The cryptocurrency market received its first Bitcoin ETF this week after a long wait. The market has also responded in equal measure with overwhelming demand for the ProShares Bitcoin ETF. This may be just the beginning of the crypto revolution that will hit the market in the next decade. Could it also be a threat to cryptocurrency exchanges?
The $7 trillion ETF industry has played a key role in lowering the fees and costs of the asset management industry. ETFs, or exchange-traded funds, are traded similarly to stocks. The costs of using them have dropped significantly over the past two decades and their expense ratio has been cut in half.
A similar revolution can be expected in the crypto space, which can be challenging for crypto exchanges that charge high fees. Eric Balchunas, senior ETF analyst at Bloomberg, calls it the biggest of all trends and says it will steal business from the stock markets. In his latest Twitter post, Balchunas stated:
The crypto has rocked the ETF world this week. But watch ETFs rock the crypto world right back. Already $BITO offers bitcoin trading for 1bp (not to mention options). Exp ratios will come down too as category gets Vanguard-ed. Great take from @johndetrixhe https://t.co/frgikdssSP
— Eric Balchunas (@EricBalchunas) October 22, 2021
“ETFs are like Terrordome, nobody makes almost any money, everybody lives on scum and leftovers and fights Vgrd. Adapt to Lean, Large Cost Migration. Unless they cannibalize themselves a bit, they will steal jobs from crypto, especially from exchanges.”
Businesses Receiving Excess Crypto Fees May Be in Danger
Quoting an article from Quartz, Balchunas compares the trading fees of exchanges like Coinbase and ETF. Crypto exchanges like Coinbase charge a hefty 1.49% to 9.99% fee. Similarly, existing Bitcoin funds such as the Grayscale Bitcoin Trust (GBTC) also charge 2% fees, which is still higher than ETF fund standards.
On the other hand, the ProShares Bitcoin ETF only charges 0.1%. Therefore, unlike high fees, Quartz states:
“A trader using a brokerage app can pay almost nothing to buy and sell an ETF that represents the entire US stock market all day long. If these competitive forces are unleashed in trading digital assets, the days of heavy fees for crypto brokers and exchanges (often simultaneously) may be over.”
He also states that the ETH industry has a way of solving the legal and regulatory aspects of bringing new assets to the market. Thus, he adds, ETF creators will find creative new ways to bet on virtual assets.