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Coinbase crypto exchange managing $1 billion of institutional investments


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Coinbase expands existing custody footprint with Xapo acquisition

Coinbase, the largest U.S.-based crypto exchange, knows how to compete with the big boys. While Fidelity Digital Assets has been dominating the headlines with news of its soon to be launched crypto trading desk, coupled with its top-of-the-line custodial service, Coinbase has already been moving about in the shadows with its comparable crypto service and has already established a $1 billion beachhead with the institutional crowd of investors.

During the Consensus conference in New York, CEO Brian Armstrong announced to the amazement of the gathering throngs:

For Coinbase custody, we launched the product about 12 months ago. We just crossed $1bn AuM [assets under management]. We have 70 institutions adding $150m AuM a month. To a large degree that’s been a success.

By the way, Coinbase is no small enterprise. It recorded revenues of $1 billion for 2018.

When one thinks of crypto exchanges, one immediately assumes that these companies only cater to the retail trading crowd that wants to dabble in cryptocurrencies. The management team at Coinbase is strategizing well into the future. It actually launched its own custody service to attract investors from banks, hedge funds, family offices, and asset managers. As Armstrong explains: “I think that space will keep growing really rapidly. Every institution is going to have a crypto part of the business in the next few years if they don’t already.” It is starting to sound like the early days of the Internet, when everyone suddenly had to have a website and a good one, at that.

While analysts search in vain for reasons for the recent surge in Bitcoin prices, they have a difficult time assessing if any of the momentum is really due to institutional investors jumping into the crypto market. There was much to do in market commentary when BTC took a supposed dive back to $7,000 over the past week, but a common practice of “big money” players is to sell at a low price in order to see a dip in the market, so they can place their large “Buy” order. As expected under this scenario, Bitcoin has rebounded and is back at the $8,000 threshold once more, as if nothing happened.

Venture capitalist Fred Wilson, who is an investor in Coinbase and appeared with Armstrong at the big crypto confab last week, has also observed that the entry of institutional investment capital has been more broad-based than others have surmised:

When people read in the Wall Street Journal that institutions are coming to crypto, what they think is BlackRock’s coming to crypto, Goldman’s coming to crypto. Actually, that’s not what has happened.

Wilson, who runs Union Square Ventures, also noted that the “first two big buckets of institutional money were specialised cryptocurrency funds and venture capitalists who received crypto tokens in return for their investments and needed somewhere to store them”. Armstrong chimed in with: It “still feels like we’re in the early days” of cryptocurrency.

Armstrong concluded that:

When television first came out it was this grainy image in black and white, and the audio barely worked. People were saying why would I use that, I can get all my information from the radio? Same thing with electric cars, the early ones looked like toys. That’s what we’re seeing with crypto, right? What you typically see in these markets is certain niche areas adopt it and it eventually becomes more and more mainstream.

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Coinbase crypto exchange managing $1 billion of institutional investments

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