Single Entity Risk Questioned as Coinbase Dominates ETH and BTC ETF Reserve Storage

The day before the spot ether exchange-traded funds (ETFs) were introduced, Coinbase posted on X to clarify its position regarding spot BTC and ETH ETFs. The company mentioned that it holds assets for ten out of 11 spot bitcoin ETFs and eight out of nine ether ETFs. Gabor Gurbacs, founder of Pointsville and former strategy advisor at Vaneck, questioned whether it was an “acceptable risk” to store all of these digital assets with one firm.

Coinbase’s Central Role in ETF Reserves Prompts Single Entity Risk Questions

Ethereum exchange-traded funds (ETFs) debuted on Wall Street and are now accessible to the public. Data indicates that in the first hour of trading, the nine spot ETH ETFs experienced approximately $300 million in trade volume. The previous day, on July 22, Coinbase announced it was holding reserves for eight of the nine spot ether ETFs. Coinbase stated:

Coinbase is proud to be a trusted partner and custodian powering 10 of 11 spot BTC ETFs and 8 of the 9 newly approved ETH ETFs.

Coinbase additionally highlighted its 12-year history of securely managing digital assets at scale, emphasizing the development of a premier institutional-grade custody solution. After Coinbase’s post on X, Gabor Gurbacs, founder of Pointsville and former strategy advisor at Vaneck, scrutinized the prudence of storing such substantial value with a single entity.

“Coinbase holds assets for 10 out of 11 spot Bitcoin ETFs and 8 out of 9 ETH ETFs,” Gurbacs wrote. “While I am sure they have a great security team, I fundamentally question the competency and judgment of boards and risk management committees at fund issuers who think this is acceptable risk.”

Gurbacs added:

It’s practically all assets for almost all U.S. [digital asset ETFs]. What if something goes wrong? As we learned, that’s certainly a possibility in the exchange space. I lost the last bit of confidence that even traditional assets are remotely safe with most issuers. Boards are incompetent.

Many concurred with Gurbacs’ perspective, with one individual responding to his X post, stating, “It seems that Wall Street likes the most extreme centralization of everything.” One of the funds that does not use Coinbase for BTC or ETH storage is Fidelity, which operates its own institutional-grade custody service. Gurbacs emphasized that his viewpoint was not a critique of Coinbase or its security protocols but rather a concern about the counterparty risk associated with a single entity.

“Before you say that I don’t like Coinbase, note that I referred the first major family office and first ETF issuer client to Coinbase among many other large U.S. partners,” Gurbacs explained. “I appreciate the work they do. Single entity counterparty for the whole space is still unacceptable risk,” he added.

What do you think about Coinbase securing most of the digital assets from the U.S. bitcoin and ethereum spot ETF reserves? Share your thoughts and opinions about this subject in the comments section below.

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