Despite all the gloom in crypto, it looks like Wall Street is finally jumping feet first into the pool.
In August we learned that the cryptocurrency exchange Coinbase global (PIECE OF MONEY -4.18%) was in partnership with the asset manager black rock (BLK -0.89%) on new crypto trading services for large institutional investors. And now we have a bunch of Wall Street giants — including Charles Schwab (SCW -0.98%)Citadel Securities and Fidelity Investments – are joining forces to launch a cryptocurrency exchange called EDX Markets (EDXM).
Clearly, there is a much more untapped demand for crypto products and services. After all, who is launching a brand new cryptocurrency exchange in the middle of a “crypto winter”? EDX Markets is expected to soft-launch in November before officially debuting in January. So what does all of this mean for Coinbase?
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The retail investor base
The potential impact on Coinbase’s retail investor base is most concerning. The exchange has been under tremendous pressure lately to increase its monthly active users (MAUs) to generate as much trading revenue as possible. So any erosion of its retail investor base, no matter how small, will be scrutinized by Wall Street analysts.
The involvement of Schwab and Fidelity in the new venture is certainly concerning, as tens of millions of customers of these companies will now likely be encouraged to use a crypto trading platform other than Coinbase.
The good news, if you are a Coinbase investor, is that EDXM will likely be limited in the number of cryptos it offers for trading. Unlike Coinbase, which offers around 150 coins to trade, EDXM will only offer a handful. EDX Markets is tight-lipped about what cryptos it will offer, saying only that it will definitely have Bitcoin (BTC 0.09%). And it’s safe to assume that EDXM probably won’t immediately offer extras to retail investors, like staking crypto for passive income, like you can get on Coinbase.
The institutional investor base
Where the new cryptocurrency exchange will likely hurt Coinbase the most is in terms of attracting new institutional investors. The August news about BlackRock looked so promising. Coinbase seemed to be on the verge of unlocking a huge new business opportunity, given that BlackRock has nearly $8 trillion in assets under management. The idea at the time was that other major asset managers would also register with Coinbase, which could be a huge new source of trading revenue.
If you look at the way EDXM is presented, it seems that it is aimed primarily at institutional investors. EDXM essentially sets up the same structure for the stock markets and carries it over to the crypto markets. Charles Schwab and Fidelity Investments will provide order flow; Citadel Securities and other market makers will execute trades and collect spreads. And all of this will be hosted in a giant data center in Secaucus, New Jersey.
There will even be opportunities for “co-location”, i.e. the ability for market participants to host their computers in the same facility as the exchange, thereby ensuring the fastest possible trade executions.
A positive vote for crypto
Launching a cryptocurrency exchange in the middle of a crypto winter should be seen as a huge vote of confidence in digital currency. There is clearly untapped demand from investors. In April, for example, Fidelity began offering crypto investment options to its 401(k) account holders, and earlier this month reports were circulating that Fidelity would be offering Bitcoin to its investor base of detail.
Crypto is entering a whole new era, in which it is an officially recognized trillion-dollar asset class. As a result, the biggest names on Wall Street are now interested in offering new products and services. Just two years ago, Wall Street executives were calling crypto speculative, risky, volatile, and just plain fishy. Now they’re talking about crypto as a potential way to save money for retirement or diversify a portfolio.
Should You Buy Coinbase?
It will be interesting to see how Coinbase handles this new threat. From what I can tell, news about EDXM will only be positive for Coinbase if it helps expand the pie for the crypto industry as a whole. If Charles Schwab and Fidelity Investments are willing to venture into crypto, it could make it much more attractive to potential investors still sitting on the fence, generating new demand for Coinbase.
For now, I’m taking a wait-and-see approach with Coinbase. I need to see real growth in metrics like customer acquisition and transaction volume before I commit any deeper. Coinbase must prove that it can continue to attract new customers and provide a deeper and richer product offering than its competitors.
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What does the launch of a Wall Street-backed crypto exchange mean for Coinbase? – Tech Tribune France
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