On May 13, SP Dow Jones Indices announced that Coinbase will officially replace Discover Financial Services and join the U.S. Standard Poor’s 500 Index “SP 500” on May 19. Although companies with strong correlation with Bitcoin, such as Block and MicroStrategy, were previously included in the SP 500 index, Coinbase is the first exchange whose main business is cryptocurrency to join the index. This also means that cryptocurrency is gradually being able to serve the table and enjoy delicacy in the United States from a marginal industry.
On the day the statement was released, Coinbases stock price soared 23%, breaking through the $250 mark. Then just three days later, Coinbase was hit by hackers bribing its employees to steal customer data and demanding a $20 million ransom. The U.S. Securities and Exchange Commission (SEC) also investigated the authenticity of the data it claimed to have more than 100 million certified users in securities filings and promotional materials when it went public in 2021. These two incidents are like miniature bombs. As of the time of writing, Coinbases stock has fallen by more than 7.3%.
Coincidentally, Discover Financial Services, which was replaced by Coinbase, can also be called the Coinbase of the last payment era. Discover is a digital bank and payment service company headquartered in Illinois, USA, founded in 1960. Its payment network Discover Network is also the fourth largest payment network after Visa, Mastercard and American Express.
In April, after Capital One, the sixth largest bank in the United States, was approved to acquire Discover, this 60-year-old digital banking company successfully handed over its seat in the SP 500 to this emerging cryptocurrency bank. This unexpected coincidence also made Coinbases entry into the SP 500 feel like a handover between the old and new eras. But this baton also brought Coinbases accumulated external and internal troubles to a critical point of outbreak.
Side effects of ETFs
In the past decade, crypto trading platforms have been the most stable profit machines. They provide liquidity for the entire industry and rely on matching fees to maintain business operations. However, with the full launch of ETF products in the US market, this profit model is facing an unprecedented impact. As the leader of US exchanges, Coinbase has more than 80% of its business in the United States and is the most affected.
Since the approval of Bitcoin and Ethereum spot ETFs, traditional financial capital has taken over a large number of users and funds that originally belonged to exchanges in a lower-cost, compliant and transparent manner. The transaction fee income of crypto trading platforms has begun to decline, and this trend may further intensify in the coming months.
According to the Q4 2024 financial report released by Coinbase, the platforms total transaction revenue was US$417 million, a year-on-year decrease of 45%. Among them, the transaction revenue contribution of BTC and ETH dropped from 65% in the same period last year to less than 50%.
This is not the result of a decline in market enthusiasm. In fact, since the approval of the Bitcoin ETF in January 2024, the scale of BTC inflows in the US market has continued to hit new highs, and the asset management scale of funds such as BlackRock and Fidelity has expanded rapidly. Data shows that the management scale of BlackRocks iShares Bitcoin ETF (IBIT) alone has exceeded US$17 billion. As of mid-May 2025, the cumulative net inflows of 11 major institutional Bitcoin spot ETFs on the market have exceeded US$41.5 billion, and the total net asset value has reached US$121.469 billion, accounting for about 5.91% of the total market value of Bitcoin.
Among the 11 institutions in the chart, only Grayscale has a growing trend of net outflow
Institutional investors and some retail investors have begun to turn to ETF products. On the one hand, it is due to compliance and tax considerations. On the other hand, the transaction costs of ETFs are much lower than those of crypto trading platforms. The Coinbase spot transaction fee rate varies in a step-by-step manner but averages about 1.49%. Taking the IBIT ETF as an example, its management fee is only 0.25%, while most ETF institutional fees fluctuate 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 who aim to hold positions for the long term.
According to information from multiple sources, several institutions including VanEck and Grayscale have submitted applications for Solana (SOL) ETF to the SEC, and some institutions also have plans to submit XRP ETF. Once approved, it may trigger a new round of fund migration. According to the report submitted by Coinbase to the SEC , as of April, XRP and Solanas transaction revenue accounted for 18% and 10% of Coinbases platform transaction revenue respectively, almost accounting for 1/3 of the platforms fee income.
The Bitcoin and Ethereum ETFs approved in 2024 also reduced the transaction fees of these two tokens on Coinbase from 30% and 15% to 26% and 10%, respectively. If the SOL and XRP ETFs are approved, it will further weaken the core fee income source of trading platforms such as Coinbase.
The expansion of ETF products is gradually weakening the financial intermediary status of crypto trading platforms. From the initial role of matchmaker and liquidator to the current gradual decline to a gateway for inflow and outflow of funds, the marginal value of exchanges is being squeezed by ETFs.
Robinhood is making a big splash, and traditional brokerage firms are also trying to take over
On May 12, 2025, Paul S. Atkins, Chairman of the SEC, delivered a keynote speech at the Tokenized Crypto Working Group Roundtable. The entire speech revolved around the theme It is a new day at the SEC. He said that the SEC would not take the form of law enforcement supervision as before, but would pave the way for crypto assets in the US market.
With the SECs NEW DAY declaration and other signs of cryptocurrency compliance, more and more traditional brokerages are trying to enter the cryptocurrency industry. The well-known U.S. securities market Robinhood is the most representative case, and has been expanding its crypto business since 2018. By the time it went public in 2021, Robinhoods crypto business revenue accounted for more than 50% of the company, and it relied on the Dogecoin promoted by Musk to become famous.
Robinhood s financial report for Q1 2025 showed strong growth momentum, especially in cryptocurrency and options trading, which may benefit from Trumps Memecoin. Cryptocurrency-related revenue reached $250 million, a year-on-year increase of nearly 100%. As a result, Robinhood Gold subscribers also reached 3.5 million, a year-on-year increase of 90%. The rapid growth of Robinhood Gold also brought a stable source of income to the company.
