Coinbase adds 10 customers for its new crypto custody service
Coinbase Inc., one of the world’s largest cryptocurrency exchanges, said 10 hedge funds and family offices have begun using the custody service it debuted last week that seeks to safeguard digital tokens in a manner similar to traditional securities.
The company aims to have 100 large institutional customers by the end of the year with as much as $5 billion in assets under management, Sam McIngvale, who is leading the effort for San Francisco-based Coinbase, said in a phone interview. Coinbase said it already stores more than $20 billion in crypto assets for clients such as retail investors.
Coinbase is one of a slew of custodian services for institutional investors that are debuting or are about to debut in an industry that has been plagued by hacks and thefts by cybercriminals. Such services should allow more hedge funds and pensions to invest in digital coins, as many of them are required to use so-called regulated custody, which meets requirements of U.S. officials. Availability of such services could lead to an influx of new capital into crypto markets if the industry weathers the current collapse in coin prices.
Coinbase has been talking with the Securities and Exchange Commission and Financial Industry Regulatory Authority to ensure compliance, McIngvale said. Ryan White, an SEC spokesman, declined to comment.
"We sort of have an understanding with the SEC and Finra, and it allows us to execute contracts with clients and take the first deposits," he said. The company didn’t need an official approval, as it partnered for the service with SEC-regulated broker-dealer Electronic Transaction Clearing Inc.
While the service is just available now for Bitcoin, Ether, Litecoin and Bitcoin Cash, the company plans to expand to support more cryptocurrencies. It’s also in talks to provide the service to exchanges and startups that have issued their own coins. It’s currently available in the U.S. and Europe, and will expand into Asia by year-end.
The service is part of Coinbase’s strategy to diversify revenue, and to offer more products aimed at institutional clients, McIngvale said. By the end of 2019, assuming current price levels, Coinbase aims to have up to $20 billion in regulated custody assets. The company is taking on clients with a minimum of $10 million, and charges a $100,000 setup fee and 10 basis points in monthly fees.
Coinbase is starting by offering cold storage -- essentially, a way to store coins offline, so hackers can’t grab them. It also wants to let clients move funds from cold storage to hot wallets to allow for active trading. Customers could also eventually make money by lending out the assets.
Polychain Capital, which reported in February that it had more than $1 billion in assets, is one of the service’s first clients. “Coinbase is incredibly well positioned to store the next $100 billion of crypto assets," Olaf Carlson Wee, chief executive officer of the crypto hedge fund, said in a phone interview. The company has “a very, very long history of successful digital asset storage.”