Coinbase Is Dominating a Key Bitcoin ETF Service. Can Anyone Else Join the Race?

The
race
to
provide
a
key
bit
of
infrastructure
for
bitcoin

(BTC)
ETFs
–
custody
services
–
hasn’t
actually
been
much
of
a
race
so
far.
Crypto
exchange
Coinbase
(COIN)
has
dominated
so
far,
winning
the
job
from
nearly
every
firm
that
wants
to
list
an
ETF,
including
BlackRock,
Franklin
Templeton
and
WisdomTree.

That’s
left
a
giant
player
in
the
space,
BitGo,
on
the
sidelines
–
an
eye-catching
omission.

Only
one
company
that
wants
to
create
a
bitoin
ETF
in
the
U.S.,
Hashdex,
has
yet
to
pick
a
custody
partner.
BitGo
CEO
Mike
Belshe
confirmed
in
an
interview
with
CoinDesk
that
his
company
is
working
with
“many”
of
the
applicants,
opening
the
possibility
–
albeit
a
slim
one
now
–
BitGo
might
show
up
yet.

“I
think
Coinbase
is
the
obvious
solution
on
the
custodian
side
and
it
makes
sense
that
they’re
the
most
common,”
Bloomberg
Intelligence
ETF
analyst
James
Seyffart
said.
“But
there
are
some
others,”
he
added.

Seyffart
said
he
wouldn’t
be
surprised
to
see
BitGo
appear
on
someone’s
bitcoin
ETF
application
eventually.
Crypto
exchange
Gemini

recently
became
the
first
third-party
custody
partner
on
an
application,
appearing
in
VanEck’s.

Custody
is
an
important
part
of
the
effort
to
bring
a
spot
bitcoin
ETF
to
the
U.S.
market.
Custodians
hold
onto
assets
on
behalf
of
someone
else.
In
this
case,
that
means
safekeeping
the
(presumably
billions
of
dollars
worth
of)
bitcoin
that
ETFs
will
own,
keeping
hackers
and
any
other
bad
actors
at
bay.

Coinbase,
run
by
CEO
Brian
Armstrong,
currently
is
the
custodian
for
nine
of
the
12
proposed
bitcoin
ETFs
in
the
U.S.,
a
level
of
concentration
that
makes
some
uneasy.
With
Fidelity
deciding
to
custody
their
own
assets
and
VanEck
picking
Gemini,
that
leaves
only
one
application
that
lists
no
custodian.

“Having
so
much
bitcoin
concentrated
in
one
custodian
is
not
exactly
ideal,
and
I
think
it
would
be
beneficial
for
other
quality
exchanges
to
participate
as
custodians
for
ETFs,”
said
Brian
D.
Evans,
founder
and
CEO
of
BDE
Ventures.

But
it’s
tough
to
find
other
contenders,
given
the
lack
of
regulatory
clarity
in
the
U.S.,
so
the
list
of
suitable
companies
is
short,
he
said.

“While
I
do
think
it’s
notable
to
have
a
majority
of
the
products
choosing
Coinbase,
and
I
understand
why
people
might
be
concerned,
I
don’t
think
it’s
a
problem
as
long
as
the
security
at
Coinbase
is
sound,”
Seyffart
said.
“We
probably
need
to
see
how
things
play
out
over
the
coming
months
and
years.”

CORRECTION
(Nov.
27,
2023,
21:11
UTC):

The
story
initially
didn’t
note
that
VanEck
had
picked
Gemini
as
a
custody
partner
and
neglected
to
mention
several
other
applications
in
which
Coinbase
was
named
as
custodian.