Coinbase
Global could face collateral damage as would-be providers of Bitcoin exchange-traded funds seek to undercut one another on fees.
Although Bitcoin ETFs aren’t yet trading, Monday morning brought a salvo of filings by companies listing their planned fees for the first time. They are already near rock bottom.
The lowest long-term fee is planned by the Bitwise Bitcoin fund, which will charge 0.24% annually. The ARK 21Shares Bitcoin ETF and VanEck Bitcoin ETF will carry a 0.25% expense ratio, while
BlackRock’s
iShares Bitcoin Fund came in at 0.3%. Several providers, including Bitwise, ARK and 21Shares, and Invesco Galaxy said they would waive fees completely for certain periods and for a certain amount of assets under management.
Since many brokerages don’t charge commissions, trading Bitcoin through the ETFs could be effectively free as long as the waivers last, presuming the spreads between bids and offers remain narrow. That would mean increased competition for Coinbase, where many retail trades can cost more than 1%, including fees and spreads.
The trading platform’s average retail take rate—fees as a percentage of trading volume—was 2.5% in the third quarter, according to Raymond James.
The Securities and Exchange Commission is expected this week to approve the first filings for spot Bitcoin ETFs. Around a dozen fund issuers have indicated they plan to launch such funds, and the fees they have disclosed in federal filings so far could change before trading begins.
Bitcoin proponents expect the new funds to bring in tens of billions of dollars from investors who couldn’t easily access the cryptocurrency before. That could boost the currency’s price and create interest in trading other tokens.
Partly as a result, Coinbase stock has been on a tear. In the past year, it has nearly quadrupled to $152.97, though it fell 0.7% in early trading on Monday.
Coinbase said the company believes “the spot ETFs will be additive to the crypto market and Coinbase.”
“These open the door for new entrants like wealth platforms, IRAs and tax advantaged accounts to deploy capital into crypto through a familiar wrapper, which previously couldn’t engage,” it said in a statement, adding the firm believed the ETFs could lead new users to engage with crypto more broadly.
Coinbase has also been named the custodian on most of the ETFs, which means Coinbase will get a cut as their assets grow.
That said, providing services to ETF providers is likely a low-margin business for Coinbase. In a research note last week,
Mizuho
analysts led by Dan Dolev estimated the ETFs may only add $25 million to $30 million in custody fees, with $200 million or so in additional revenue if the ETFs generate additional spot trading.
“All these seem light in comparison to the nearly 400% run-up in the stock in 2023,” wrote the analysts, who rate Coinbase “Underperform.”
Of course, the bears, including at Barron’s, have been wrong before. Despite increased competition from trading platforms like
Robinhood Markets,
Coinbase’s take rate from retail traders has risen over the past year.
If the ETFs herald a continuing bull market in crypto, the negative effect of the fees could pale in comparison to the benefits to Coinbase derives from higher prices and new investor interest in digital assets.
Another potential turning point for Coinbase comes later this month, when a judge will hear early arguments in a lawsuit against the company from the SEC. The regulator alleges that Coinbase operates as an unlicensed securities exchange.
It’s unclear what the net impact of these countervailing forces will be, but January is shaping up to be a critical month for the largest crypto trading platform in the U.S.
Write to Joe Light at [email protected]
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