Coinbase Faces Potential Fallout as Bitcoin ETF Fee Competition Intensifies
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As prospective Bitcoin exchange-traded fund (ETF) providers engage in a fee war, Coinbase Global could find itself caught in the crossfire. Despite Bitcoin ETFs not yet being available for trading, recent filings unveiled a wave of fee disclosures, with rates approaching record lows.
The Bitwise Bitcoin fund leads the pack with a planned annual fee of 0.24%, closely followed by the ARK 21Shares Bitcoin ETF and VanEck Bitcoin ETF, both with a 0.25% expense ratio. BlackRock’s iShares Bitcoin Fund trails at 0.3%. Notably, providers like Bitwise, ARK, 21Shares, and Invesco Galaxy have committed to waiving fees for specific periods and asset thresholds.
With many brokerages eliminating commissions, trading Bitcoin via ETFs could essentially be cost-free during fee waiver periods, assuming tight bid-offer spreads. This poses a heightened competitive threat to Coinbase, where retail trades often incur fees exceeding 1%, inclusive of spreads.
In Q3, Coinbase’s average retail take rate stood at 2.5%, according to Raymond James. As the Securities and Exchange Commission (SEC) is anticipated to approve spot Bitcoin ETF filings this week, around a dozen issuers are set to launch such funds, potentially reshaping disclosed fees before trading begins.
Advocates anticipate these ETFs will attract billions from investors previously unable to access cryptocurrencies easily. While this surge may enhance Coinbase’s stock, which has surged nearly fourfold to $152.97 in the past year, potential fee pressures loom.
Coinbase, optimistic about the ETFs’ impact, believes they will introduce new users to the broader crypto market. Despite being named custodian for most ETFs, providing services to ETF providers might offer low margins for Coinbase.
Mizuho analysts estimate ETF custody fees contributing $25-30 million, with an additional $200 million in revenue if ETFs spur more spot trading. However, these figures appear modest compared to the stock’s remarkable 400% surge in 2023, prompting Mizuho to rate Coinbase as “Underperform.”
Despite increased competition, Coinbase’s retail trader take rate has risen over the past year. If the ETFs coincide with a prolonged crypto bull market, the negative impact of fees may be overshadowed by higher prices and increased investor interest.
Coinbase faces another pivotal moment later this month when a judge hears early arguments in an SEC lawsuit alleging the company operates as an unlicensed securities exchange. With contrasting forces at play, January emerge as a critical month for the leading U.S. crypto trading platform.