Several providers of Bitcoin exchange-traded funds (ETFs) are engaged in a fierce competition to offer the lowest fees, potentially posing a threat to Coinbase Global.
Although Bitcoin ETFs are not yet trading, a wave of filings on Monday revealed the planned fees for these funds, with most of them being extremely low.
Bitwise Bitcoin Fund plans to charge a long-term fee of 0.24% annually, making it the lowest in the market. On the other hand, the ARK 21Shares Bitcoin ETF and VanEck Bitcoin ETF will carry a 0.25% expense ratio, while BlackRock's iShares Bitcoin Fund will be at 0.3%. Some providers, such as Bitwise, ARK and 21Shares, and Invesco Galaxy, have even announced that they will temporarily waive fees for a certain period or amount of assets under management.
With many brokerages not charging commissions, trading Bitcoin through these ETFs could essentially be free as long as the waivers are in effect and the bid-ask spreads remain narrow. This increased competition could pose a challenge for Coinbase, where retail trades often incur costs surpassing 1% due to fees and spreads.
According to Raymond James, Coinbase's average retail take rate was 2.5% in the third quarter.
The Securities and Exchange Commission is expected to approve the first filings for spot Bitcoin ETFs this week. Around a dozen fund issuers have expressed their intention to launch such funds. However, the disclosed fees in their federal filings could still change before trading commences.
Bitcoin advocates anticipate that the new funds will attract billions of dollars from investors who previously had limited access to cryptocurrencies. This influx of capital could lead to an increase in Bitcoin's price and generate interest in other tokens.
Coinbase's stock has seen substantial growth, surging nearly four-fold to $152.97 in the past year. However, it experienced a slight decline of 0.7% in early trading on Monday.
Coinbase remains optimistic, stating that it believes the introduction of spot ETFs will have a positive impact on both the crypto market and the company itself.
Coinbase Sees Potential for Growth with New ETFs
Coinbase, one of the leading cryptocurrency exchanges, has expressed optimism about the recent approval of several cryptocurrency exchange-traded funds (ETFs) in the United States. In a statement, the company noted that these ETFs provide an opportunity for new entrants, such as wealth platforms, individual retirement accounts (IRAs), and tax-advantaged accounts, to invest in crypto through a familiar wrapper.
By serving as the custodian for most of these ETFs, Coinbase stands to benefit financially as the assets under management grow. However, analysts at Mizuho have pointed out that this particular business segment may generate only modest revenue for Coinbase, estimating custody fees of $25 million to $30 million and an additional $200 million or so from spot trading related to the ETFs. Nonetheless, despite these relatively small figures, Coinbase has seen its take rate from retail traders rise steadily over the past year, even in the face of increased competition from platforms like Robinhood Markets.
The impact of these ETFs on Coinbase's bottom line may be overshadowed by the potential benefits of a continuing bull market in cryptocurrencies. Higher prices and renewed investor interest in digital assets could offset any negative effects from fees associated with the ETFs. It remains to be seen how this will play out, especially given that Coinbase is currently facing a lawsuit from the U.S. Securities and Exchange Commission (SEC), which alleges that the company operates as an unlicensed securities exchange.
With the SEC lawsuit pending and the launch of ETFs underway, January is a critical month for Coinbase. The outcome of these countervailing forces will shape the future trajectory of the largest crypto trading platform in the U.S.