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Wall Street’s Crypto Caution Risks Coinbase Gaining ‘Unassailable’ Position

Last Updated March 4, 2021 3:55 PM
Josiah Wilmoth
Last Updated March 4, 2021 3:55 PM

Cryptocurrency trading revenue is primed to explode within the near future, and Wall Street is running out of time if it hopes to stop industry giant Coinbase from gaining an indomitable market position.

Writing in a new report titled “Crypto Trading — the Next Big Thing is Here?,” analysts at market research firm Sanford C. Bernstein & Co. forecast that cryptocurrency trading revenue — the fees that exchanges charge for each trade — could soar to $4 billion in 2018, despite the fact that gross trading volume has declined in recent months along with cryptocurrency prices. Bernstein’s research was first reported by Bloomberg .

If trading revenue does hit $4 billion, it will represent an increase of more than 120 percent from 2017. The firm estimates that exchanges brought in a combined $1.8 billion in trading fees last year, which works out to about eight percent of the fees generated on traditional stock exchanges.

All of this, Bernstein analysts led by Christian Bolu wrote, presents Wall Street with a tremendous opportunity to profit from a rapidly-maturing asset class.

“As the crypto-asset class seasons and institutional demand builds, there are a plethora of opportunities for traditional firms,” the analysts wrote, ranging from market-marking to regulated custody of cryptoassets. Indeed, industry observers regularly point to the dearth of regulated custodians as one reason that more institutional investors have not taken a more active interest in cryptoassets.

A few firms, most notably Intercontinental Exchange (ICE), the owner of the New York Stock Exchange (NYSE), have begun taking concrete steps to establish themselves as leaders in the cryptocurrency marketplace. However, by and large, Wall Street has remained hesitant to jump feet-first into cryptocurrency.

Wall Street firms pursue this cautious course at its own peril, the Bernstein analysts warned, because the window in which they have the opportunity to wrest a dominant market position away from current cryptocurrency giants is rapidly closing.

If they don’t move quickly, Coinbase — who Bernstein estimates rakes in approximately 50 percent of all trading revenue between its brokerage and professional exchange platforms and now boasts twice as many users as Schwab — could achieve an “unassailable competitive position” that even the largest players on Wall Street will not be able to overcome.

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