Bitcoin ETF Competition Coinbase Emerges as the Biggest Winner?

Coinbase Emerges as Biggest Winner in Bitcoin ETF Competition

Author: Nicholas Morgan, Decrypt; Translation: bayemon.eth, ChainCatcher

The Bitcoin ETF race is underway, with Wall Street giants like BlackRock and Fidelity vying for the title of “first” to offer a spot market product. However, the eventual winner will share this honor with a partner who helps them cross the finish line.

This partner is likely to be Coinbase.

On June 15th, BlackRock announced its partnership with Coinbase to launch its own spot Bitcoin ETF product. The asset management company, with assets under management of $8.5 trillion, has designated the cryptocurrency exchange Coinbase, based in San Francisco, as the custodian of its Bitcoin fund. They also amended the filing to indicate that Coinbase will provide monitoring and sharing services, allowing both parties to share information about transactions, clearing activities, and customer identities to reduce the risk of market manipulation.

Bob Ras, co-founder of asset tokenization company Sologenic, commented, “In this regard, Coinbase may become the preferred exchange. It is clear that the big players see Coinbase as a legitimate and extremely important institution.”

BlackRock is not the only Bitcoin ETF applicant seeking help from Coinbase. All five spot ETF Bitcoin applicants partnering with the Chicago Mercantile Exchange—Fidelity, VanEck, 21 Shares (owned by Ark Invest), Valkyrie, and Invesco—have submitted revised applications and designated Coinbase as their partner.

Shortly after the SEC filed a lawsuit against Coinbase, accusing it of trading unregistered securities and engaging in unregistered securities transactions through its watchlist service Coinbase Earn, Coinbase established partnerships with multiple institutions. Although Coinbase previously believed that the SEC’s charges were unfounded, the lawsuit undoubtedly cast a shadow over Coinbase.

However, it seems that BlackRock and other institutions have not taken the SEC’s accusations into consideration, as trust votes seem to lean towards believing in Coinbase and continuing with the partnership. According to industry insiders, while it is still unclear how the SEC’s charges will specifically impact Coinbase’s recent transactions, even if the allegations are true, they do not seem to affect Coinbase’s ability to issue ETF products.

Joshua Frank, CEO of digital asset information service company The Tie, said that in recent years, Coinbase has been more cautious than some peers in conducting business, hence “causing quite a bit of trouble.” The ETF transactions indicate that Coinbase’s more cautious approach is paying off.

Frank also mentioned, “I have 200 institutional clients, many of which are traditional financial sector companies, and every institution I have dealt with is willing to partner with Coinbase.”

This industry’s confidence has also helped boost Coinbase’s stock price. After BlackRock filed documents, Coinbase’s stock price began to steadily rise from $54 per share. When a federal judge made a favorable ruling in the SEC’s lawsuit against Ripple, determining that its XRP token was not a security except in certain transactions, Coinbase’s stock price soared to $107 on July 13. At the time of writing, the stock closed at around $98 per share, still higher than the price when the U.S. Securities and Exchange Commission sued Coinbase on June 6.

As more and more TradFi companies show interest in getting involved in cryptocurrencies, this trust factor is also important. Jeffrey Blockinger, Chief Legal Counsel of decentralized exchange Vertex Protocol, believes that contacts from the traditional financial world have expressed interest in Bitcoin, but often have no interest in understanding the technical aspects of digital assets.

This “trust” became even more important after the FTX bankruptcy incident, where U.S. authorities accused FTX, a cryptocurrency exchange founded by SBF, of misappropriating customer and company funds, and SBF now faces multiple criminal charges. The U.S. Securities and Exchange Commission also mentioned in its lawsuit against Binance on June 5 that Binance is also suspected of misappropriating customer funds.

In response to the issue of misappropriation of funds, Coinbase stated that it will strive to maintain the complete separation of customer funds and company funds. Coinbase’s Chief Legal Officer LianGuaiul Grewal has also expressed support for legislative bodies to develop relevant legal documents in the cryptocurrency field to correctly delineate the boundaries between customers and companies.

Blockinger said that if BlackRock, Fidelity, or other TradFi giants with large due diligence teams believe that their clients’ assets are at risk, they are unlikely to do business with Coinbase.

However, it is worth noting that BlackRock had invested $24 million in the bankrupt FTX. Despite the recent favorable ruling in Ripple’s case and the impact of ETF authorized trading, people are enthusiastic about Coinbase, but it cannot be denied that even though Coinbase has recently seen a rising trend, it is still overshadowed by the SEC.

Coinbase’s stock price rise largely stems from the rebound in Bitcoin price after the ETF trading. According to data from CoinGecko, in an analysis contained in BlackRock’s ETF filing, NASDAQ estimates that 56% of the $129 billion Bitcoin trades in the U.S. were conducted on Coinbase, and the BTC/USD trade is the largest trading pair on Coinbase.

Despite the public’s optimism about Coinbase after the Ripple ruling, analysts at Berenberg Capital Markets remind that it is still too early to celebrate Coinbase’s victory, as the SEC charges will fundamentally impact Coinbase’s future development.

Unlike Ripple, Coinbase is being sued for providing unregistered securities to customers through its proxy wealth management service, which Coinbase has disputed. However, Berenberg analysts cautioned that this service, which allows users to earn interest by borrowing coins from Coinbase through collateral, may have exceeded the scope of Ripple’s ruling.

In a research report on July 17th, Berenberg analysts warned that if the SEC or state regulatory agencies restrict Coinbase’s normal token staking, its financial condition could be severely affected by trading volume limitations.

Frank from The Tie issued a broader warning to the entire industry, pointing out that although Coinbase has always conducted business with a trustworthy attitude, the market’s reliance on Coinbase as both a cryptocurrency custodian and an exchange with “multiple personalities” is extremely unhealthy, especially after the collapse of FTX. For the market, it is healthier to have more participants than to heavily rely on any single company.

Frank mentioned that ultimately, the market needs more “Coinbases.” If institutions are to be active in the cryptocurrency market, the market’s demand is for as many institutions as possible, not just a dominant company.

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