In a pivotal moment for the Bitcoin community, the eagerly anticipated approval of a Spot Bitcoin Exchange-Traded Fund (ETF) in the United States could be on the horizon, potentially reshaping the industry’s landscape. However, amidst the optimism, analysts are warning that Spot Bitcoin ETF approval could have costly consequences for digital asset exchanges.
Several industry observers speculate that a Bitcoin Spot ETF could commence trading as early as 2024, almost coinciding with Bitcoin’s impending block reward halving in April.
Jan3 CEO Samson Mow recently predicted that BTC could jump to unprecedented heights, possibly reaching $1 million in the “days to weeks” following such an approval. Blockstream CEO Adam Back also displays bullish sentiment, suggesting that this dual event could propel BTC to an impressive $100,000.
However, the outlook is not as rosy for centralized digital asset exchanges, as highlighted by ETF Store president Nate Geraci and Bloomberg ETF analyst Eric Balchunas.
Trading Fee Difference
The approval of a Spot Bitcoin ETF is anticipated to introduce heightened price competition in the digital asset industry. On December 17, Balchunas emphasized the cost factor, stating that a spot Bitcoin ETF would incur an average trading fee of 0.01%. In contrast, major digital asset exchanges like Coinbase charge significantly higher trading costs, reaching up to 0.6%, depending on factors such as transaction size and trading pairs.
Notably, Coinbase derived a substantial portion of its revenue from transaction fees, generating $2.4 billion in transaction fees in 2022. This accounts for 77% of its total net revenue of $3.1 billion.
On a side note, the escalating Bitcoin transaction costs have recently become a focal point of discussion within the bitcoin community. BitInfoCharts reports an average on-chain transaction fee nearing $38, representing the highest levels since April 2021.
The primary culprit behind this spike in transaction costs is identified as the recent influx of Bitcoin Ordinals inscriptions, causing a strain on the network’s capacity and leading to elevated fees for all users.
Spot Bitcoin ETF Approval: ‘Bloodbath’ For the Exchanges
Geraci cautioned on X that the approval of a Spot Bitcoin ETF could result in a “bloodbath” for the exchanges. He pointed out that retail Spot Bitcoin ETF traders stand to benefit from institutional trade execution and lower commissions. This, according to him, will put pressure on exchanges to improve their offerings to compete effectively.
Balchunas believes that this competition will divert funds back to investors from exchanges that have historically spent substantial amounts on advertising, such as during events like the Super Bowl. The potential impact of this development on digital asset exchanges is significant, as it could signal the end of an era symbolized by high fees and extravagant marketing efforts.
Potential Market Pullback in Case of Disapproval
Analyst Nate Geraci has also highlighted the critical nature of the SEC’s decision, predicting a potential market pullback if the ETF is not approved. He underscored the significance of the approval, suggesting that it could be one of the most significant events in Bitcoin history. Despite the risk, Geraci remains optimistic about the SEC greenlighting the Spot Bitcoin ETF, placing the odds close to 100%.
Interestingly, the digital asset market recently experienced a notable rally, with bitcoin’s price reaching $45,000 for the first time since 2022. The surge in optimism is largely attributed to expectations of the SEC approving ETF applications from industry giants like BlackRock and Cathie Wood’s ARK Investment. Analysts are hopeful, estimating that the Spot Bitcoin ETF market could burgeon into a $100 billion juggernaut, signaling a potential turning point for the industry.
