Will a Bitcoin ETF Cause a Bloodbath for Spot Exchanges? 

As anticipation grows within the crypto community for the potential approval of a spot Bitcoin exchange-traded fund (ETF) in the United States, some analysts are raising concerns about the possible negative impact on cryptocurrency exchanges.

Industry experts are speculating that a spot BTC ETF could debut in early 2024, coinciding with Bitcoin’s expected block reward halving in April. Adam Back, CEO of Blockstream, suggests this event could catapult BTC’s value to $100,000. Similarly, Jan3 CEO Samson Mow predicts that the approval of a U.S. spot Bitcoin ETF could even see Bitcoin’s price soaring to $1 million shortly after its introduction.

However, the perspective is less rosy for centralized cryptocurrency exchanges, according to Nate Geraci, president of ETF Store, and Eric Balchunas, a Bloomberg ETF analyst. Geraci, in a December 17 post on X (formerly known as Twitter), described the approval of a spot Bitcoin ETF in the U.S. as a potential “bloodbath” for these exchanges.

Geraci explains that retail buyers and sellers of a spot Bitcoin ETF would benefit from institutional-grade trade execution and lower commission rates. In contrast, users of traditional crypto exchanges currently face higher retail trade execution costs and commission rates. He emphasizes that exchanges will need to enhance their offerings to remain competitive with a spot Bitcoin ETF.

Backing this viewpoint, Balchunas points out that the average trading fee for an ETF is around 0.01%, significantly lower than the fees charged by exchanges like Coinbase, which can be as high as 0.6% depending on various factors.

Balchunas also believes that the introduction of a spot Bitcoin ETF could usher in more pricing competition within the crypto industry, shifting financial benefits back to investors. He argues that the high fees currently charged by exchanges have funded extensive marketing campaigns, such as high-profile Super Bowl ads. However, the thin margins in the ETF industry could mean an end to such extravagant advertising expenditures.

Coinbase, as one of the leading crypto exchanges, has historically derived a substantial portion of its revenue from transaction fees. In 2022, these fees accounted for 77% of its total net revenue of $3.1 billion. Recognizing the potential threat, Coinbase has been striving to diversify its revenue streams beyond transaction fees, exploring other income-generating services like subscriptions.