Bitwise Strengthens Custody and Trade Mechanisms in Updated XRP ETF Proposal

• Bitwise strengthens XRP ETF security with segregated assets and cold storage for enhanced protection.
• Regulatory uncertainty remains as Bitwise faces risks tied to SEC’s pending appeal of the Ripple ruling.
• Coinbase’s insurance covers the XRP ETF, but shared protection across clients may not cover all potential losses.

Bitwise has submitted a revised S-1 filing with the SEC, seeking approval to launch an ETF based on XRP. The latest submission refines key details about the structure of the Trust, custody mechanisms, and procedures for creating and redeeming shares.

The updated filing highlights several changes from Bitwise’s initial application , submitted on October 2. Notably, it emphasizes the secure custody of XRP assets, with a focus on using cold storage for long-term safekeeping. Limited amounts of XRP will move to hot storage to facilitate efficient trading and redemption processes.

Bitwise Custody and Asset Segregation Enhanced

Bitwise has improved its custody setup by guaranteeing that XRP stored by the Trust is kept separate from the custodian’s additional assets. This extra security layer aims to safeguard the private keys linked to the XRP holdings. 

Additionally, Bitwise will use a Prime Execution Agent for conducting trades on various platforms such as Coinbase, Kraken, and Bitstamp.

The agent will offer Trade Credits for short-term financing, allowing for timely transactions even without immediate access to the Trust’s funds. Shares will be created and redeemed in increments of 10,000 units known as Baskets. 

The XRP needed for each Basket will be changed daily to account for fees and expenses that have accumulated.

XRP’s Regulatory Hurdles

Despite the progress, Bitwise acknowledges the regulatory risks tied to XRP’s classification. The SEC’s pending appeal of the Ripple ruling remains a significant hurdle. 

Bitwise has been transparent in outlining potential risks, including the possibility of forced liquidation if XRP is deemed a security. However, the company has included measures in the filing to ensure compliance with federal securities laws and protect investors.

Coinbase Insurance Policy

Furthermore, Bitwise’s submission also verifies that Coinbase Global has a commercial crime insurance policy, connected to both the Prime Execution Agent and the XRP Custodian. This policy includes various risks such as cyberattacks and theft. Nevertheless, Bitwise explains that this insurance is divided among Coinbase clients and might not be enough to compensate for all the Trust’s losses.