Coinbase’s Custody Success: A Major Player in Nearly Every U.S. Bitcoin ETF Application

Source: Adobe / prima91

Over a dozen asset managers have applied to launch a Bitcoin spot ETF in the United States this year – and Coinbase is poised to serve as custodian for virtually all of them.

The firm’s custody arm, Coinbase Custody, is listed as a custodian in the S-1 registration forms for physically-backed Bitcoin ETPs sponsored by ARK, Bitwise, WisdomTree, Invesco, Valkyrie, Global X, and Franklin Templeton, according to Bloomberg ETF analyst James Seyffart.

That’s not all: Grayscale, owner of the world’s largest Bitcoin fund, will continue using Coinbase to manage its 600,000+ BTC upon its planned transition into an exchange-traded fund.

BlackRock, which tapped Coinbase Custody for its institutional BTC trading service last year, will also allow the firm to manage its fund’s coins.

“Coinbase looks dominant,” said Seyffart regarding the applicants’ custodians of choice. “Though i wouldn’t be surprised to see some of these ETFs have more than one custodian at some point down the line. There’s enough players — there will be competition.”

That said, as @HeleneBraunn pointed out in her article. Coinbase looks dominant. Though i wouldn't be surprised to see some of these ETFs have more than one custodian at some point down the line. There's enough players — there will be competition. https://t.co/Q3843HmAR1

— James Seyffart (@JSeyff) November 27, 2023

The high-profile cryptocurrency exchange is the only publicly listed crypto trading platform in the country. As such, the firm is subject to independent auditing and public financial reporting by law – making it a trustworthy player for many firms to keep their assets safe.

Rival firms have struggled to guarantee the same level of asset safety. Binance, for example – the world’s largest crypto exchange – underwent a proof of reserves audit last December for its BTC holdings, but its auditing partner distanced itself from the exchange only days later.

Tether, the top stablecoin issuer managing over $80 billion in assets, has also failed to receive a full independent audit from a Big Four accounting agency. The firm’s foremost rival, Circle, partners with Coinbase for custody to solve this issue.

Coinbase for Surveillance

Besides custody, exchanges like the Cboe and Nasdaq plan to form a surveillance sharing agreement with Coinbase to secure approval for listing multiple ETFs on their exchanges. Surveillance and market manipulation remain key concerns that make regulators hesitate to launch any spot crypto ETF.

Last week, Binance was fined $4.3 billion by the U.S. government and cleared of prior CFTC charges related to market manipulation and mishandling client assets. Some analysts view the settlement as a good sign for spot ETF approval, given that Binance was the largest market guilty of manipulating BTC prices.