On May 13, S&P Dow Jones Indices announced that Coinbase would officially replace Discover Financial Services in the S&P 500 index on May 19. Although there were previously companies strongly correlated with Bitcoin, such as Block and MicroStrategy, in the S&P 500, Coinbase is the first exchange whose main business is cryptocurrency to join this index, which also signifies that cryptocurrency is gradually moving from the fringes of the industry to 'the table' for enjoying food in the U.S.
On the day the statement was announced, Coinbase's stock price surged 23%, breaking the $250 mark. However, just three days later, Coinbase was hit by news of hackers bribing its employees to steal customer data and demanding a ransom of $20 million. Additionally, the U.S. Securities and Exchange Commission (SEC) is investigating the authenticity of the data claiming over 100 million 'verified users' in its securities filings and promotional materials from its 2021 IPO. These two incidents acted like mini-bombs, and as of the time of writing, Coinbase's stock has already dropped over 7.3%.
Coincidentally, Discover Financial Services, which is being replaced by Coinbase, can also be considered the 'Coinbase' of the previous payment era. Discover is a digital bank and payment service company headquartered in Illinois, USA, founded in 1960. Its payment network, Discover Network, is the fourth largest payment network after Visa, Mastercard, and American Express.
In April, after the sixth largest bank in the U.S., Capital One, was approved to acquire Discover, this veteran digital banking company, which has been established for over 60 years, successfully handed over its Standard & Poor's 500 'seat' to this emerging cryptocurrency 'bank'. This unexpected coincidence also allowed Coinbase to enter the S&P 500, creating a visual sense of a handover between the old and new eras. However, this baton pass has also brought Coinbase's accumulated 'external troubles and internal problems' to a critical point of explosion.
The side effects of ETFs
Over the past decade, cryptocurrency trading platforms have been the most stable 'profit machines'. They play the role of providing liquidity for the entire industry and rely on transaction fees to maintain their operations. However, with the comprehensive rollout of ETF products in the U.S. market, this profit model is facing unprecedented shocks. As the leading 'American exchange', Coinbase is most affected, with more than 80% of its business coming from the U.S.
Since the approval of Bitcoin and Ethereum spot ETFs, traditional financial capital has massively taken over users and funds that originally belonged to exchanges in a more cost-effective, compliant, and transparent way. The trading fee income of cryptocurrency trading platforms has begun to decline, and this trend may further intensify in the coming months.
According to Coinbase's Q4 2024 financial report, the platform's total trading revenue was $417 million, a 45% year-over-year decrease. Among them, the revenue contribution from BTC and ETH trading dropped from 65% in the same period last year to less than 50%.
This is not the result of declining market enthusiasm. In fact, since the U.S. approval of the Bitcoin ETF in January 2024, the inflow of BTC into the U.S. market has continued to hit new highs, with the asset management scale of funds such as BlackRock and Fidelity rapidly expanding. Data shows that the management scale of BlackRock's iShares Bitcoin ETF (IBIT) has already surpassed $17 billion. As of mid-May 2025, the cumulative net inflow of 11 major institutional Bitcoin spot ETFs on the market has exceeded $41.5 billion, with a total net asset value reaching $121.469 billion, accounting for about 5.91% of Bitcoin's total market value.
In the chart, among 11 institutions, only Grayscale shows a trend of net outflow.
Institutional investors and some retail investors are beginning to shift towards ETF products, partly due to compliance and tax considerations. On the other hand, the trading costs of ETFs are far lower than those of cryptocurrency trading platforms. Coinbase's spot trading fee rates change in a tiered manner but average around 1.49%, while the management fee for IBIT ETF is only 0.25%, and most ETF institutional fees float around 0.15% to 0.25%.
In other words, the more rational the users are, the more likely they are to flow from exchanges to ETF products, especially for investors aiming for long-term holdings.
