With the custody of crypto assets becoming of utmost importance, industry startups have been doing anything in their power to make a foray into this facet of cryptocurrency.
After launching its own custody division, Coinbase has made a massive acquisition in the cryptocurrency security business, making it the largest (known) custodian in the Bitcoin market.
Coinbase’s Custody Business Manages $7 Billion in Crypto
Back in May, there were rumors that Coinbase was trying to bag a deal with Xapo, the legendary Swiss Bitcoin custodian and service provider founded by Wences Casares.
The Block then reported that the San Francisco-based giant was “in advanced talks” with Xapo to acquire its custody business, famous for storing a purported 5% of all Bitcoin in vaults, namely one in the side of a massive Swiss mountain. The outlet reported that Coinbase had an offer of $50 million and “earn-outs” on the table. Coinbase and Fidelity Digital Asset Services were purportedly duking it out over this deal, it was added.
According to a report from Fortune, Coinbase won the deal, outbidding Fidelity by offering $55 million. It isn’t clear if any of Xapo’s employees or executives will be jumping ship. But, it has been confirmed by a source that a “majority of Xapo’s largest clients” will be transferring their assets to Coinbase’s custody unit, which now owns over 514,000 BTC — wow.
Indeed, last week, Grayscale Investments, the famous cryptocurrency fund that manages over 1% of all Bitcoin, teamed up with Coinbase Custody. And, on Thursday, Coinbase’s chief executive, Brian Armstrong,
There remain some 350,000 Bitcoin in the accounts of clients that are still mulling over the Coinbase acquisition of Xapo’s institutional custody branch.
It is important to note that with this deal, Xapo isn’t leaving the crypto custodian business. Far from, in fact. Speaking with Fortune, Casares has stated that it will still have control over its famous Swiss vault, which he claims will be used to store Bitcoin on behalf of Xapo’s retail clients.
Casares attributes the sale of the presumably largest branch of his business to Xapo’s new focus on improving his startup’s retail exchange business.
It seems as though this is a philosophical focus. Casares is famous for being “converted” to the Bitcoin industry because of the multiple monetary, economic, and political debacles he experienced during his youth. Xapo’s retail focus is likely a move to try and empower those oppressed by regimes through Bitcoin.
Coinbase’s acquisition is its latest attempt to better accommodate institutional players, with Armstrong calling it custody “a critical step toward the institutionalization of the crypto economy.” Indeed, custody has been cited as one of the main concerns for Bitcoin exchange-traded funds by the U.S. SEC.
While Coinbase’s product roster and volumes have been growing, the crypto unicorn has been having some internal tussles. According to a report from The Information published in late-July, there have been literal “shouting matches” between executives at the firm.
A point of contention is Coinbase’s decision to add a mass of altcoins. Another is whether or not the Silicon Valley giant should cater to institutions by providing services reminiscent of those on Wall Street, but with the proper crypto twist.
This internal turmoil, coupled with the fact that some just want to move on, has resulted in what the media has dubbed an “executive exodus”. Ever since late-2018, over half a dozen prominent individuals have left the firm.
They include Chief Technology Officer Balaji Srinivasan, Head of Institutional Products Adam White, Head of Institutional Sales Christine Sandler, VP of Engineering Tim Wagner, and Vice President Dan Romero.
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