Spot Bitcoin ETF Approval Could Spell Trouble for Cryptocurrency Exchanges, Analysts Warn

The Potential Impact of a Spot Bitcoin ETF

As the crypto community eagerly awaits the possible approval of a spot Bitcoin (BTC) exchange-traded fund (ETF) in the United States, analysts are warning that this development could have unwanted consequences for cryptocurrency exchanges. Several industry observers have predicted that a spot BTC ETF could start trading in early 2024. Blockstream CEO Adam Back believes that this event, when paired with Bitcoin's upcoming block reward halving expected in April, could propel BTC to $100,000. Jan3 CEO Samson Mow has even said that approval of a spot Bitcoin ETF could drive Bitcoin as high as $1 million in the "days to weeks" following.

The Potential Impact on Cryptocurrency Exchanges

However, the forecast isn't as optimistic for centralized cryptocurrency exchanges. ETF Store president Nate Geraci and Bloomberg ETF analyst Eric Balchunas believe that a spot Bitcoin ETF in the U.S. would be a "bloodbath" for these exchanges. Geraci explains that retail spot Bitcoin ETF buyers and sellers will benefit from underlying institutional trade execution and lower commissions, while retail users of crypto exchanges will only have access to retail trade execution and higher commissions. Balchunas emphasizes that a spot Bitcoin ETF will only cost 0.01% to trade, compared to trading costs on exchanges like Coinbase which can reach 0.6%.

More Price Competition and Diversification

Once approved, a spot Bitcoin ETF will create more price competition in the crypto industry. Balchunas believes that this will bring money back to investors from exchanges that spend massive amounts of cash on advertising, such as during events like the Super Bowl. He describes the launch of ETFs as the last "Crypto Super Bowl" and suggests that some crypto exchanges have been making a ton of money on their high fees. Coinbase, for example, earned $2.4 billion in transaction fees in 2022, accounting for 77% of its total net revenue. However, the exchange has been actively diversifying its revenue streams to reduce reliance on fees and explore other income-earning services.