According to multiple sources, several institutions, including VanEck and Grayscale, have submitted applications for Solana (SOL) ETFs to the SEC, while some institutions also have plans to submit XRP ETF applications. Once approved, this could trigger a new wave of capital migration. According to a report submitted by Coinbase to the SEC, as of April, trading revenue from XRP and Solana accounted for 18% and 10%, respectively, nearly one-third of the platform's fee income.
The Bitcoin and Ethereum ETFs approved in 2024 have also reduced the transaction fees for these two tokens on Coinbase from 30% and 15% to 26% and 10% respectively. If ETF approvals for SOL and XRP are granted, it will further weaken the core fee income sources for trading platforms like Coinbase.
The expansion of ETF products is gradually weakening the financial intermediary status of cryptocurrency trading platforms. From the initial roles of matchmaker and clearinghouse, they are now gradually being reduced to 'entry points for capital in and out', and the marginal value of exchanges is being squeezed by ETFs.
Robinhood is making bold moves, and traditional brokers are also coming to snatch the pie.
On May 12, 2025, SEC Chairman Paul S. Atkins delivered a keynote speech at the Tokenized Cryptocurrency Working Group roundtable discussion. The entire speech revolved around one theme: 'It is a new day at the SEC.' He stated that the SEC would not take enforcement regulatory forms as before, but would pave the way for cryptocurrency assets in the U.S. market.
With the SEC's 'NEW DAY' declaration and other signs of cryptocurrency compliance, more and more traditional brokers are trying to enter the cryptocurrency industry. The well-known U.S. securities market Robinhood is one of the most representative cases, having expanded its cryptocurrency business since 2018. By the time of its IPO in 2021, Robinhood's cryptocurrency business revenue accounted for more than 50% of the company's total revenue, largely relying on Elon Musk's promotion of Dogecoin to gain fame.
Robinhood's Q1 2025 financial report showed strong growth momentum, especially in cryptocurrency and options trading revenue, which significantly increased, possibly benefiting from Trump's Memecoin. The revenue from cryptocurrency reached $250 million, a nearly 100% year-over-year increase. As a result, Robinhood Gold subscription users also reached 3.5 million, a 90% year-over-year increase, and the rapid growth of Robinhood Gold has brought stable revenue sources to the company.
At the same time, Robinhood is also actively acquiring assets in the cryptocurrency field. In 2024, it announced that it would acquire the European veteran cryptocurrency trading platform Bitstamp for $200 million. Additionally, Canada's largest cryptocurrency CEX, WonderFi, which went public on the Toronto Stock Exchange a few days ago, also announced its joining of Robinhood Crypto. After obtaining virtual asset licenses in markets such as the UK, Canada, and Singapore, Robinhood has already gained an advantage in compliant cryptocurrency trading.
At the same time, more and more securities companies are trying the same path. Futu Securities, Tiger Brokers, and others are also testing the waters in cryptocurrency trading, with some having applied for or obtained the Hong Kong SFC's VA license. Although the current user base is relatively small, traditional brokers have natural advantages in user trust, compliance licenses, and low fee structures, which could become a new threat to native cryptocurrency platforms.
User information has been stolen, is Coinbase still safe?
In April 2025, security researchers discovered that some user data from Coinbase had leaked on the dark web. Although the platform responded immediately, calling it 'technical miscommunication', it still raised user concerns about its security and privacy protection. Just two days before S&P Dow Jones Indices announced Coinbase's inclusion in the S&P 500 index, on May 11, 2025, Coinbase received an email from an unknown threat actor claiming to have customer account information and internal documents, demanding a ransom of $20 million to avoid public disclosure of the data. Coinbase subsequently confirmed the data leak during its investigation.
Cybercriminals bribe overseas customer service agents and support staff 'mainly in regions outside of the U.S.' to obtain data. These agents abuse their access to Coinbase's internal customer support system to steal customer data. As early as February of this year, blockchain detective ZachXBT disclosed on platform X that from December 2024 to January 2025, Coinbase users lost over $65 million due to social engineering scams, and the actual amount could be even higher.
