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Bitcoin ETFs: A revolution that threatens crypto exchanges

Thu 07 Sep 2023 ▪ 4 min of reading ▪ by Luc Jose A.
Getting informed Trading

For the past few months, Bitcoin ETFs have been among the most closely followed news items on the crypto market. The reason for this is their potential role in the explosion of asset prices, starting with bitcoin. Indeed, the eventual arrival of a Bitcoin ETF on the market is seen as good news. But it seems, according to some experts, that it could thwart the ambitions of crypto exchanges. Here’s why.

Une pièce physique de bitcoin suivie de l'inscription "ETF"

In brief:

  • The imminent approval of a Bitcoin ETF could boost bitcoin’s value, but pose challenges for crypto exchanges.
  • According to expert Eric Balchunas, Bitcoin ETFs could offer a more profitable option than exchanges, and could therefore affect their competitiveness.
  • Reactions have been mixed on social networks, with some users arguing that decentralized exchanges will always have their place in the market.

Approval of a Bitcoin ETF would affect crypto exchanges

Since Grayscale won its case against the SEC, the prospect of approval for a Bitcoin ETF seems to be drawing closer. And the least we can say is that the crypto community is eagerly anticipating it.

Indeed, according to several experts, the approval of a Bitcoin ETF would give a boost to bitcoin’s valuation. A dynamic that should have a positive impact on the crypto market, driven by institutional investors’ increased enthusiasm for bitcoin.

Naturally, crypto exchange platforms such as Coinbase and Binance are intent on capitalizing on this widespread revival of interest. But here’s the thing: things might not turn out quite the way they imagine.

According to Eric Balchunas, the approval of a Bitcoin exchange-traded fund (ETF) would not be good news for crypto exchanges. These, or at least the larger ones, would suffer significant repercussions if such a procedure were to prosper.

The reason is that buying ETFs could become a more profitable option for users. At the very least, this means that exchanges, which are currently essential for crypto trading, could become options.

Eric Balchunas’ analysis is that, in this context, there is a risk that crypto exchange platforms will lose their competitive edge. This is because traditional methods of buying cryptos could be replaced by those of the Bitcoin ETF on the stock markets.

The threat is made all the more certain by the fact that exchanges still practice unsuitable fee structures. A situation that could positively change in the event of the potential approval of a Bitcoin ETF.

“Within 3 to 4 years, you’ll be able to buy affordable, liquid Bitcoin ETFs, and that will be a game-changer,” said the expert. This, he added, is why we’re warning crypto exchanges that this is a threat to their business. Coinbase and other exchanges are charging significant fees per transaction”.

Eric Balchunas sees Bitcoin ETFs as a threat to crypto exchanges

A perspective that stirs reactions

On X (formerly Twitter), Eric Balchunas’ analysis has not left users indifferent. It prompted reactions from a number of them, some of whom obviously don’t share the expert’s opinion.

“I don’t agree; there will always be a place for decentralized exchanges. Of course, the results could be affected, but it’s for a different audience with a different level of risk,” said one X user.

Nevertheless, Eric Balchunas is confident that a Bitcoin ETF will be approved in the coming weeks. If so, everyone will be able to witness the relevance or otherwise of the analysis now being issued.

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Luc Jose A. avatar
Luc Jose A.

Graduated from Sciences Po Toulouse and holder of a blockchain consultant certification issued by Alyra, I joined the Cointribune adventure in 2019. Convinced of the potential of blockchain to transform many sectors of the economy, I committed to raising awareness and informing the general public about this ever-evolving ecosystem. My goal is to enable everyone to better understand blockchain and seize the opportunities it offers. Every day, I strive to provide an objective analysis of the news, decipher market trends, relay the latest technological innovations, and put the economic and societal issues of this ongoing revolution into perspective.


The views, thoughts, and opinions expressed in this article belong solely to the author, and should not be taken as investment advice. Do your own research before taking any investment decisions.