The Impact of a Bitcoin Exchange Traded Fund (ETF) on Crypto Exchanges
Crypto exchanges at a disadvantage due to a Bitcoin ETF?
The decision by the U.S. Securities and Exchange Commission (SEC) to postpone the approval of a bitcoin Exchange Traded Fund (ETF) has created uncertainty in the market. Despite the recent victory of crypto asset manager Grayscale in its lawsuit against the SEC, the regulator has delayed the decision on all ETF applications. This article explores the potential impact of a bitcoin ETF on crypto exchanges.
Expectation of the SEC’s decision
The SEC’s decision to postpone the approval of a bitcoin ETF was not entirely unexpected. Historically, the SEC has always used its maximum extension period of up to 240 days to make a final decision. Therefore, the deadline for the current applications to be approved or rejected is expected to be March 2024.
The potential shift towards bitcoin ETFs
Bloomberg ETF analyst Eric Balchunas predicts that the traditional way of buying cryptocurrencies could be replaced by investing in bitcoin ETFs within a few years. This shift could have consequences for crypto exchanges that fail to adjust their fees to remain competitive. Balchunas points out that ETFs have a history of disrupting high fees and expects this impact to occur within five years.
According to Balchunas, buying an ETF would be more cost-effective for consumers compared to using crypto exchanges. As an example, he mentions the Gold ETF, which has fees ranging from 0.35% to 0.40%. In contrast, crypto exchanges have varying fee structures, and after the introductory period, some exchanges could charge transaction fees as high as 1.5%.
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Another advantage of obtaining exposure to BTC through an ETF is that investors do not need to take custody of their own coins.
JPMorgan predicts swift approval of BTC ETFs
A JPMorgan analyst, from one of the world’s largest and most influential financial institutions, recently predicted that several spot ETFs would be approved in the near future. The rejection of the applications would result in significant reputational damage, according to Nikolaos Panigirtzoglou. This is due to the ruling of the Supreme Court of Washington DC in the legal battle between Grayscale and the SEC. Although the SEC previously denied Grayscale’s request to convert its Grayscale Bitcoin Trust (GBTC) into a spot ETF, the rejection has now been overturned, forcing the SEC to reevaluate its decision.