Coinbase, America’s leading crypto exchange, took another step forward to utilize its $300 million fundraising of last October to expand its global footprint in the industry, this time by beefing up its fledgling custodial business with the acquisition of Xapo Ltd for a reported sum of $55 million. If and when the final transfers are made, Coinbase will amplify its present custody assets under management from $1 billion to somewhere north of $9 billion, which would include over 860,000 BTC under custody.
The buzz in the crypto industry was that Fidelity Investments would bring the type of custodial services that both institutional investors and regulators, especially the SEC, expect to be the standard adopted by crypto exchanges across the globe. The interesting fact in this acquisition is that Coinbase actually beat out Fidelity’s contending bid for Xapo. Coinbase is obviously investing to enhance its own “top-of-the-line” institutional grade platform with custody services that institutions expect. It already has 70 institutions as clients of its existing custody service offering.
Sam McIngvale, CEO of Coinbase Custody, even went so far as to suggest that one day the exchange could get into the Bitcoin lending business on behalf of its institutional clients:
Fundamentally, we have to help our investors earn a return on their assets. You can imagine lending out bitcoin and earning interest on that.
Xapo Ltd was founded in Hong Kong in late 2013 by Wences Casares, its CEO, and Federico Murrone, its COO. Caseres hailed from Argentina and had experienced first hand the consequences of harsh devaluations of local fiat currency. He soon purchased Bitcoins, but was unable to store them safely and securely. He soon built a “cold storage” vault for his coins and keys, the genesis of Xapo, which was to follow later after friends and institutions asked him to store their Bitcoins. His Hong Kong-based company now provides wallet services, tied to a cold storage vault, and a Bitcoin-based debit card.
Today, the physical vaults are located in Switzerland, where both the personal keys and Bitcoins are stored securely in an offline environment. According to Fortune’s report on the deal, the largest clients in Xapo’s dedicated system have already decided to move their deposits to Coinbase, where all digital assets of clients are segregated and held in trust in a totally regulated domain. There will be no mass defections.
Per Coinbase’s website:
Launched in 2018, Coinbase Custody offers clients access to the secure, institutional-grade offline storage solution that has been used by Coinbase’s exchange business since 2012. Coinbase Custody is an independent, NYDFS-regulated entity built on Coinbase’s crypto-first DNA, offering the most sophisticated and reliable custody solution in the world.
According to coidesk.com, Xapo’s founder and CEO Wences Casares commented:
In choosing Coinbase, we are confident that the Institutional Custody Business is going to a company that can provide great insurance, borrowing and investment alternatives. We believe that Coinbase will take this opportunity to prove to our customers that they deserve their business.
More recent Coinbase news can be found below: