- Senior ETF analyst at Bloomberg Intelligence predicts crypto exchanges like Coinbase could suffer when the SEC finally approves spot bitcoin ETFs.
- According to Eric Balchunas, an approval will threaten exchanges’ business on metrics of cost, because of affordability.
- A BTC ETF will trade with a 1 bp spread, and fees similar to Gold ETFs, making them a more appealing proposition.
Coinbase, and exchanges just like it, could suffer when the US Securities and Exchange Commission (SEC) approves a spot Bitcoin Exchange-Traded Fund (ETF), according to Eric Balchunas in an interview with Laura Shin.
Also Read: Spot Bitcoin ETF has a 75% chance of approval in 2023, analysts say
ETF specialist and analyst at Bloomberg Intelligence has said that Coinbase and its peer exchanges will likely suffer once the much-anticipated approval for spot Bitcoin ETFs comes about. His opinion stems from the fact that an approval would make it possible for users to invest in a “liquid cheap BTC ETF,” instead of purchasing BTC itself from exchanges, thereby threatening their business model.
More broadly, the ETF specialist says exchanges will be undercut on price. A Bitcoin ETF will trade for a one basis point (1bp) spread (the difference between the bid and ask). For the layperson, a bid-ask spread defines the difference between the highest price that a buyer is willing to pay for an asset and the lowest price that a seller is willing to accept. It is one of the ways brokers make money from trading activity.
In addition, investors will have to pay a “fee” of between 35 to 40 bps – going on similar costs to buy a Gold (GLD) ETF – but this will still make them “very appealing”, according to Balchunas.
Why there would be a demand for spot BTC ETF, Balchunas
ETFs will also attract investors who want a break from the tediousness in the crypto sphere, says the Bloomberg analyst. The fact that ETFs trade like equities is a desirable aspect, given the tax efficiencies, and other benefits. Specifically, the ETF specialist says the product is “five evolutionary steps ahead of mutual funds.” Given their advantages, ETFs will likely “take the lion’s share of the money.”
More interestingly, the spot BTC ETF issuer, if approved, would do all the “leg work” for investors. When purchasing from an exchange, investors are responsible for storing their cryptos securely in ‘wallets’. In the case of an ETF, however, the fund would take care of this problem. They would also streamline the taxation processes. In so doing, ETF funds would deliver a better value proposition, argues Balchunas, which exchanges like Coinbase may not be able to match.
His comments echoed what former SEC official, John Reed Stark said, concerning political influence in the spot BTC ETF topic. According to Balchunas, two out of the three judges in the Grayscale vs. SEC case were Democrats. The main judge, however, was a Republican, appointed by former US President Donald Trump. The fact that the three judges presented a united front against the SEC is also crucial, increasing the odds for approval.
Meanwhile, the argument the SEC is presenting now after the previous manipulation concern, according to Balchunas, is the question of custody and therefore safety. Nevertheless, he says BlackRock and Fidelity are likely to take precedence in approvals owing to the conservative nature of the SEC because they comprise big players in TradFi, representing “gigantic trading firms that the SEC likely trusts,” and the fact that they have launched many ETFs in the past is a bonus. Ark Invest could also feature because of how early they applied.
The comments come after the court’s recent decision, conferring victory to Grayscale asset manager in its longstanding case against the US SEC. The decision brought hope to crypto enthusiasts who interpreted it as a sign that a spot BTC ETF approval could come soon, bringing more investors to the Bitcoin market.
In light of the approval, Balchunas and colleague, James Seyyfart tweeted that they are increasing their prediction of a spot Bitcoin ETF approval, with odds moving from 65% to 75%.
NEW: @JSeyff & I are upping our odds to 75% of spot bitcoin ETFs launching this yr (95% by end of ’24). While we factored Grayscale win into our prev 65% odds, the unanimity & decisiveness of ruling was beyond expectations and leaves SEC w “very little wiggle room” via @NYCStein pic.twitter.com/IyEGmWjuHa
— Eric Balchunas (@EricBalchunas) August 30, 2023
The same optimism caused a surge in Bitcoin price, which broke out of consolidation to approach the $28,000 level. Notably, the price has since retracted, breaking below the consolidation level to trade in the $25,600 range, with experts attributing this to the SEC’s decision to delay feedback concerning the BTC ETF applications.
Crypto ETF FAQs
An Exchange-Traded Fund (ETF) is an investment vehicle or an index that tracks the price of an underlying asset. ETFs can not only track a single asset, but a group of assets and sectors. For example, a Bitcoin ETF tracks Bitcoin’s price. ETF is a tool used by investors to gain exposure to a certain asset.
Yes. The first Bitcoin futures ETF in the US was approved by the US Securities & Exchange Commission in October 2021. A total of seven Bitcoin futures ETFs have been approved, with more than 20 still waiting for the regulator’s permission. The SEC says that the cryptocurrency industry is new and subject to manipulation, which is why it has been delaying crypto-related futures ETFs for the last few years.
Bitcoin spot ETF has been approved outside the US, but the SEC is yet to approve one in the country. After BlackRock filed for a Bitcoin spot ETF on June 15, the interest surrounding crypto ETFs has been renewed. Grayscale – whose application for a Bitcoin spot ETF was initially rejected by the SEC – got a victory in court, forcing the US regulator to review its proposal again. The SEC’s loss in this lawsuit has fueled hopes that a Bitcoin spot ETF might be approved by the end of the year.
Source: FX STREET