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Spot Bitcoin ETF will be ‘bloodbath’ for crypto exchanges, analyst says

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While the crypto community eagerly awaits the possible approval of a spot Bitcoin (BTC) exchange-traded fund (ETF) in the United States, some analysts are warning this could potentially trigger unwanted consequences for cryptocurrency exchanges.

Several industry observers have predicted that a spot BTC ETF could start trading in early 2024, in an event that, when paired with Bitcoin’s upcoming block reward halving expected in April, Blockstream CEO Adam Back believes could propel BTC to $100,000.

Bitcoin proponents such as Jan3 CEO Samson Mow have said that approval of a spot Bitcoin ETF in the U.S. could even drive Bitcoin as high as $1 million in the “days to weeks” following.

But the forecast isn’t that optimistic for centralized cryptocurrency exchanges, according to ETF Store president Nate Geraci and Bloomberg ETF analyst Eric Balchunas.

Once approved, a potential spot Bitcoin ETF in the U.S. would be a “bloodbath” for cryptocurrency exchanges, Geraci wrote on X (formerly Twitter) on Dec. 17.

According to Geraci, retail spot Bitcoin ETF buyers and sellers will benefit from underlying institutional trade execution and commissions. On the other hand, retail users of crypto exchanges will get “retail trade execution and commissions,” Geraci noted, stressing that those will need to improve to compete with a spot Bitcoin ETF.

Bloomberg ETF analyst Eric Balchunas emphasized that a spot Bitcoin ETF will cost 0.01% to trade, which is the average fee for ETF trading.

In contrast, trading costs on exchanges like Coinbase reach 0.6%, depending on the cryptocurrency, transaction size and trading pairs.

Once approved, a spot Bitcoin ETF will create more price competition in the crypto industry, bringing money back to investors from exchanges that spend massive amounts of cash to advertise their services at events like the Super Bowl, Balchunas believes.

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“It would be the last ‘Crypto Super Bowl’ if they launch ETFs, because ETFs are such a thin, rough industry and some of these crypto exchanges were sort of selling populism making a ton of money on their really high fees,” he said in an interview with industry journalist Laura Shin in September 2023. 

Historically, Coinbase has earned most of its revenue from transaction fees. In 2022, Coinbase made $2.4 billion in transaction fees from institutional and retail investors, which accounted for 77% of its total net revenue of $3.1 billion. The firm has been working to cut its reliance on fees, though, actively diversifying the revenue streams to other income-earning services such as subscriptions.

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