Coinbase Launches Their Coinbase Custody Service
Coinbase announced today, July 2nd, that their custody solution for financial institutions, Coinbase Custody, is open for business. The move signals that the firm is preparing itself for the entrance of players whose security requirements exceed that of the typical cryptocurrency retail investor.
UPDATE: Additional information about Coinbase’s partner, Electronic Transaction Clearing, added.
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Secure Custody Solution for Four Cryptocurrencies
Coinbase Custody will allow institutional investors in the United States and Europe to securely store BTC, ETH, LTC, and BCH using cold storage. When it was announced back in November 2017, Coinbase CEO Brian Armstrong said that more than 100 hedge funds had been created in the prior year exclusively to trade digital currencies. Yet, there are few good custody solutions available for financial institutions that want to both trade cryptocurrencies and hold them securely. Coinbase is hoping to fill this gap, per their announcement:
“Coinbase Custody’s mission is to make digital currency investment accessible to every eligible financial institution and hedge fund in the world. We’ll achieve this by striving to become the most trusted and easiest-to-use crypto custody service available. 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.”
The product has on-chain segregation of crypto assets, private keys are kept offline, and transactions require approval from a quorum of geographically distributed agents. There will be continuous third-party reviews of the system in order to maintain security.
Coinbase Making Moves to Expand
With the custodial solution, Coinbase moves closer towards becoming a “blockchain securities” broker-dealer. The new system will rely in part on Electronic Transaction Clearing (ETC), a Securities and Exchange Commission-registered broker-dealer that Coinbase announced it was joining forces with back in May. ETC is an SEC-qualified securities custodian, so it can be used by advisors or other third-parties to hold securities on behalf of their clients. However, ETC has faced legal difficulties and in March 2018 settled with the SEC over charges that it “had illegally placed more than $25 million of customers’ securities at risk in order to fund its own operations.”
While the SEC has signaled that cryptocurrencies like bitcoin and ether are not securities, proper custody options may prove crucial for the ever-elusive bitcoin ETF. A recent request to create a bitcoin-linked ETF included plans for a cold storage solution similar to Coinbase Custody.
Crypto Custody a Growing Area
Custody of digital assets is a crucial issue for the crypto space. In January 2017, BitGo announced it was buying Kingdom Trust, a regulated securities custodian. BitGo’s Chief Executive Officer Mike Belshe said at the time that $20 billion USD of institutional cash was ready to come into the crypto space but there was a lack of good custody options. Belshe also noted that SEC-regulated funds holding more than $150 million is assets were required to use a qualified custodian, like Kingdom Trust or ETC, for storing digital assets.
While some advocate that cryptocurrencies allow everyone to “be their own bank,” the reality is they are difficult to use and store securely. To solve this problem, several companies offer secure methods of storing cryptocurrency.
Xapo is one of the best known, with its network of vaults on five continents, but it only stores bitcoin. Last month, a startup called Swiss Crypto Vault announced crypto storage solutions in military-grade Swiss bunkers. The average retail investor can also simply keep their crypto on Coinbase, who say that 98 percent of customer funds are stored offline.
What’s your take? Will Coinbase Custody take off in popularity among institutional investors? Sound off in the comments below.
Images via Pxabay, Coinbase Custody