Coinbase has evolved as a competitive player in the ever-changing cryptocurrency scene, always pushing the frontiers of innovation and altering the industry. One of Coinbase’s most recent power plays has sent shockwaves through the financial world: its entry into Bitcoin Exchange-Traded Funds (ETFs).
As the cryptocurrency market evolves and regulatory frameworks evolve, the eagerly awaited approval of Bitcoin ETFs marks a watershed moment. Coinbase’s strategic foray into this sector begs the question, “Is it game over for others?”
Coinbase’s monopoly on key Bitcoin ETF services
So far, the race to supply custody services, a critical piece of infrastructure for bitcoin (BTC) ETFs, hasn’t been much of a race. So far, cryptocurrency exchange Coinbase (COIN) has dominated, beating out practically every firm that wants to list an ETF, including BlackRock, Franklin Templeton, and WisdomTree.
This has left a major player in the space, BitGo, on the sidelines – a notable omission.
Only Hashdex has yet to select a custody partner for its Bitcoin ETF in the United States.
Bloomberg’s Seyffart stated that he would not be shocked to see BitGo appear on a Bitcoin ETF application at some point. Gemini, a cryptocurrency exchange, has just become the first third-party custody partner on a VanEck application.
Custody is an essential aspect of the campaign to bring a spot bitcoin ETF to the US market. Custodians hold assets on behalf of others. In this situation, that means keeping the – probably billions of dollars worth of – bitcoin that ETFs would own safe from hackers and other bad actors.
‘Buy the Rumor, Buy the News,’ Coinbase takes on the market advantage
Coinbase, led by CEO Brian Armstrong, is now the custodian for nine of the 12 planned bitcoin ETFs in the United States, a degree of concentration that some find concerning. With Fidelity opting to custody their own funds and VanEck opting for Gemini, only one application mentions no custodian.
However, given the lack of regulatory clarity in the United States, finding additional candidates is difficult; thus, the list of viable enterprises is narrow.
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. […] We probably need to see how things play out over the coming months and years.
James Seyffart
Analysts are speculating on how the approval of such vehicles would effect the crypto business with two months until the Securities and Exchange Commission (SEC) faces another set of deadlines to decide on a significant number of applications to construct spot bitcoin exchange-traded funds (ETFs).
According to Pantera Capital managing partner Dan Morehead, the sheer size of the applicants, which include the world’s largest asset-management company, BlackRock as well as fellow titans like Fidelity and Franklin Templeton, means that any approval would be far more influential than previous milestones, such as the Chicago Mercantile Exchange introducing crypto futures in 2017 or Coinbase going public on Nasdaq in 2021.
JPMorgan analysts agree, noting the over 50% gain in the price of bitcoin over the last two months as momentum appears to be building towards an ETF approval. However, the impact on specific industrial players may be less favorable.
JPMorgan analysts predict that despite the fact that crypto exchange Coinbase (COIN) has established itself as an indispensable participant in the ETF competition by serving as a proposed custodian and surveillance partner for many of the applicants, it could be harmed as new investors enter the market.
Over the intermediate term, we see ETFs as a competitive threat to Coinbase […] Given the initial draw of Bitcoin and Ethereum, we see many novice investors never going beyond these flagship tokens and thus never needing the services of a Coinbase.
JP Morgan
Emerging investors might opt for exchange-traded funds (ETFs) over platforms such as Coinbase, which could cause a deceleration in the company’s onboarding of new accounts.
