Concerns raised as Coinbase asserts dominance in Bitcoin ETF custody

Coinbase’s Dominance in Bitcoin ETFs Raises Concerns

Experts in the blockchain and ETF sectors are expressing concerns about Coinbase’s dominant position as the custodian for eight out of the 11 approved Bitcoin ETFs. The involvement of Coinbase goes beyond custody, as it also provides trading and lending services to major players like BlackRock. However, this concentration of responsibilities within one entity raises red flags.

SEC Worries About Risk Concentration

The Securities and Exchange Commission (SEC) has expressed reservations about the risk concentration created by Coinbase’s custody of all major ETFs. The SEC has accused Coinbase of operating an unregistered exchange and broker-dealer, leading to a legal confrontation. These concerns have sparked discussions about potential security risks.

Experts Voice Their Concerns

Blockchain security firm Halborn’s COO David Schwed argues that having a single entity like Coinbase handle all aspects of a trade’s lifecycle could be problematic. ETF consultancy Dabner Capital Partners’ principal Dave Abner is surprised that issuers are not required to use multiple custodians to mitigate risks. Both experts highlight the concentration risk posed by Coinbase’s dominance.

Coinbase Responds

Coinbase CFO Alesia Haas states that the company strives to mitigate conflicts of interest, emphasizing that its custody business is not implicated in the ongoing SEC case. However, Coinbase’s exclusive partnership with BlackRock and its lending service play crucial roles in the Bitcoin ETF mechanism.

Hot Take: The Risks of Coinbase’s Dominance

The high concentration of Bitcoin ETF custody and services within Coinbase raises concerns about potential risks and lack of diversification. While Coinbase plays a significant role in the cryptocurrency market, its dominance as a single entity handling multiple responsibilities poses challenges for the industry. It remains to be seen how regulators and market participants will address these concerns and ensure a more balanced and secure ecosystem.