Understanding the Role of Coinbase as Bitcoin Spot ETF Custodian

As the approval for the ETF draws near, questions arise about who will be responsible for holding the bag and safeguarding our coins. While Twitter is abuzz with self-proclaimed ETF experts discussing minor application details, Coinbase has silently positioned itself as a key player in the future of paper Bitcoin. Surprisingly, Coinbase is listed as the custodian for 9 out of the 12 Bitcoin Spot ETF applications.

List of Bitcoin Spot ETF Custodians

Source: Bloomberg Intelligence, SEC Filing

With Coinbase's apparent involvement in these ETFs, it raises curiosity about what is happening behind the scenes. Just days ago, Coinbase made a significant leadership change by replacing their custody CEO, Aaron Schnarch, with Rick Schonberg, a 30-year Wall Street veteran1. The timing of this move, just two weeks before the ETF approval, and the choice of Schonberg, seem more than coincidental. It suggests a connection to the New York Banking Cartel's operations. Are outsiders truly welcome? Will the NY Banking Cartel simply yield to the influence of the Bay Area?

Aside from potential shady dealings with the NY Banking Cartel, Coinbase's position deserves scrutiny, especially for those concerned about custodial risk. Custodial risk refers to the risk associated with entrusting a third party, known as a custodian, with the safekeeping and management of financial assets.

Custodial risk can manifest in several forms:

  1. Operational Risk: This risk stems from the custodian's operational failures, such as administrative errors, technology glitches, process breakdowns, and even the loss of encryption keys.
  2. Fraud Risk: There is a chance that the custodian may engage in fraudulent activities, such as misappropriation of assets or manipulation of records.
  3. Credit Risk: This risk arises when the custodian becomes insolvent or fails to fulfill its obligations, potentially resulting in the loss of assets.
  4. Legal and Regulatory Risk: Non-compliance with laws and regulations can lead to fines, penalties, or legal actions, thus posing a risk to the custodial arrangement.
  5. Counterparty Risk: When the custodian enters into transactions with other parties on behalf of the client, there is a risk that the counterparty may default or fail to meet its obligations.
  6. Security Risk: Poor physical and digital security measures can expose assets to the risk of theft or loss.

Considering that Coinbase handles 75% of the Bitcoin ETFs, each of these forms of custodial risk becomes a genuine concern. However, I am not raising these concerns to spread unnecessary worry. Instead, I find the leadership change and concentration of funds within a single custodian to be highly unusual and a major red flag. This situation increases the likelihood of a potential 6102 Bitcoin scenario.

The recent developments surrounding Coinbase's role as the custodian for nine out of twelve Bitcoin Spot ETF applications raise significant concerns regarding custodial risk. With Coinbase controlling over 75% of the market share, investors must carefully consider the potential dangers associated with relying on a single entity for the storage and management of their paper Bitcoin reserves. While centralized custody services may offer convenience, the risks should not be overlooked. It is crucial for individuals to conduct thorough research and understand the implications of custodial arrangements before investing in any Bitcoin ETF. By doing so, they can make informed decisions and minimize exposure to threats such as 6102 Bitcoin, regulatory seizures, cyber attacks, and other unforeseen events. Ultimately, the ETF approval is imminent, and as the NY Banking Cartel sinks its teeth into Bitcoin, Brian's Big Bags will come into play.





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By: Joe Rodgers
Title: Understanding the Role of Coinbase as Bitcoin Spot ETF Custodian
Sourced From: bitcoinmagazine.com/markets/brians-big-bags-etf
Published Date: Tue, 09 Jan 2024 14:40:06 GMT

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