Low-cost Bitcoin ETFs pose a major threat to Coinbase’s market dominance – What could go wrong?

Bitcoin ETFs amass Over 100,000 BTC in assets under management

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  • Analysts warned Coinbase Global might lose volume and margin if more investors buy Bitcoin through cheap exchange-traded funds tracking its spot price.
  • JP Morgan has cautioned that potential Coinbase customers will be pushed to equity brokers if spot bitcoin ETFs succeed.
  • Following the new financial instrument’s arrival in U.S. stock markets last week, Coinbase shares have fallen about 13%, while bitcoin has been down 7.5% since September end, yet up nearly 60% in anticipation of ETFs.

Coinbase has long stood as a titan, wielding significant influence and market dominance. The advent of low-cost Bitcoin Exchange-Traded Funds (ETFs) has ignited a wave of speculation about their capacity to dethrone Coinbase and alter the crypto investment landscape. 

Coinbase and the Battle for the Titans

According to analysts, Coinbase Global, the largest publicly traded crypto exchange, may see a drop in trading volume and margin if more investors dabble in BTC from the safety of cheap exchange-traded funds tracking its spot price.

J.P. Morgan analyst Kenneth Worthington believes it will also have an influence on Coinbase’s trading commissions and spreads, which are the difference between the bid and ask prices.

The brokerage cautioned that if spot bitcoin ETFs are successful, it will push potential Coinbase customers to equity brokers.

The lower-than-average cost levied by ETF issuers and the convenience of getting exposure to digital assets via regulated stock exchanges may attract new investors.

Since the new financial instrument emerged in the U.S. stock markets last week, Coinbase shares have fallen over 13%, compared to a 7.5% decrease in bitcoin, which had risen nearly 60% since September 30 in anticipation of ETFs.

CFRA Research downgraded Coinbase from “hold” to “sell,” stating that the exchange may be compelled to lower its trading fees in order to compete with low-cost ETFs.

The convenience of accessing spot BTC ETFs through stock brokers like Robinhood, who offer extremely low costs, was also expected to put pressure on Coinbase’s profits.

The launch of the ETFs comes as Coinbase struggles with lower trading volume, which plummeted to $11 billion in the third quarter from $26 billion a year earlier due to the bad sentiment induced by crypto winter, which began in late 2021.

The company was mentioned as a custodian in eight of the 11 ETF listings, but it did not disclose its custody cost.

J.P. Morgan predicted that it may earn 10 to 15 basis points in custodian fees.

However, CFRA Research analyst Michael Elliott believes that the rise in custodial fees will be insufficient to counterbalance the probable loss of investors to ETFs.

Spot BTC ETFs draw nearly $2 billion in the first 3 days of trading

According to data from issuers and analysts, investors poured $1.9 billion into nine new exchange-traded funds tracking bitcoin’s spot price in their first three days of trading, with fund behemoths BlackRock and Fidelity receiving the lion’s share of the flows.

Collective flows to the nine funds outperformed post-launch flows into the ProShares Bitcoin Strategy ETF, which raised a record $1.2 billion in the first three days of trading on its 2021 launch. The SPDR Gold Shares ETF raised $1.13 billion in the first three days after its 2004 launch.

Nonetheless, investments in the long-awaited ETFs, which were opened on January 11, a day after getting approval from the United States Securities and Exchange Commission (SEC), fell short of the most optimistic expectations of billions of dollars in first-day flows.

Market insiders said it remained to be seen how much funds following the famously volatile Bitcoin would continue to attract retail and institutional investors and which issuers would come out on top. Some bullish analysts predict that flows will exceed $50 billion to $100 billion before the end of the year.

Bitcoin has fallen more than 8% since January 11, after gaining in recent months on the expectation that the SEC would eventually approve the ETFs.

At press time, the price of Bitcoin (BTC) was $41,421.71, with a 24-hour trading volume of $21,634,380,459.32. This reflects a -2.20% price drop in the last 24 hours and a -10.69% price drop in the last 7 days.

BlackRock charges a 0.12% fee on the first $5 billion in assets and the first 12 months of trading. Following that, the fee will increase to 0.25%. Fidelity will charge $0 at first, then 0.25% after July 31. According to Morningstar Inc, those fees will remain less than half of the average ETF fee of 0.54%.

Disclaimer. The information provided is not trading advice. Cryptopolitan.com holds no liability for any investments made based on the information provided on this page. We strongly recommend independent research and/or consultation with a qualified professional before making any investment decision.

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Florence Muchai

Florence is a crypto enthusiast and writer who loves to travel. As a digital nomad, she explores the transformative power of blockchain technology. Her writing reflects the limitless possibilities for humanity to connect and grow.

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