As a seasoned crypto investor with a fair share of experiences under my belt, I can’t help but express my concern over the recent approval of nine spot Ethereum Exchange Traded Funds (ETFs) and Coinbase’s role as the custodian for most of these new financial products. While I appreciate the transformative potential of spot ETFs and their ability to expand the crypto markets, I share the sentiments of industry experts like Gabor Gurbacs who question the wisdom of such a high concentration of assets under the management of a single entity.
On Monday, the SEC in the United States gave its approval to nine Ethereum ETFs. Coinbase, a prominent US cryptocurrency exchange, expressed excitement about this development on X. In their announcement, they highlighted their significant role as custodians for most of these new financial instruments. As stated in their release, Coinbase takes pride in being the trusted partner and custodian for ten out of eleven spot Bitcoin ETFs and eight out of the nine newly authorized Ethereum ETFs.
Coinbase Is A Single-Point Of Failure
Coinbase’s announcement underscores the transformative power of spot ETFs, as they are expected to “fuel more growth and innovation” and “broaden the scope of crypto markets.” However, this centralization of custodial duties by Coinbase has raised eyebrows among some industry critics, who express concerns about the potential repercussions of such a concentration.
Gabor Gurbacs, the founder of PointsVille and Tether’s strategy advisor, voiced his disapproval through X. He raised doubts about the soundness of the decision-making procedures of Bitcoin and Ethereum ETF fund issuers: “Coinbase safeguards assets for ten out of eleven Bitcoin ETFs and eight out of nine Ethereum ETFs. I have full confidence in Coinbase’s security team, but I strongly challenge the abilities and prudence of the boards and risk management committees at these funds who consider this an acceptable risk.”
Gurbacs expresses apprehension towards the large amount of assets being managed by one entity due to the potential risks involved. He explained, “The majority of US ETF assets are concentrated with a single entity. If something goes wrong, it could be catastrophic. I’ve lost faith in the safety of even traditional assets with most issuers. The boards seem ill-equipped to handle crises.” His remarks echo wider concerns about the vulnerability of the crypto industry to singular points of failure, a fear that has been amplified by numerous high-profile exchange hacking incidents and technical malfunctions in recent years.
To provide more clarity on his stance, Gurbacs explained that his criticism wasn’t based on his assessment of Coinbase’s operational abilities. Instead, it was a critique of the risks inherent in having one entity serve as the counterparty for the entire industry. He underscored the importance of having multiple custodial services to reduce potential systemic hazards by saying, “A single entity as the custodian for the entire space remains an unacceptable risk.”
Regarding a question from an X user about the distinctiveness of Fidelity’s custody solution for cryptocurrencies, Gurbacs replied affirmatively, confirming that among significant market participants, Fidelity is the sole organization to have developed its own custodial services specifically for digital assets.
In agreement with Gurbacs’ viewpoint, Steven Dickens, Technology Advisor at The Futurum Group, expressed his thoughts on the importance of regulatory oversight: “I completely concur. Regulators must evaluate potential systemic risks, not implying any criticism towards Coinbase, but last week’s events serve as a reminder of the IT concentration risks.”
At press time, ETH traded at $3,499.
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2024-07-23 19:42