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Cryptocurrency exchange Coinbase is slashing its fees in an effort to draw more high-volume traders and boost its underperforming institutional business.
The US group said on Thursday it would waive fees for 60 days for customers wanting to trade cryptocurrencies on its professional market, if they have traded more than $500,000 a month on a rival exchange. No-fee trading is typically only available to traders handling more than $250mn.
Coinbase’s attempt to kick-start its institutional business came only three weeks after US regulators approved the first bitcoin exchange traded funds, a move that was expected to help reshape trading in the sector over the long term. Crypto advocates hope the new funds will open the door for more asset managers to buy funds that invest directly in bitcoin.
“The biggest thing [crypto exchanges] are lacking is adoption, and the biggest reason institutions are coming in is the fact they can access bitcoin via an ETF,” said Christopher Perkins, president of crypto investment firm Coinfund and former head of OTC clearing at Citigroup. “Fees will come down as volumes come up and that’s just the natural maturity of markets, particularly spot markets,” he added.
Coinbase has been one of the beneficiaries from the ETF approvals because it is the main custodian for the bitcoin trusts that are buying the tokens for their funds.
However, analysts at Bank of America this month warned that the earnings from custodying assets could be “quite thin” as it faced pressure from Wall Street names like BlackRock and Fidelity. “These ETFs could also represent a form of competition for traditional crypto exchanges such as Coinbase,” it said.
Coinbase’s institutional business accounts for only 5 per cent of the Nasdaq-listed company’s revenues from transactions and dropped 30 per cent year-on-year in the third quarter to $14.1mn.
The company is also facing increased competition from offshore rivals such as OKX and Huobi. Coinbase’s share of the spot cryptocurrency market has been flat at 6 per cent since the start of 2023, while OKX’s has risen from 4 to 7 per cent and Huobi’s has quadrupled to almost 4 per cent.
Similar strategies have been adopted by Coinbase’s rivals in the past, including Binance. The world’s largest crypto exchange expanded a free trading programme in September 2022, helping it corner more than half of the spot market for cryptocurrencies.
It began to lose market share when the programme ended and the Commodity Futures Trading Commission charged it with evading federal laws.
“We know that fees are one of the most important factors when it comes to selecting and trading on a crypto exchange,” said Coinbase in a blog post.