• Exchange-traded funds (ETFs) have lower commission rates than exchanges, which could reduce Coinbase’s revenue from Bitcoin trading, analysts said.
• Still, the company will benefit from the fee income it receives from representing ETFs.

Coinbase stock could benefit from increased adoption of Bitcoin exchange-traded funds (ETFs), but the crypto exchange is putting “a lot of effort” into maintaining growth. analysts at exchange-traded products provider Leverage Shares said in a note.

Coinbase was one of the best-performing stocks in 2023, rising more than 390% in one year. But this year, it’s down 32%. Meanwhile, Bitcoin is up 2.65%, according to MarketWatch data.

Analysts led by Sandeep Rao say the emergence of ETFs and their increased appeal to institutional investors will jeopardize some of Coinbase’s revenue streams. Previously, investors could only get exposure to Bitcoin through regulated exchanges, but now they can get it at a lower cost through ETFs.

“Most Bitcoin ETFs charge less than 0.4%, while Coinbase charges 1.5% to 4%,” Rao said. “Therefore, investors will prefer to gain exposure to Bitcoin through ETFs. Bitcoin transaction fees are approximately 17% of Coinbase’s total revenue.”

But the long-term driver of Coinbase’s revenue may come from the fees it incurs from storing Bitcoin for ETF providers. The company is a custodian for eight of the 11 funds, and Rao said it receives a 0.2% fee for storing Bitcoin.

“While it is difficult to quantify the impact a Bitcoin Spot ETF will have on Coinbase’s revenue in its early years, the company is likely to be a beneficiary in the long run. “We charge custody fees based on the total value of each account. The price of Bitcoin is one of the factors that determines the value of funds held in custody,” Rao said.

Analysts concluded that an overall rise in the crypto market is likely to attract more customers and generate higher revenues from trading fees and related services.

Coinbase Stock Outlook by Leveraged Shares

• Short term: It appears that several funds offering fee waivers will reduce Coinbase fees in the coming months. Additionally, new approvals are likely to be difficult in the coming quarters, which will likely reduce trading volumes.
• Mid-term: Once the initial dust settles, Coinbase will need to rethink its cost structure. However, at the time of its most recent financial results announcement, it had no plans to lower trading fees.
• Long term: Regardless of whether Coinbase is appointed as custodian or not, as more issuers are approved, trading volumes will increase and favor ETF issuers, making it tough for Coinbase to compete for market share. It will become a thing.

｜Translation: CoinDesk JAPAN
｜Edited by: Toshihiko Inoue
｜Image: Shutterstock
｜Original text: Bitcoin ETFs Pose Risk for Coinbase Stock, Leverage Shares Says