Spot Bitcoin ETF Will Be ‘Bloodbath’ For Crypto Exchanges, Analyst Predicts

The crypto community eagerly awaits the possible approval of a Bitcoin exchange-traded fund (ETF) in the US. However, some analysts warned that this could potentially trigger undesirable consequences for leading exchanges like Coinbase.

Experts said the approval of the Bitcoin ETF and the upcoming BTC halving in April 2024 could really shake up the crypto market. Blockstream CEO Adam Back said the upcoming event could propel BTC to $100,000. Another prominent figure in the crypto space, Jan3 CEO Samson Mow, stated that BTC’s price could jump to $1 million in the weeks following the announcement of the spot BTC ETF approval. However, the outlook is not as optimistic for centralized crypto exchanges, according to Bloomberg ETF analyst Eric Balchunas and ETF Store president Nate Geraci.

In a Dec. 17 post on X (formerly Twitter), Geraci labeled the potential approval of a spot Bitcoin ETF in the US a “bloodbath” for crypto exchanges. According to Geraci, retail spot BTC ETF buyers and sellers would gain from institutional trade execution and lower transaction fees. On the other hand, retail users of crypto exchanges would continue to experience retail trade execution and higher fees. Geraci stressed that the exchanges need to enhance their offerings to compete with a spot Bitcoin ETF.

Gonna be a bloodbath for crypto exchanges…

— Nate Geraci (@NateGeraci) December 18, 2023

Moreover, Bloomberg ETF analyst Eric Balchunas said a spot BTC ETF would cost 0.01% to trade, which is the average fee for ETF trading. In contrast, trading costs on major exchanges like Coinbase reach 0.6%, depending on the transaction size, cryptocurrency, and trading pairs. Balchunas believes this development could be a significant setback for exchanges that heavily invested in advertising, such as during events like the “Crypto Super Bowl.”

Spot Bitcoin ETF Could Significantly Reduce Coinbase’s Revenue

In this evolving landscape, Coinbase, historically dependent on transaction fees for most of its revenue, may face challenges. In 2022, Coinbase made $2.4 billion from transaction fees, making up 77% of its total revenue of $3.1 billion. Coinbase is expanding its income sources to rely less on fees, but if a BTC ETF gets approved, it will bring more competition. This shows that exchanges should adapt to changes in market dynamics.