Bitcoin ETFs Threaten Coinbase Market Share Despite Company's Record 2023 Performance

Coinbase's position in the cryptocurrency market is about to shift dramatically now that the SEC has allowed the launch of bitcoin exchange-traded funds.

In the coming weeks, Coinbase will assist in bringing some of the greatest names in asset management, such as BlackRock, Franklin Templeton, and WisdomTree, into the digital asset ecosystem as their preferred custodian partner. That implies Coinbase will be key to the storage and safeguarding of those businesses' assets.

While custody revenue represents a significant growth potential for Coinbase in the short term, some industry observers are concerned that the company's primary transaction business may be jeopardized as a result of the numerous ways investors will be able to acquire bitcoin.

Instead of visiting an asset exchange like Kraken, Binance, or Coinbase, users will be able to invest in digital currency using the same process they presently use to buy stock and bond ETFs.

Cryptocurrency and ETF Projections: A Transformative Landscape Ahead

In a research published on December 4, analysts at Bernstein anticipated that in less than five years, ETFs will handle 10% of the worldwide supply of the world's largest cryptocurrency, or around $300 billion. According to the company, it is the "largest pipe ever built between traditional financial markets and crypto financial markets."

Coinbase's stock became one of the outstanding performers in the tech industry in 2023, with an almost 400% increase. A significant amount of this surge was strongly tied to the upward trend of bitcoin, which increased by 150% over the same time period.

However, Coinbase's outperformance in comparison to bitcoin was due not just to the cryptocurrency's ascent, but also to the expectation that new Exchange-Traded Funds (ETFs) would drive increased interest in the crypto market, proving beneficial to Coinbase.

During Coinbase's most recent earnings call in November, Emilie Choi, the company's Chief Operating Officer, voiced excitement about the potential influence of ETFs on the crypto scene.

Choi went on to say, "ETFs should expand the pie and bring new people and institutions into the cryptoeconomy. They should add credibility to the market, and we should see increased liquidity and market stability as we've seen with other asset classes such as gold."

This viewpoint is consistent with the assumption that the introduction of ETFs would function as a catalyst for increased involvement in the cryptocurrency market, drawing both individual and institutional investors.

Furthermore, Choi underlined the possibility for increased market trust, predicting good effects similar to those seen in other asset classes such as gold. The statements from Coinbase's COO reflect the company's optimistic view of the impact of ETFs and the potential advantages they may bring to the expanding cryptoeconomy environment.

Since June 15, when BlackRock - which manages $9 trillion in assets - applied for a so-called spot bitcoin ETF and nominated Coinbase as its crypto custodian, shares in the exchange have risen from approximately $54 to more than $170 by the end of the year.

In a November research, JPMorgan analysts predicted that Coinbase will be a primary beneficiary of the upcoming ETF boom, owing to the immediate benefit of custody fees from asset managers.

Wall Street's enthusiasm has waned to begin 2024, with the market down 14% since the calendar flipped. Mizuho analysts believe that more misery is on the way.