By Senior Researcher at Leverage Shares, Sandeep Rao, believes that Coinbase’s dominant market position as “the dominant venue for all things crypto” faces a new challenge. In a recent interview with Cryptonews, Rao warned that the company’s medium-to-long-term performance could suffer as newly launched Bitcoin spot ETFs like BlackRock and Fidelity compete for trading volume.
“Several funds offering fee waivers for the next few months will seemingly reduce Coinbase’s fees,” Rao wrote in an email shared with Cryptonews. “But reduced trading volume since approval is likely to sting more over the next few quarters.”
Coinbase’s Bitcoin Trading Revenue
To draw investors in, several Bitcoin spot ETFs dropped their management fees to zero before launching last month, becoming the cheapest venues for institutions to trade and hold BTC.
The new funds have already absorbed over $10 billion since launch. Grayscale – Coinbase’s largest incumbent competitor – has suffered nonstop outflows totaling $6.6 billion over the same period, having decided to keep its fee at an elevated 1.5%.
BlackRock’s Bitcoin ETF in particular is already overtaking Grayscale on daily volume, averaging $750 million in volume per day earlier this week. As of Thursday, Coinbase’s 24-hour BTC volume stood at roughly $900 million, per CoinMarketCap.
After Coinbase’s Q4 earnings were released earlier today it was revealed that the company has suffered several consecutive quarterly losses since 2022, despite the Bitcoin market rallying to new highs during that time.
Competition from other trading venues is likely to make those figures worse – especially given that roughly half of the firm’s revenue still comes from trading fees.
Coinbase As a Bitcoin ETF Custodian
Coinbase also draws revenue from subscriptions and services, including USDC yield and its custody platform earnings. Its platform provides Bitcoin custody for competitors like BlackRock and Grayscale, offering some exposure to their success.
Still, this won’t make up for Coinbase’s loss in transaction revenue, according to Rao.
“Any indications during the Q4 earnings call of a strategy change to address this shortfall would be valuable,” he explained.
“Now that Bitcoin ETFs have such a strong precedent, other exchanges are well-positioned to compete, collect ETF transaction fees, and even devise structures to perform custodian services,” he concluded. “Coinbase cannot assume that it will remain America’s only real crypto exchange unless it indicates a move towards measures will help it stay central to the crypto market.”
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