Coinbase, the world’s largest crypto exchange with more than 20 million active users, launched a custodian solution for large-scale institutional investors that could potentially attract billions of dollars worth of new capital into the crypto market.
Sam McIngvale, a product lead at Coinbase Custody, said in a company statement that after receiving its first deposit last week, Coinbase officially commenced its trusted custodian platform with partners like Multicoin Capital that are capable of assisting the company in maintaining a suite of institutional crypto products.
In the upcoming months, while serving a variety of institutional investors such as academic institutions, hedge funds, and pensions, Coinbase emphasized that it will continue to embrace new world-class clients including crypto hedge funds, exchanges, and ICOs. The company explained:
“Coinbase Custody is a combination of Coinbase’s battle-tested cold storage for crypto assets, an institutional-grade broker-dealer and its reporting services, and a comprehensive client coverage program,” Filling the Gap Between Large Investors and Crypto Market”.
Kyle Samani, a partner at Multicoin Capital, a cryptocurrency hedge fund collaborating with Coinbase in creating the company’s custodian solution, said that throughout the past year, large-scale institutional investors tried to invest in digital assets but failed due to the lack of robust and trusted custodianship.
“There are many investors where custody is the last barrier. Over the next year, the market will realize that safekeeping is a solved problem. This will release a large capital wave,”
Samani said, noting that security has always been one of the major concerns of institutional investors regarding digital assets.
This week, the company revealed that Coinbase Custody will leverage the systems of Electronic Transaction Clearing (ETC), an SEC-registered broker-dealer that is subject to vigorous financial reporting and audits. Its partnership with ETC and its unique storage system of digital assets will provide a more secure and efficient ecosystem for large investors to commit to the market.
Coinbase protects the funds of institutional investors by ensuring the following four policies are met:
- Digital asset transactions are signed and broadcasted on-chain
- Offline private keys that require geographically distributed agents use cryptographic hardware to broadcast transactions
- Multi-layer security
- Cold storage
In May 2018, Coinbase vice president and general manager Adam White disclosed the formation of an institutional coverage group whose primary task is to serve institutional investors in the crypto market.
White revealed that the institutional coverage group is composed of bankers and experienced investors from the world’s largest financial institutions such as the New York Stock Exchange, Morgan Stanley, the US Securities and Exchange Commission (SEC), and Commodities and Futures Trading Commission (CFTC) White said:
“This group, headquartered in our New York City office, brings years of diverse and relevant institutional experience from firms such as the New York Stock Exchange, Morgan Stanley, and the SEC and CFTC. By guiding clients through the onboarding process and advising on execution strategies, this team will deliver a best-in-class client experience”.
Institutional Investors by September
Ari Paul, a prominent analyst and the founder of cryptocurrency hedge fund BlockTower, said in late May that the crypto market will see the emergence of trusted custodian solutions by the end of September.
While Paul explained custodianship is necessary for institutional investors to commit to the market, he emphasized that the commitment of large-scale investors to a market that just created its first custodian solution will likely take time. Paul explained:
“Custody isn’t binary. It’s not like Coinbase Custody will launch and suddenly every pension will throw $100 million into BTC. It takes time for custody solutions to gain trustworthiness. But, I think we’ll have solid third party custody by September of this year. That will allow institutional inflows to start accelerating. Once a couple big traditional money managers announce that they’re including BTC as ‘digital gold’ in their portfolios, others will follow”.
Like Paul, several billionaire investors like Mike Novogratz similarly believe that once one institutional investor commits to the market, a “Fear of Missing Out” (FOMO) will trigger amongst large-scale investors, leading the next mid-term rally of digital assets.
Cover Photo by Chris Barbalis on Unsplash