Among them are some well-known individuals, such as 67-year-old Ed Suman, a renowned artist who has been involved in the art world for nearly twenty years and has participated in the production of artworks such as Jeff Koons' (Balloon Dog) sculptures. Earlier this year, he fell victim to a fake Coinbase customer service scam, losing over $2 million in cryptocurrency. ZachXBT criticized Coinbase for failing to properly handle such scams, pointing out that other major trading platforms do not have similar issues, and suggested that Coinbase strengthen its security measures.
The continuous occurrence of social engineering incidents has not yet affected user assets at the technical level, but it has raised concerns among many retail and institutional investors, especially institutions that hold large amounts of assets on Coinbase. Just counting U.S. BTC ETF institutions, as of mid-May 2025, there were nearly 840,000 BTC held, of which 75% were custodied by Coinbase. If we value BTC at $100,000, this amount reaches an astonishing $63 billion, equivalent to the nominal GDP of two Iceland's in 2024.
Chart created by: ChatGPT, data source: Farside
In addition, Coinbase Custody serves over 300 institutional clients, including hedge funds, family offices, pension funds, and charitable foundations. As of the Q1 2025 financial report, Coinbase managed total assets (including institutional and retail clients) amounting to $404 billion, although the specific amount of institutional custodial assets was not clearly disclosed in the latest report, it should still exceed 50% according to the Q4 2024 report.
Chart created by: ChatGPT
Once the barrier of security is breached, not only is the rate of user loss likely to exceed expectations, but more importantly, the trust of institutions in it will destroy the foundation of the company. Therefore, after the hacking incident occurred, Coinbase's stock price plummeted.
CEXs are all looking for self-rescue.
Faced with declining spot fee income, Coinbase is also accelerating its transformation, trying to find growth opportunities in derivatives and emerging assets. Coinbase acquired a stake in the options platform Deribit at the end of 2024 and announced that it would officially launch perpetual contract products in 2025. This acquisition filled Coinbase's weakness in options trading and a relatively small global market share.
Deribit has a strong influence in non-U.S. markets (especially Asia and Europe), and the acquisition gives it a dominant position in Bitcoin and Ethereum options trading, accounting for about 80% of global options trading volume, with a daily trading volume exceeding $2 billion.
At the same time, 80-90% of Deribit's client base consists of institutional investors, and its professionalism and liquidity in the Bitcoin and Ethereum options markets are highly favored by institutions. The compliance advantages of Coinbase, combined with its already well-established institutional ecosystem, make it more adaptable, allowing it to face pressure from giants like Binance and OKX in the derivatives market.
Kraken is also facing the same dilemma; it is attempting to replicate the Binance Futures model in non-U.S. markets. Because the derivatives market relies more on professional users, the fee rates are relatively higher and more sticky, making it an important profit source for exchanges. In the first half of 2025, Kraken completed the acquisition of TradeStation Crypto and a futures exchange, intending to build a complete derivatives trading ecosystem to hedge against the risk of declining spot fee income.
With the rise of the Memecoin craze in 2024, Binance, OKX, and other CEX platforms began to massively list smaller market-cap and more volatile tokens to activate active trading users. Due to the wealth effect and trading activity of Memecoins, Coinbase is also forced to join the battle, continuously listing popular tokens from the Solana ecosystem such as BOOK OF MEME and Dogwifhat. Although these tokens are controversial, they are frequently traded, and their fee rates are several times higher than mainstream tokens, representing a way to 'boost' spot trading.
However, due to its status as a publicly listed company, this approach poses even greater risks for Coinbase. Even in the currently crypto-friendly environment, the SEC is still investigating whether tokens like SOL, ADA, and SAND are considered securities.
In addition to the forced transformation strategies mentioned above, CEXs have also begun to lay out RWA and the most discussed stablecoin payment fields, such as the PYUSD launched by Coinbase in cooperation with Paypal, and Coinbase's support for Circle's euro stablecoin EURC, which complies with EU MiCA regulatory requirements. In the increasingly crowded trading field, many CEXs have shifted their focus from purely trading markets to application fields.
The golden era of trading fees has quietly ended, and the second half of cryptocurrency trading platforms has quietly begun.