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BlackRock’s aim to make crypto cheaper should scare Coinbase

  • BlackRock wants the SEC to see its Bitcoin ETF as a way to make crypto cheaper.
  • The comments come as Coinbase, the biggest US crypto exchange, is slammed for its fees.
  • Coinbase charges as much as 3% or more for trades, while ETF transactions can be as low as 0.01%.

Larry Fink has a message for Gary Gensler: BlackRock’s application for a spot Bitcoin ETF is “a way to democratise crypto and make it cheaper.”

And that could be a big problem for Coinbase.

Sky-high fees

Fink, the CEO of the world’s biggest asset management firm, went on Fox Business this week and conveyed how its approach to crypto would be consumer-friendly.

Coinbase, the top US crypto exchange, has long taken fire for charging retail investors transaction fees as high as 3%, which are astronomical compared to the bargains in exchange-traded funds, or ETFs.

“A bitcoin ETF would cost 0.01% to trade, and this goes for anyone regardless of size, on all major exchanges,” Eric Balchunas, Bloomberg Intelligence ETF analyst, wrote on Twitter. “Compare that to any crypto exchange, and you can see the potential here.”

As it happens, BlackRock’s iShares division is the top ETF provider worldwide. And the US Securities and Exchange Commission, which has taken a hard line on digital assets under Gensler, is considering applications for Bitcoin ETFs from TradFi giants.

NOW READ: Short seller Jim Chanos says Coinbase ‘will still lose money’ even as crypto prices soar

Short seller Jim Chanos told DL News earlier this year that his Kynikos hedge fund is shorting Coinbase stock because of its fee structure.

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“COIN is charging its retail customers unsustainably high fees/commissions, but is still losing money,” he said in April. Chanos calculated that Coinbase charged about 3.3% “per round-trip trade” for retail customers in the first quarter.

Coinbase’s press representatives did not respond to requests for comment.

Fierce competition

Investment bank trading fees are typically counted by basis points, meaning even 1% is relatively high, Balchunas noted.

And that was before the mounting threat of fierce competition from such massive and deep-pocketed rivals. Bitcoin ETF hopefuls unleashed an flurry of filings to the SEC this month after BlackRock’s application lifted sentiment and sent Bitcoin soaring.

‘COIN is charging its retail customers unsustainably high fees/commissions, but is still losing money.’

—  Jim Chanos

The $9 trillion fund giant joins Fidelity, Ark Invest, and Valkyrie in its aims to expand its crypto offerings to customers in the form of an exchange-traded fund in the so-called spot market — meaning instant pricing markets that exclude derivatives.

Coinbase enjoys a massive market share in US crypto trading — it handles over 60% of Bitcoin trading in the US. The exchange’s market share is falling, according to CCData, which found that it fell by almost 0.5% last month.

NOW READ: Silvergate short seller says he’s betting against Signature: ‘Binance is next’

Chanos said his calculations are based on Coinbase’s retail transaction revenue of $352 million on $21 billion of retail volume in the three month period ending in March.

“That’s a 1.67% rate on average, per retail transaction. Round-trip is 2x that,” he said. Round trip refers to a customer purchasing an asset, then selling it for the expected return.

Soaring stock

Chanos, who shot to fame decades ago after sounding the alarm about fraud at Enron, told DL News that he’s been short Coinbase since the first quarter of 2022, when the stock was as high as $250. The shares are trading at about $78 now.

Crypto prices were soaring at the time, he noted — they have soared even higher in the months since. He said then: “They will still lose money! If not now, when?”

The crypto exchange posted a net loss of $2.6 billion in 2022.

NOW READ: Crypto exchange guardrails are coming whether Gary Gensler wins his crusade or not

Meanwhile, traditional finance firms have been seeking opportunities in the crypto industry, lured by choppy, inefficient markets and relatively wide spreads in prices.

Many retail investors are “investing in BTC anyways through all kinds of expensive and suboptimal ways,” tweeted Nate Geraci, president of investment advisor the ETF Store and a co-founder of the certification firm The ETF Institute.

Cheaper option

An ETF “can be much cheaper and more efficient option.”

Balchunas said: “The big irony in all this is most crypto people see the ETF as Boomer mainstream TradFi, when in fact, the ETF is the real disrupter and dis-intermediator.”

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