need for exchanges to enhance their services to remain competitive. Bloomberg ETF Analyst Eric Balchunas emphasized that a spot Bitcoin ETF would have a 0.01% transaction fee, pointing out that this amount is the average fee for ETF trading. In return, major exchanges like Coinbase charge transaction fees of up to 0.6% depending on the type of cryptocurrency, transaction size, and trading pairs.

The introduction of a spot Bitcoin ETF is expected to intensify price competition within the crypto industry, diverting funds from exchanges that traditionally charge higher fees. Balchunas believes that this development could signify a change in the industry, especially for exchanges that heavily invest in advertising during events like the ‘Crypto Super Bowl.’

Challenges for Coinbase

Coinbase, historically reliant on transaction fees for the majority of its revenue, may face challenges in the face of 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. Although Coinbase actively works to diversify its revenue sources to reduce dependency, the potential approval of a spot Bitcoin ETF adds a new layer of competition and underscores the need for exchanges to adapt to changing market dynamics.