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CME Spot Bitcoin Trading Could Threaten Coinbase ETF Dominance, COIN Drops 9.5%

Last Updated May 21, 2024 7:43 PM
James Morales
Last Updated May 21, 2024 7:43 PM
By James Morales
Verified by Peter Henn

Key Takeaways

  • The Chicago Mercantile Exchange (CME) is considering supporting spot Bitcoin trading.
  • If the CME lists Bitcoin, it could threaten Coinbase’s institutional business.
  • The cryptocurrency exchange counts various hedge funds, wealthy investors and Bitcoin ETFs among its institutional clients.
  • The news triggered a 9.5% drop in the price of COIN.

For more than a hundred years, the Chicago Mercantile Exchange (CME) has been one of the most important trading venues in the world for options and futures. But now the CME Group is considering adding Bitcoin to its lineup. 

The exchange already dominates the Bitcoin futures market, where it is currently responsible for more open interest than any cryptocurrency exchange. Its role in providing contracts to Exchange Traded Funds (ETF) since 2021 has helped the CME secure this lead. However, another exchange, Coinbase , clinched the dominant role in the related market for spot-based funds. But with Coinbase’s share price down 9.5% since Thursday, markets appear to have interpreted the CME news as a threat to its dominance.

Coinbase’s Pivot to Institutional Crypto

Coinbase’s most important role in the ETF market is as a custodian. Eight out of the 10 spot Bitcoin ETFs currently traded in the US use Coinbase for custody. The only exceptions are Fidelity’s FBTC and VanEck’s HODL.

But as well as custody, Coinbase also provides ETFs with exchange services, offering a venue for them to buy and sell BTC. 

In the provision of institutional cryptocurrency exchange services, Coinbase enjoys a healthy market share. Since doubling down on the institutional market, the company has emerged as a Wall Street favorite, even as its retail business has fallen behind its peers.

Financial reports show corporate service fees have grown as a portion of Coinbase revenues in recent years. Meanwhile, CEO Brian Armstrong has repeatedly emphasized the business’ strategic shift to the institutional market.

However, considering CME’s status as a fully regulated exchange with closer ties to traditional finance participants, its entry into the Bitcoin market could threaten Coinbase’s institutional business.

CME Bitcoin Threat Sees Coinbase Stock Slide More Than 9%

Since yesterday, Coinbase’s share price has dropped by as much as 9.5% on the news that the CME might start edging in on its turf.

For the first time since February, COIN has fallen below $200 a share as the company faces business challenges after what has otherwise been a strong first half.

To make matters worse, the platform suffered service issues on Wednesday and Thursday following a system-wide outage on Tuesday. Degraded service affected ETH and ADA, with users experiencing delays in receiving funds.

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