Earlier this month, popular cryptocurrency exchange, Coinbase announced the release of their new service, Coinbase Custody. This new service will allow crypto hedge funds, ICOs, and exchanges, securely store their crypto assets. Considering the fact that Coinbase already boasts of storing over $20 billion in crypto assets, one may be wondering why they need another service targeted at institutional investors. Well, this article will focus on what Coinbase Custody is, and how it may possibly affect the price of Bitcoin, and cryptocurrencies at large.
Overview of Coinbase Custody
One of the barriers hindering several institutions from entering into the crypto space, is the otherwise loosely regulated market. For a start, the market is quite volatile. Beyond this, there is the possibility of a hack.
The crypto market has recorded several high-profile hacks; from Mt. Gox, to DAO, and more recently, CoinCheck. The reality is that storing large amounts of crypto securely is not only risky, but difficult. Custody, allows these exchanges and ICOs to safety store their digital assets under Coinbase. It is also worth-noting that Coinbase Custody is regulated. The service has partnered with Electronic Transaction Clearing (ETC), which is registered under SEC as a broker-dealer.
Coinbase Custody has managed to solve two very crucial problems facing the crypto industry – security and regulation. According to the CEO of Coinbase, “Over 100 hedge funds have been created in the past year exclusively to trade digital currency. By some estimates there is $10B of institutional money waiting on the sidelines to invest in digital currency today…” This gives you an idea of how much money is sitting docks, waiting to enter into the crypto space.
Why is Coinbase Custody such a big deal?
Just to clear the air, Custody is one of the recent services of Coinbase. It is different from their website. Other services in their line up include Coinbase Pro, which is a more advanced version of their website, targeted at active crypto traders. They also have Coinbase Prime, which allows institutions and corporations invest in and trade cryptos.
So why is custody such a big deal, and how will it possibly affect the price of Bitcoin and cryptos in general? The company claims to be storing over $20 billion of customer assets in cryptos. Given the current crypto market cap of about $250 billion, Coinbase is effectively managing about 8% of the entire crypto assets in the market. Thus, any positive announcement coming from Coinbase will arguably be met by an upward trend (the cases of Bitcoin Cash and Litecoin comes to mind).
It’s easy to see how cryptos take a beating each time there is a major hack or huge amounts of cryptos become liquidated. There’s no doubt that such price actions and the possibility of a hack, will scare away potential investors and institutions. Coinbase Custody will remove some of the barriers to entry for large amounts of money, and we can now see the big players roll in. And you can guess what happens when huge amounts of cash come into the market – to the moon!