Grayscale’s recent legal triumph over the Securities and Exchange Commission (SEC) has sent positive ripples through the cryptocurrency landscape, evident by the flourishing markets. However, beyond the realm of crypto, another entity experiencing a considerable surge is Coinbase, and there’s compelling evidence to explain this phenomenon.
As Tuesday’s trading session drew to a close, shares of Coinbase witnessed a remarkable uptick of 15%. This surge outpaced the 7% growth in Bitcoin’s value over the preceding 24 hours, as reported by CoinGecko.
The surge in Coinbase’s valuation emerged in the aftermath of the U.S. Court of Appeals for the D.C. Circuit’s favorable ruling in favor of Grayscale. The court directed the SEC to reevaluate Grayscale’s application to transform its flagship Bitcoin fund, the Grayscale Bitcoin Trust (GBTC), into a spot Bitcoin Exchange-Traded Fund (ETF). This judicial decision critiqued the SEC’s earlier denials as arbitrary.
Grayscale’s argument, put forth in July, advocated for the simultaneous approval of all Bitcoin ETFs when the time arrives. The cryptocurrency industry watchdog argued that the SEC’s role should not entail selecting winners and losers in this context. As the anticipation of a potential green light for a spot Bitcoin ETF gains momentum, Coinbase finds itself in a strategically advantageous position to reap substantial benefits. Paul Grewal, Coinbase’s Chief Legal Officer, emphasized this notion.
Grewal articulated, “Coinbase has a significant role to play as the custodian of choice, ensuring protection of client assets.” He conveyed this sentiment to Decrypt through a written statement, further underscoring Coinbase’s commitment to surveillance-sharing agreements with listing exchanges, thereby reinforcing compliance efforts.
Prominent financial entities, such as the $8.5 trillion asset management titan BlackRock, have designated Coinbase as the custodian for assets within their prospective spot Bitcoin ETF. This innovative financial product, pending approval within the U.S., could offer investors indirect exposure to Bitcoin without necessitating direct ownership.
Spot Bitcoin ETFs entail the acquisition of Bitcoin accompanied by the issuance of corresponding shares. While BlackRock opted for Coinbase as its prospective custodian, some other entities, like Valkyrie, have revised their applications to exclude the exchange.
Coinbase, a leading cryptocurrency exchange in the U.S., has also established surveillance-sharing agreements with the Cboe BZX Exchange and Nasdaq. Numerous firms have submitted applications to list their own spot Bitcoin ETFs on these platforms.
Under these agreements, Coinbase assumes a pivotal role in enhancing the Cboe and Nasdaq’s capacity to identify potential fraud and manipulation within Bitcoin’s spot market. This is achieved by sharing data pertaining to trading, clearing activities, and customer identification.
Such agreements serve the crucial purpose of allaying the SEC’s concerns regarding market manipulation associated with Bitcoin. These concerns have consistently surfaced in the agency’s rejections of spot Bitcoin ETF proposals since 2013.
However, the recent court opinion has cast uncertainty on whether certain firms might revise their surveillance-sharing agreements to mirror those of approved Bitcoin futures ETFs, such as Grayscale’s.
It’s important to note that the specifics of Coinbase’s agreements with Nasdaq and Cboe, including compensation details, remain somewhat opaque in multiple spot Bitcoin ETF applications, including those from BlackRock and Invesco. Therefore, accurately gauging the potential revenue influx for Coinbase remains challenging.
“The court’s central argument revolves around the SEC’s inability to furnish evidence that fraud and manipulation would impact spot and regulated futures markets differently,” remarked an expert. “Nevertheless, the importance of vigilance against fraud and manipulation endures, as the ultimate aim is to facilitate price discovery on untainted markets.”
