San Francisco-based Coinbase, Inc. recently launched its cryptocurrency custody services. Today, it was revealed the company has already added 10 “hedge funds and family offices” to its offerings.
Coinbase’s custody service debuted last week with the goal of safeguarding digital tokens in a manner similar to traditional securities. Some believe licensed custodial services will help billions of dollars flow into the crypto industry, making the industry a more attractive target for institutional investors – like hedge funds and family offices.
One of the first reported Coinbase clients is Polychain Capital. Back in February, Polychain Capital reported that it had more than $1 billion in assets. Now, according to today’s report, Polychain Capital is one of the service’s first clients.
Coinbase’s goal is to have 100 large institutional customers by the end of the year with a collective $5 billion in assets under management, according to a report by Bloomberg. The company already reportedly has approximately $20 billion in crypto assets under management, including assets for ordinary retail investors.
Today, Coinbase is one of several custodial services operating within the crypto space. Coinbase launched its custodial service last week, with further offerings expected to launch over this summer.
As explained by Bloomberg, the launch of custodial services is nothing but good news for the crypto industry:
“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 means 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.”
In other words, hedge funds and other institutional investors are required to use custodial services to manage client funds. One barrier between hedge funds and crypto investments has been the lack of custodial services: even if a hedge fund were interested in investing in cryptocurrencies, that hedge fund would struggle with the custodial requirement.
Coinbase’s goal is to diversify its revenue, and the launch of its custodial service is part of that. By the end of 2019, Coinbase aims to have $20 billion in regulated custody assets.
If you want to access Coinbase’s regulated custody services, then you’ll need to be prepared to deposit a minimum of $10 million. Coinbase also charges a $100,000 setup fee and 10 basis points in monthly fees.
Coinbase’s custodial service relies on cold storage. However, some funds are kept in hot storage for active trading, and customers have the freedom to choose whether to move funds to cold storage or hot storage. In the future, Coinbase may also allow custodial clients to make money by lending out their assets.
Theoretically, the launch of custodial services in the crypto industry should pave the way for billions of dollars of new cryptocurrency buyers. Of course, it may be too little too late: With crypto prices plummeting across the industry, hedge funds and other institutions may be turned away from the industry. Nobody wants to get on a sinking ship. But where some people see inevitable losses, other people see an opportunity. That’s why this is an exciting time for the crypto industry.