21Shares diversifies custodians to reduce ‘single-point failure risk’ in crypto ETFs

Asset manager 21Shares has added Anchorage Digital Bank and BitGo as custodians for its spot crypto exchange-traded funds (ETFs) — the ARK 21Shares Bitcoin ETF (ARKB) and the 21Shares Core Ethereum ETF (CETH).

According to a Sept. 12 statement, Anchorage Digital Bank and BitGo will now work alongside current custodian Coinbase to enhance 21Shares’ spot ETP operations in the US. The firm chose them based on their robust regulatory compliance, security, and reliability records.

This move brings the number of ETFs for which BitGo serves as custodian to four. BitGo already works with two other ETF issuers, including Hashdex and Valkyrie (now Coinshares).

21Shares investment management head Andres Valencia emphasized the importance of custody partners in risk management and operational excellence. He noted that diversification strengthens the safety and security of their offerings.

Anchorage Digital Bank co-founder and CEO Nathan McCauley said the firm’s federal charter — which supersedes state-by-state regulation and qualifies it as an asset custodian — makes it a natural choice for ETP custody diversification.

Meanwhile, BitGo CEO Mike Belshe said:

“BitGo is proud to offer 100% cold storage as the leading independent custodian, serving the industry for over a decade as a trusted partner, and now for ETF issuers too.”

‘Single point of failure’

21Shares’ decision to expand its custodians followed the FBI’s recent warning that North Korea-linked hackers were targeting crypto ETFs in recent months.

The development has renewed focus on Coinbase’s dominance of the ETFs’ custodial services and raised the issue of the need for diversification to other custodial service providers. Coinbase is the primary custodian for eight of the 11 US spot crypto ETFs.

The ETF Store president Nate Geraci recently predicted that more issuers are likely to start diversifying their custodians in “an attempt to minimize single point of failure risk.”

Bloomberg senior ETF analyst Eric Balchunas echoed the sentiment, suggesting increased custodian diversification due to high fees charged to issuers relative to other asset classes. He added that some may leave Coinbase for cheaper alternatives or use more options as leverage to renegotiate fees.

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