Bitwise enhances its XRP ETF security by segregating assets and using cold storage for long-term protection against external risks.
The SEC’s pending appeal of the Ripple ruling presents potential regulatory challenges for Bitwise’s XRP ETF launch.
Coinbase provides insurance for Bitwise's XRP ETF, but shared coverage among clients may limit total protection from potential losses.
Bitwise has taken significant steps to enhance the security of its proposed XRP ETF by implementing advanced asset segregation and cold storage mechanisms. This latest move comes as part of Bitwise’s revised S-1 filing with the U.S. Securities and Exchange Commission (SEC), where it seeks approval to launch the XRP-focused exchange-traded fund.
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Revised Structure and Custody Details
Bitwise’s updated submission introduces crucial refinements to the structure of the Trust. Most notably, it highlights improved custody mechanisms, ensuring that XRP assets are securely stored, with a preference for cold storage to guarantee long-term protection. While minimal amounts will be moved to hot storage for efficient trading and redemption processes, cold storage remains the primary focus for asset protection.
The revised filing also underscores the segregation of assets, with XRP stored by the Trust being kept entirely separate from the custodian’s other holdings. This additional layer of security is aimed at protecting the private keys associated with the XRP funds held within the ETF, ensuring that investors’ assets are safeguarded against any potential risks from other custodian activities.
Prime Execution Agent for Trading Activities
To facilitate trades across major platforms such as Coinbase, Kraken, and Bitstamp, Bitwise will employ a Prime Execution Agent. This agent will be responsible for executing trades and offering Trade Credits, which allow for timely transactions even when the Trust's funds are not immediately accessible. Additionally, shares in the ETF will be created and redeemed in units known as "Baskets," each containing 10,000 shares.
Despite these advancements, Bitwise still faces regulatory uncertainty. The SEC's ongoing appeal against the Ripple ruling adds another layer of complexity to the ETF’s approval. Bitwise has acknowledged these risks in its filing, openly discussing the potential for forced liquidation if XRP is classified as a security. However, the company has also outlined plans to ensure compliance with federal laws and protect investors should the SEC’s ruling go against Ripple.
Coinbase Insurance Coverage
Moreover, Bitwise has confirmed that Coinbase Global provides commercial crime insurance for both the Prime Execution Agent and the XRP Custodian. This insurance covers various risks, including theft and cyberattacks. However, it is important to note that this insurance is spread across multiple Coinbase clients, which means it may not fully cover all losses tied to the ETF’s assets.
