Coinbase or the biggest winner behind the Bitcoin ETF competition, what is the reason?

All five spot ETF Bitcoin applicants partnering with the Chicago Exchange – Fidelity, VanEck, 21Shares (owned by Ark Invest), Valkyrie, and Invesco – have designated Coinbase as their partner.

Original title: “Coinbase Is the Real Winner in the Bitcoin ETF Race—Here’s Why”

Author: Nicholas Morgan, Decrypt

Translator: bayemon.eth

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

That partner is likely to be Coinbase.

On June 15, BlackRock announced that it will collaborate with Coinbase to launch its own spot Bitcoin ETF product. The asset management company, with assets worth $8.5 trillion, designated Coinbase, the cryptocurrency exchange based in San Francisco, as the custodian of the Bitcoin fund. It later amended the filing to indicate that Coinbase would also provide monitoring and information-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, “Coinbase may become the preferred exchange in this regard. 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 Exchange – Fidelity, VanEck, 21Shares (owned by Ark Invest), Valkyrie, and Invesco – have submitted revised applications and designated Coinbase as their partner.

Shortly after the SEC sued Coinbase for 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 allegations were unfounded, the lawsuit undoubtedly cast a shadow over Coinbase.

However, BlackRock and other institutions do not seem to consider the SEC’s allegations, and trust votes seem to lean towards believing in Coinbase and continuing the relevant partnerships. According to industry insiders, although it is still unclear what specific impact the SEC’s allegations will have on Coinbase’s recent transactions, even if the allegations are true, they do not seem to affect Coinbase’s ability and influence in the issuance of ETF products.

Joshua Frank, CEO of digital asset information service company The Tie, said that Coinbase has been more cautious than some of its peers in conducting business in recent years, which has caused “a lot of trouble.” The ETF trading shows that Coinbase’s more cautious approach is paying off.

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

This industry confidence has to some extent also helped Coinbase’s stock price climb in recent times. After BlackRock filed its 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 is not a security except in certain transactions, Coinbase’s stock price soared to $107 on July 13th. As of writing, the stock closed at around $98 per share, still higher than the price when the US Securities and Exchange Commission sued Coinbase on June 6th.

As more and more TradFi companies show interest in entering the cryptocurrency space, this element of trust becomes important as well. Jeffrey Blockinger, Chief Legal Advisor of decentralized exchange Vertex Protocol, believes that contacts in the traditional financial world have expressed interest in Bitcoin, but often have “no interest” in understanding the technical aspects of digital assets.

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

Regarding 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 previously expressed support for legislative bodies to formulate relevant legal documents in the cryptocurrency field in order to properly 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 transact with Coinbase.

However, it is worth noting that BlackRock had previously invested $24 million in the now-defunct FTX. Despite the enthusiasm for Coinbase fueled by Ripple’s recent favorable ruling and the impact of ETF authorized trading, it cannot be denied that Coinbase is still overshadowed by the SEC.

The rise in Coinbase’s stock price is largely due to the rebound in Bitcoin prices after ETF trading. According to data from CoinGecko, in an analysis included in the ETF filing submitted by BlackRock, Nasdaq estimates that 56% of the $129 billion worth of Bitcoin traded in the US is conducted on Coinbase, and BTC/USD is the largest trading pair on Coinbase.

Although the public is optimistic about Coinbase after the Ripple ruling, analysts at Berenberg Capital Markets caution that it is still too early to celebrate Coinbase’s victory, as the SEC’s 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 refuted. However, analysts at Berenberg remind that this service allows users to earn interest by borrowing against their coins on Coinbase, which may have exceeded the scope of the Ripple ruling.

In a research report on July 17th, Berenberg analysts warned that if the SEC or state regulators restrict Coinbase’s normal token staking, it could severely impact its financial condition by limiting transaction volume.

Frank from The Tie, on the other hand, issued a broader warning to the entire industry. He pointed out that while Coinbase has always conducted business in a trustworthy manner, the market’s reliance on Coinbase as both a cryptocurrency custodian and an exchange with a “dual personality” is extremely unhealthy, especially after the FTX collapse. 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 requirement is to have as many institutions as possible, rather than one dominant player.

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