The recent launch of spot bitcoin ETFs in the United States has sparked a new competitive position among major cryptocurrency exchanges.  

In that race, Coinbase, the largest publicly traded cryptocurrency exchange under the ticker COIN, has emerged as a key player by becoming the custodian of choice for 8 of the 11 ETFs issued. 

The companies that chose Coinbase are Bitwise, Ark Invest, WisdomTree, Invesco, Valkyrie, BlackRock, Franklin Templeton and Grayscale. Only Fidelity, VanEck and Hashdex chose other custodians to safeguard their BTC.

This endorsement could change the current landscape of the ecosystem and raise the question: will Coinbase manage to surpass Binance as the largest bitcoin and cryptocurrency exchange?  Coinbase, by taking the lead as custodian of the majority of BTC spot ETFs, “can have a greater influence on market dynamics,” highlights analyst Mandela Amoussou.  

In his opinion, this would make the exchange a potential “key player in shaping industry standards and practices related to cryptocurrency custody.” 

Additionally, the specialist considers that Coinbase could have greater momentum due to its expansion in other countries where it meets regulatory requirements, such as Spain, Italy and France.  

“Coinbase's strong European presence presents an easy opportunity to take advantage of the Markets in Crypto Assets Act (MiCA),” notes Amoussou. This European Union regulation offers a common regulatory framework for the Bitcoin ecosystem that operates in the 27 countries that make up the regional bloc.

Based on this, Coinbase is emerging as the leading platform for cryptocurrency exchange in 2024, according to the analyst.  

For now, it is notable that Coinbase Prime, the platform in charge of the exchange's institutional investments, has gone from having income of hundreds of millions per month last year to billions in a few days in 2024. Without going any further, just in The last seven days, it has had inflows of $5.7 billion in bitcoin.

The inflows it registered in the last week exceed those of Binance, which was USD 4.2 billion, according to data from the analysis firm Arkham Intelligence provided by analyst Liam 'Akiba' Wright. This was driven by multiple deposits, as seen in the image below. 

In addition, it should be taken into account that Coinbase owns almost one million bitcoins of its users. This makes it the entity with the most holdings in the currency in the world, just after Satoshi Nakamoto, the pseudonym by which the creator of Bitcoin is known.

This is an example of what Coinbase has begun to encompass across the entire spectrum of trading and custody of large volumes of bitcoin. This exchange, unlike Binance which focuses on offering BTC and cryptocurrency trading to retailers, also targets institutional investors. 

Another factor that suggests greater relevance for Coinbase can be seen with the cumulative volume delta (CVD) indicator. This tracks the difference between buying and selling volumes over time, to measure bullish or bearish pressures in the market.  

According to a report from the analysis firm Kaiko, Coinbase's CVD remained positive after the launch of the ETFs on the US stock exchanges. That means that the exchange recorded capital inflows, amid the massive profit-taking that pushed the price of bitcoin back, as the following graph shows.

Instead, as the chart below shows, Binance's CVD dropped to negative levels when the ETFs came on the market, as well as other exchanges. This occurred because a “ sell the news ” scenario occurred. This concept refers to acquiring an asset before some expected positive event occurs and selling it to take profits when that event occurs, even if it is beneficial. 

Binance doesn't play in ETFs, but dominates market share

For now, Binance has not lost its power due to the threat of Coinbase and its prominence thanks to ETFs. According to data from explorer The Block, the market share of this exchange continues to be higher than that of the rest of the platforms, although it has experienced a drop of 62.2%, its all-time high almost a year ago, to 36.9%. This represents a decrease of almost half of the quota it managed, as seen below. 

Meanwhile, Coinbase's market share remained practically stable in the last twelve months, going from 6.9% to 6.6%, as seen in the graph. This percentage leaves it in fifth place after Upbit, which went from 9.2 to 8.8%, OKX from 4.8% to 7.9% and Bybit from 1.4% to 7.2%.  

If Binance continues to lose market share, it could be that these platforms grow further. In that sense, Coinbase not only competes with it, but also with the other platforms mentioned, which have similar shares. It will be necessary to see if its position as the main custodian of the new ETFs allows it to achieve a differential in this scenario by attracting more investors. 

Binance has lost market share due to lawsuits from regulators

Binance's significant loss of market share has come amid ongoing legal challenges. The company faces various lawsuits in the United States from regulatory authorities.

In late 2023, Changpeng Zhao, Binance's CEO until then, resigned from his position and pleaded guilty to criminal charges, agreeing to pay a fine of $4.3 billion. This addresses accusations of running a money transfer business without a license, failing to comply with anti-money laundering regulations and deceiving investors.  

These legal actions raise questions about the long-term stability of Binance, even though it is currently the world's leading cryptocurrency exchange. 

On the other hand, Coinbase is still facing problems with the SEC which accuses it of operating an illegal stock exchange and of not registering the offer and sale of his participation program as a cryptocurrency service.  

While Coinbase has its legal fights, for now it appears to have the ability to attract and retain institutional investors through ETFs, which could translate into a substantial increase in trading volume and liquidity on its platform. 

In conclusion, the impact of bitcoin ETFs not only redefines the competition between Coinbase and Binance, but also sheds light on the growing influence of exchanges on the global financial scene.