RobinHood is also actively acquiring crypto assets. In 2024, it announced that it would acquire the European veteran crypto trading platform Bitstamp for US$200 million. A few days ago, Canadas largest cryptocurrency CEX WonderFi, which was listed on the Toronto Stock Exchange, also announced that it would join RobinHood Crypto. After obtaining virtual asset licenses in the UK, Canada, Singapore and other markets, RobinHood has seized the initiative in the market for compliant cryptocurrency transactions.
At the same time, more and more securities companies are trying the same path. Futu Securities, Tiger Securities, etc. are also testing crypto trading, and some have applied for or obtained VA licenses from the Hong Kong SFC. Although the number of users is relatively small at present, traditional securities firms have natural advantages in user trust, compliance licenses and low fee structures, which may become the next threat to native crypto platforms.
User information stolen, is Coinbase still safe?
In April 2025, a security researcher discovered that some of Coinbases user data was leaked on the dark web. Although the platform responded immediately as a technical misunderstanding, it still caused users to worry about its security and privacy protection. Just two days before Dow Jones Indices announced that Coinbase would join the SP 500 index, on May 11, 2025, Coinbase received an email from an unknown threat actor, claiming to have customer account information and internal documents, and demanding a ransom of $20 million to keep the data private. Coinbase confirmed the data leak in a subsequent investigation.
Cybercriminals obtained data by bribing overseas customer service agents and support staff mainly in non-US regions such as India. These agents abused their access to Coinbases internal customer support system to steal customer data. As early as February of this year, chain detective ZachXBT disclosed on the X platform that between December 2024 and January 2025, Coinbase users lost more than $65 million due to social engineering scams, and the actual amount may be higher.
Among them are some well-known figures. Ed Suman, 67, a well-known artist who has been working in the art world for nearly 20 years and has participated in the production of artworks such as Jeff Koons Balloon Dog sculpture, was scammed by a fake Coinbase customer service earlier this year and lost more than $2 million in cryptocurrency. ZachXBT criticized Coinbase for failing to properly handle such scams, pointing out that other large trading platforms have no similar problems, and suggested that Coinbase strengthen security measures.
Although the continuous social engineering incidents have not yet affected user assets at the technical level, they have also caused many retail investors and institutions to worry about this. Especially institutions that store huge amounts of assets on Coinbase. Calculating only the US BTC ETF institutions, as of mid-May 2025, there are nearly 840,000 BTC in total, and 75% of them are hosted by Coinbase. If BTC is priced at $100,000, this amount reaches a staggering $63 billion, which is equivalent to the nominal GDP of two Icelands in 2024.
Image by ChatGPT, source: Farside
In addition, Coinbase Custody also serves more than 300 institutional clients, including hedge funds, family offices, pension funds, and endowment funds. As of Q1 2025, the financial report shows that the total assets managed by Coinbase (including institutional and retail clients) reached US$404 billion. The specific amount of institutional custody assets was not clearly disclosed in the latest report, but according to the Q4 2024 report, it should still exceed 50%.
Graph creation: ChatGPT
Once the security barriers are breached, not only will the loss of users be much faster than expected, but more importantly, the trust of institutions will destroy the foundation of the company. Therefore, after the hacking incident, Coinbases stock price plummeted.
CEXs are all saving themselves
Faced with the decline in spot fee income, Coinbase is also accelerating its transformation, trying to find growth space from derivatives and emerging assets. Coinbase acquired part of the shares of options platform Deribit at the end of 2024, and announced that it will officially launch perpetual contract products in 2025. Its acquisition fills Coinbases weakness in options trading and small global market share.
Deribit has a strong influence in non-US markets (especially Asia and Europe), and the acquisition enables it to gain Deribits dominant position in Bitcoin and Ethereum options trading, accounting for approximately 80% of global options trading volume, with daily trading volume maintained at more than US$2 billion.
At the same time, 80-90% of Deribits customer base are institutional investors. Its professionalism and liquidity in the Bitcoin and Ethereum options markets are highly favored by institutions. Coinbases compliance advantages and the already perfect institutional ecosystem make it more adaptable. Using institutions as an entry point allows it to face the squeeze of giants such as Binance and OKX in the derivatives market.
Kraken is also facing the same dilemma. Kraken is trying to replicate the Binance Futures model in non-US markets. Since the derivatives market is more dependent on professional users, the handling fee rate is relatively higher and stickier, which is an important source of profit 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 the risk of declining spot handling fee income.
As the Memecoin craze surged in 2024, Binance, OKX and a number of CEX platforms began to launch tokens with smaller market capitalization and higher volatility on a large scale to activate active trading users. Due to the wealth benefits and trading activity of Memecoins, Coinbase was also forced to join the battle and successively launched popular Solana ecosystem tokens such as BOOK OF MEME and Dogwifhat. Although these currencies are controversial, they are frequently traded and the handling fee rate is several times higher than that of mainstream currencies. It is a blood-replenishing method for spot trading.
However, due to its status as a listed company, this approach is a more risky approach for Coinbase. Even in the current cryptocurrency-friendly environment, the SEC is still investigating whether tokens such as SOL, ADA, and SAND are securities.
In addition to the forced transformation strategies of CEXs mentioned above, CEXs have also begun to deploy RWA, as well as the most mentioned areas such as stablecoin payments, such as PYUSD launched by Coinbase and Paypal, Coinbase supports Circles Euro stablecoin EURC that complies with the EU MiCA regulatory requirements, or Binance and WIFLs USD 1. In the current market where the trading field is becoming increasingly crowded, many CEXs have shifted their focus from the pure trading market to the application field.
The golden age of transaction fees has quietly ended, and the second half of the crypto trading platform has quietly begun.
