VanEck Advisor Flags Risk of Coinbase As Majority Ethereum ETF Custodian

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As a seasoned crypto investor with a decade of experience in the industry, I share Gabor Gurbacs’ concerns regarding the concentration risk associated with the majority of Ethereum ETF issuers using Coinbase as their custodian. Having witnessed the collapse of FTX and its impact on US banks handling crypto payments, I understand the importance of diversifying risks and not relying on a single entity for custody.

Expert: Gabor Gurbacs, an advisor at VanEck, has identified potential risks associated with most US Ethereum ETF providers using Coinbase as their custodian. This situation raises concerns due to the heavy concentration of funds in a single issuer. With the SEC’s approval of spot Ethereum ETF listings, market enthusiasm has surged.

VanEck Advisor Cites Custody Risk 

Gabor Gurbacs raised concerns about the risks associated with a large number of ETF issuers relying on Coinbase as their custodian for spot Ethereum ETFs. In a series of posts on X (previously known as Twitter), he brought up that Coinbase currently holds assets for eight out of nine Ethereum ETFs. Although he praised the expertise of Coinbase’s security team, Gurbacs, an advisor at VanEck, warned about potential consequences if something goes awry.

“Coinbase stores assets for approximately 10 out of 11 Bitcoin ETFs and 8 out of 9 Ethereum ETFs. I have confidence in Coinbase’s robust security measures, but I strongly challenge the decision-making abilities and risk management of the boards behind these ETF issuers, allowing such a potential risk.”

He made it clear that even conventional assets come with no guarantee of safety, as most boards lack the necessary expertise. Regarding Coinbase, he expressed admiration for their accomplishments but emphasized that relying on a sole intermediary poses too great a risk. The majority of funds opted for Coinbase, but VanEck selected Gemini as its custodian instead. In contrast, Fidelity will allow clients to keep custody of their own assets.

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Ethereum ETFs Toe Line as Bitcoin EFTs

With the long-awaited green light for Ethereum ETFs in the US markets, many observers make the comparison to Bitcoin ETFs. This is largely due to the fact that numerous issuers opted to use Coinbase as their custodians, leading to comparable apprehensions. A significant number of users hold the view that these issuers were following a proven strategy.

Principal at Dabner Capital Partners, Dave Abner, expressed his concern regarding the potential risks for investors. “The excessive reliance on Coinbase as a cryptocurrency custodian presents a concentration risk. Although this may not pose an issue for the Securities and Exchange Commission (SEC), I believe it’s an unnecessary risk for investors. Surprisingly, I am taken aback that issuers aren’t mandated to use multiple custodians, ensuring protection against unforeseen complications.”

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2024-07-23 17:33