Brett Tejpaul, head of Coinbase Institutional, said Coinbase offers bundled services in custody, trading and financing to provide a seamless process. Clients who use different providers may end up introducing more risks, he added.
While Coinbase’s shares rallied by nearly 400% last year along with the surge in Bitcoin, the new ETFs may only add 5% to 10% to the company’s revenue, according to a recent note from Mizuho. The analysts estimate that the ETFs may only add $25 million to $30 million in custody fees, as well as up to $210 million in incremental Bitcoin trading revenue on the platform. That’s a relative drop in the bucket compared with Coinbase’s total revenue of $2.15 billion in the nine months ended Sept. 30.
Some current customers may start buying Bitcoin through ETFs instead of on Coinbase — which charges higher trading fees. Even if they don’t, Dan Dolev, Mizuho’s senior fintech analyst, says low ETF asset-management fees will likely drive fee compression across the entire space, including for Coinbase.
Coinbase’s Haas said she doesn’t expect to see trading-fee pressure immediately following the arrival of Bitcoin ETFs, though the company could face fee compression in the long term. “We believe the spot ETFs will be additive to the crypto market and Coinbase,” said Greg Tusar, Coinbase’s head of institutional products.
Custody fees are much lower than trading fees, and may yet go down further as competition heats up in that business. And there are alternatives to Coinbase: Fidelity Investments is using its digital-asset unit to safekeep Bitcoin for its ETF. Gemini, the crypto exchange co-founded by Cameron and Tyler Winklevoss, is also vying to play a role, and already landed VanEck Bitcoin Trust as a client.
The ETFs are likely to diversify to use multiple custodians over time, as they wish to reduce their reliance on a single company — even if they aren’t ordered to do so. Haas is prepared for that potentiality. While Coinbase has been what she called a trusted choice for numerous other exchange-traded products and regulated funds, she acknowledged that issuers may choose to have a secondary custodian for “redundancy and diversification” as assets grow. She pointed out that ETF issuers in traditional financial markets typically have multiple custodians, though she expects Coinbase will retain a significant portion of the assets.
For some, the fact that Coinbase is arguably more scrutinized, as a public company, than many others is an advantage — and that could attract more business longer term. Matt Hougan, chief investment officer at Bitwise, said his firm picked Coinbase for custody because the company is “the largest and most established.”
“They want their customers to be as comfortable and confident trading on Coinbase as they would on Nasdaq,” said Campbell Harvey, a finance professor at Duke University.
For now, Coinbase is relishing its moment of victory. As the Bitcoin ETFs made their debut on Thursday, the mood was buoyant at the company’s sleek New York office, located in Hudson Yards on the west side of Manhattan. “None of us slept,” said Emilie Choi, Coinbase’s chief operating officer. “We were too excited.”
Whether that buzz continues remains to be seen.
This article was provided by Bloomberg News.