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

Custody services are a vital part of bitcoin ETF applications, and so far Coinbase is the only third party picked to serve that role for issuers.

That means BitGo, a large crypto custodian, has been left out.

BitGo CEO Mike Belshe says he’s been in talks with ETF issuers.

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 the likes of BlackRock and WisdomTree.

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

Several firms, including VanEck and Global X, have yet to pick their 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 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. “A bunch haven’t disclosed their custodian yet.”

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

Custody is an important part in 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 five of the 12 proposed bitcoin ETFs in the U.S., a level of concentration that makes some uneasy. Fidelity has decided to custody their own assets, leaving six applications that currently list 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.”

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