How Spot Bitcoin ETFs Will Change Crypto Trading

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Bitcoin ETFs Are Ready To Shake Up Crypto Markets

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Even though bitcoin holds around $30,000 and other cryptoassets appear to be trading in cautiously optimistic ranges, real change is still on the horizon. In late June, several applications were filed with the Securities and Exchange Commission to launch spot bitcoin exchange-traded funds; this is not the big news in itself. Since similar requests have been made (and rejected) before, the real difference is which institutions submitted these requests. These include some of the biggest financial companies in the world, with Blackrock and Fidelity being the headliners of this current crop of apps.

The market need for more comprehensive crypto trading solutions is both obvious to most market participants and elusive following the litany of failures in the industry. The world’s largest crypto exchange, Binance, continues to face significant headwinds as it seeks to establish new offices around the world. Even Coinbase, the only publicly traded US crypto exchange, is facing legal action from the SEC; the way forward does not seem to be drawn from the crypto-native sector. Instead, and evidenced by both these recent ETF apps and the continued investment in tokenized asset apps, TradFi appears to be closing in on market appetite and the opportunities to be found in cryptoassets.

Speculation aside, there are several concrete ways a spot bitcoin ETF can change crypto trading; let’s take a look at a few of them.

Lower commissions

The first and most obvious way that cash ETF products will change the market, especially those backed by companies like Blackrock, is that it will put downward pressure on trading fees and commissions. Coinbase, the leading crypto exchange in the United States, has a tiered trading fee structure that can vary widely, but can be as high as 3% for retail traders. Unlike the average 0.01% fee for ETF trading, the impact on earnings could be significant. For example, a trader would pay $300 (3%) for a $10,000 trade versus $1 for the average fee of 0.01% for ETF trades.

Sticking with Coinbase specifically for now, it’s important to note that Blackrock has tapped the company to operate as a custodial partner for this proposed product.

More automation and AI

As a direct result of lower trading fees and commissions, it is almost certain that more automation, and potentially AI-based trading, will come to the crypto industry sooner rather than later. In fact, former FTX US President Brett Harrison has founded a new crypto exchange that will be infused with AI to facilitate trading, market making, and other operations. Architect, borrowing from the playbook adopted by many TradFi institutions, will use ChatGPT to enhance AI offerings. Whether it’s generative AI or more mundane automation of back-office tasks, the lower fees that will begin to permeate the market will lead to greater adoption of automation in the crypto industry. .

Less use of currencies

A reality that should irritate members of the bitcoin maximalist community is that the submission and approval of a bitcoin ETF, and the capital inflows that will follow as portfolio managers and asset managers rebalance in therefore, will further reduce the likelihood of bitcoin being used. as currency. As bitcoin’s appeal as an asset class continues to grow and be exploited by individuals and institutions i.e. expecting higher prices, entrepreneurs and other businesses are less likely to accept and make payments with this token.

Notably, according to 2023 analysis by research firm Glassnode, over 50% of bitcoin has not moved for more than two (2) years, indicating that long-term holding was and continues to be a leading strategy in the bitcoin market.

Less self-care

Another fundamental change that will be accelerated as a result of the ETF gaining approval from major institutions is that the guard will also change in a major way. As a bearer asset, bitcoin and other crypto advocates have emphasized the importance of self-custody and key management for years. Scandals and centralized exchanges and operators have highlighted the importance of this topic; Cold wallet makers such as Tezor have seen dramatic spikes in sales following the failure of several centralized and decentralized exchanges in 2022.

Assuming a spot ETF is approved, this means that the custody of the bitcoin and cash components of that product will be handled by an external third party. Even more telling is that the proposal submitted by Blackrock, itself the world’s largest asset manager, involves Coinbase in bitcoin custody and splits cash custody responsibilities among the largest banks in the United States. All of this could help this ETF gain SEC approval, and allay investor concerns, but means self-custody is not on the cards.

Regardless of how applications for a spot ETF submitted by Blackrock (and others) are analyzed, it looks set to dramatically change the landscape of crypto trading in the future; investors should closely monitor our future developments.

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