New Coinbase Additions: Ethereum Classic and Crypto Index Fund

Coinbase dominated headlines across the space this week with a pair of significant developments. The San Francisco–based exchange announced on Monday, June 11, its intention to add Ethereum Classic to its trading platform and then quickly followed the news on Tuesday with the official opening of a crypto index fund.  

Its addition to the exchange has revamped public interest in Ethereum Classic and sent the price of its native currency, ETC, into a dramatic state of flux.

Ethereum Classic

In May of 2016, The DAO, a decentralized autonomous organization and venture capital fund, raised a sum of $150 million for investment in smart contract projects built on the Ethereum blockchain. It was, at the time, the largest crowdfunded project ever created.

On June 18, 2016, hackers successfully exploited a weakness in the splitting function of the protocol that allowed for the extraction of ether from multiple DAO smart contracts while utilizing the same DAO tokens. The end result was a theft of 3.6 million ether that was worth roughly $70 million.

Debate arose within the Ethereum community regarding a proper response to the attack. After a failed soft fork, a vote in July concluded that a hard fork would be instituted to erase the DAO hack by placing the compromised ETH in a new smart contract that would then be used to redistribute the funds to their original owners. The decision, though approved by a super majority of 89 percent, was extremely controversial. Anti-forkers contended that although the DAO hack was unfortunate, code is law. All transactions are innately immutable and should remain free from modification or censorship, regardless of the justification.

When the hard fork was implemented on July 20, during the mining of the 1,920,000th block, some dissenters continued to support the original ledger and thus created what is now known as Ethereum Classic (ETC).

The Addition of ETC to Coinbase

On Monday, via blog and Twitter, Coinbase announced that during the coming months it intends to add support for Ethereum Classic (ETC) to its exchange platform. The currency will join bitcoin (BTC), ether (ETH), litecoin (LTE) and bitcoin cash (BCH) as the fifth digital currency supported by the largest U.S.-based crypto exchange.

Since its inception in June of 2012, Coinbase has worked to distinguish itself as the most secure and legitimate of the major crypto exchanges. Despite operating in a space where rapidity of technical development is heavily valued, Coinbase has fostered a cautious approach to expansion, priding itself on a method that is both meticulous and methodical.

The integration of alternative coins into the Coinbase platform has, by industry standards, progressed at a crawling pace. The first expansion of its trading portfolio was launched in May of 2016, when it included support ether (ETH). Support for its third currency, litecoin (LTE), was not released until the following May, while its most recent addition, bitcoin cash (BCH), was only added this past December.

In each case, Coinbase has followed a systematic preparation process, a trend that will continue with the addition of Ethereum Classic. Via the Coinbase blog:

We will now begin the engineering work (Step 4) for supporting Ethereum Classic. As part of this process, customers can expect to see public-facing APIs and other signs that the asset is being added. When we reach the final testing phase of the technical integration, which we expect to occur over the next few months, we will publicly announce a launch date for trading via our blog and Twitter (Step 5).

When the final stage of technical integration is reached, Coinbase will announce the date on which its prime and pro customs can begin placing limited orders of ETC. When this resting market reaches sufficient liquidity, live trading will commence on the open platform.

The announcement also went on to reassure its GDAX customers who held ether prior to the July 2016 hard fork that they would receive Ethereum Classic credits once trading is launched. However, this distribution does not apply to the Coinbase customer interface as it did not support Ethereum at the time of the fork.

The market response has been mixed. The first five hours of trading after the announcement saw the price of ETC soar 25 percent from $12.88 to $16.11. Since this peak, the price has experienced a turbulent ride, crossing the $13.50 mark four times before settling at $13.79 at the time of writing of this article.

The Index Fund

On the heels of this news, Coinbase reported yesterday that its crypto index fund, first announced back in early March, is now open for investment. An index is “a measurement of the financial performance of a defined group of assets” while an index fund is the investment vehicle that tracks and grants returns based on that index.

In this case, the fund will be comprised of all of the assets currently supported by Coinbase, divided proportionally to their market capitalization. The current composition of the fund is as follows: Bitcoin 61.47%, Ethereum 27.17%, Bitcoin Cash 8.22% and Litecoin 3.14%. When Ethereum Classic is officially added to the platform later this year, the fund’s composition will be altered to account for ETC’s additional market cap, which as of today sits at just over $1.4 billion.

The index fund is limited to accredited U.S. residents with a required minimum stake of $250,000 and will be subject to a 2 percent annual management fee. The investment window will open on a monthly basis while the redemption window will be available quarterly requiring a 30-day notice for withdrawal.