On 11 January 2024, Dan Dolev, a senior analyst at Mizuho Securities, appeared on CNBC’s “The Exchange” to discuss the implications of spot Bitcoin ETFs, particularly focusing on Coinbase and the broader cryptocurrency market.

Mizuho Securities is a prominent financial institution operating as a subsidiary of Mizuho Financial Group, one of Japan’s major banking corporations. The company offers a wide range of financial services, including investment banking, securities brokerage, and asset management. Mizuho Securities operates both in Japan and internationally, providing services to a diverse clientele that includes corporations, financial institutions, governments, and individual investors. Known for its expertise in capital markets, the firm plays a significant role in equity and debt offerings, mergers and acquisitions, and other financial advisory services.

Dan Dolev is a financial analyst known for his expertise in the fintech and payments industry. He has gained recognition for his research and analysis in these sectors, often providing insights into company performances, industry trends, and the impact of technological advancements on financial services.

Dolev began by expressing a somewhat critical view of the impact of spot Bitcoin ETFs on Coinbase. He stated that while the introduction of these ETFs might seem like a positive development, it actually poses a significant challenge for Coinbase. He explained that Coinbase is essentially cannibalizing its most profitable business – spot Bitcoin trading – by becoming a custodian for these ETFs.

He highlighted that as a custodian, Coinbase would earn significantly lower fees (around five basis points) compared to the much higher fees (approximately 250 basis points) it currently charges for spot Bitcoin trading. This shift represents a move from a highly profitable business model to a less profitable one.

Dolev then touched upon the broader implications for the cryptocurrency market. He suggested that the launch of spot Bitcoin ETFs marks the beginning of a major shift in the pricing dynamics of Bitcoin trading. He predicted a significant compression in trading prices, a trend that he believes started on the day of the ETFs’ launch. This compression, he said, is a result of increased competition and alternatives in the market, reducing Coinbase’s ability to charge higher fees.

Discussing the trading costs of Bitcoin, Dolev pointed out that Coinbase had been able to charge high fees because it was one of the few reputable platforms for Bitcoin trading in the U.S. However, with the emergence of spot Bitcoin ETFs and other trading platforms, he anticipates that Coinbase will no longer be able to maintain these high fees.

Addressing the potential behavior of Bitcoin purists or long-term holders, Dolev noted that Coinbase only profits from active trading and that if users decide to hold their Bitcoin without trading, Coinbase does not generate revenue from these holdings. This scenario, according to Dolev, is likely to become more common, further impacting Coinbase’s profitability.

Finally, Dolev discussed the broader fintech landscape, contrasting Coinbase with other platforms like Robinhood. He suggested that platforms like Robinhood could benefit from the trading of these new spot Bitcoin ETFs. He believes this situation creates a dynamic where some platforms may benefit from the new ETFs while others, like Coinbase, might face challenges.

Featured Image via Coinbase