As potential providers of Bitcoin exchange-traded funds (ETFs) vie for dominance in their offerings, Coinbase Global may face collateral damage due to undercutting on fees.
Although Bitcoin ETFs have not yet commenced trading, Monday morning saw a flurry of filings from companies revealing their intended fee structures for the first time. These fees are already approaching rock-bottom levels.
Bitwise Bitcoin fund plans to charge an annual fee of 0.24%, the lowest among its competitors. The ARK 21Shares Bitcoin ETF and VanEck Bitcoin ETF will carry a slightly higher expense ratio of 0.25%, while BlackRock’s iShares Bitcoin Fund settled at 0.3%. In order to attract investors, numerous providers, including Bitwise, ARK, 21Shares, and Invesco Galaxy, have pledged to completely waive fees for specific periods and based on certain assets under management.
Considering the minimal commissions charged by many brokerages, trading Bitcoin through these ETFs could effectively be free as long as the fee waivers are in effect. This assumes that bid-ask spreads remain narrow. Such a scenario would pose significant competition for Coinbase, where retail trades often incur costs exceeding 1% due to fees and spreads.
According to Raymond James, in the third quarter, Coinbase’s average retail take rate, defined as fees as a percentage of trading volume, stood at 2.5%.
This week, the Securities and Exchange Commission is expected to approve the first filings for spot Bitcoin ETFs. Approximately twelve fund issuers have expressed their plans to launch similar funds, and the disclosed fees in federal filings thus far could potentially change prior to the commencement of trading.
Advocates of Bitcoin anticipate that these new funds will attract tens of billions of dollars from investors who previously had limited access to cryptocurrencies. This influx of funds has the potential to increase the price of Bitcoin and generate interest in trading other digital assets.
As a result, Coinbase stock has experienced a significant surge. Over the past year, it has almost quadrupled in value, reaching $152.97. However, it experienced a 0.7% decline in early trading on Monday.
Coinbase remains optimistic about the market impact of spot ETFs, stating that it believes they will contribute positively to both the crypto market and the company itself.
Coinbase Embraces Crypto ETFs as New Opportunity
Coinbase, the leading cryptocurrency exchange, has announced its support for the introduction of cryptocurrency exchange-traded funds (ETFs). According to a statement released by the company, Coinbase sees this as an excellent opportunity for new players in the market, such as wealth platforms, IRAs, and tax-advantaged accounts, to invest in crypto in a more familiar and accessible manner.
The firm believes that the introduction of ETFs could encourage a broader audience to engage with cryptocurrencies. As part of this initiative, Coinbase has been selected as the custodian for most of the ETFs, which means the exchange will benefit from the growth of these assets.
However, providing services to ETF providers may not be a highly lucrative business for Coinbase. In a recent research note, analysts at Mizuho estimated that custody fees from the ETFs would only contribute around $25 million to $30 million in revenue. Nevertheless, if the ETFs generate additional spot trading, there is potential for an additional $200 million or more in revenue.
Despite these numbers being considered relatively modest compared to Coinbase’s stellar stock performance in 2023, which saw a nearly 400% surge, they still hold significance. Analysts at Mizuho, who have given Coinbase an “Underperform” rating, also noted the potential positive impact of the ETFs in fueling a continuing bull market in crypto. They suggest that any negative effect from fees could be outweighed by increased prices and investor interest in digital assets.
Looking ahead, Coinbase faces another critical moment with a lawsuit from the Securities and Exchange Commission (SEC). The SEC alleges that Coinbase operates as an unlicensed securities exchange, and a judge will begin hearing arguments later this month. The outcome of this case remains uncertain.
As we enter January, it is clear that this month will be pivotal for Coinbase. The exchange’s embrace of ETFs and the upcoming legal battle with the SEC will undoubtedly shape the future of the largest crypto trading platform in the U.S.
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