Should exchanges fear a Blackrock ETF?

Key Takeaways

• Blackrock is the biggest asset manager in the world and has filed for a spot Bitcoin ETF
• No guarantee it will be approved, and the SEC has rejected every spot ETF application to date
• Exchanges have been struggling mightily, with layoffs flooding the industry and lawsuits on the rise amid regulatory crackdown
• An approved ETF could pull even more volume from exchanges, writes our head of Research, Dan Ashmore
• Exchanges have seen a staggering outflow of capital over the last year amid crypto winter, and an ETF would provide a low-fee, convenient and easy way for institutions and individuals to gain Bitcoin price exposure

It has been a rough few months for crypto exchanges. 

Actually, it has been a rough year. Coinbase chopped 18% of its workforce last June, three months after spending around $14 million on a Superbowl ad. It then reduced its employee count by a further 20% this January. Kraken and Crypto.com cut 30% and 20% of their workforces respectively post-FTX. 

Even Binance, which said it was bucking the trend by hiring rather than downsizing, and planned to expand further in 2023, announced it was cutting an unspecified amount of its workforce last month. 

This follows a period of staggering decline in the industry which has seen capital flee the space. Coinbase provides a good barometer of the industry’s travails – its share price is down 86% from the price it went public at in April 2021. It has underperformed nearly every conceivable benchmark in the industry. 

And then there is the small matter of regulation. Lawmakers have come in hard on all things crypto in the US. The SEC sued Binance and Coinbase two weeks ago, while SEC chair Gary Gensler has slammed the sector for “mass non-compliance”. As I wrote last week, this is a very big deal. 

Blackrock files for Bitcoin ETF

Something else happened last week which is also a big deal – the world’s largest asset manager, Blackrock, filed for a spot Bitcoin ETF. Perhaps there has been no greater source of false hope in crypto over the years than the always-imminent arrival of the mythical Bitcoin ETF. Thus far, the SEC has batted away every filing. There is no guarantee the same fate won’t befall Blackrock. Still, on the other hand, this is Blackrock: the ten trillion dollar asset manager represents by far the most serious application yet. 

That latter point could be the biggest boon out of all this, should the ETF be approved (which again, is no guarantee). The crypto space has been fighting for legitimacy for years and has ceded ground in recent times as all sorts of scandals, from Terra founder Do Kwon to FTX founder Sam Bankman-Fried, have struck the space. 

With liquidity thinner than it has ever been, the Bitcoin price still 60% off its all-time high (I wrote recently about how the famed stock market-correlation has broken amid this regulatory clampdown, with Bitcoin struggling to keep up with rising asset prices elsewhere), and sentiment fearful across the space, the interest from institutions and trad-fi has evaporated from the hysteria of the bull market. A Blackrock ETF could help restore some of the reputational damage of the last couple of years. 

Exchanges could suffer off the back of an ETF

One interesting angle to all this, and to get back to the crux of this piece, is the knock-on effect for exchanges. Not many people are talking about this, but there is a chance that a Blackrock ETF, despite being a boon for the space, could have detri