Coinbase already acts as a custodian for the customers of its cryptocurrency exchange desk Coinbase PRO (formerly, GDAX). But the new service will cater specifically to institutional investors.
“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,” Sam McIngvale, Product Lead at Coinbase Custody stated.
The cryptocurrency exchange desk acquired three companies last month to be able to offer these services: Keystone Capital Corp., Venovate Marketplace, Inc., and Digital Wealth LLC. It also applied with the US Securities and Exchange Commission (SEC) for license to become a regulated ‘broker-dealer.’
It is not known whether Coinbase has secured the SEC license yet, but the company has announced it will ‘leverage the expertise and systems’ of its partner Electronic Transaction Clearing (ETC), a SEC-registered broker-dealer for Coinbase Custody for now.
Coinbase currently supports Bitcoin (BTC), Ether (ETH), Litecoin (LTC) and Bitcoin Cash (BCH) for its custodial services, but plans to add more cryptocurrencies in the near future.
The service will be initially available to institutional investors in the US and Europe, but the company hopes to spread its wings to Asia by the end of this year.
For those who do not know, custodians are financial institutions that hold investors’ securities for safekeeping against theft and loss. In addition to secure storage, custodians often give additional services to ensure secure transactions and trading of the securities.
Given they hold a large amount of assets for institutional investors, the custodians are required to be registered as a financial institution. In the US, these regulations are set by the SEC.
Custodians play a major role for investors in fiat and traditional assets such as gold. The Bank of New York Mellon, JPMorgan Chase, State Street Bank and Trust Co. and Citigroup are some of the largest US Custodians, for example, as per Investopedia.
There has been a lack of reliable custodian services for cryptocurrencies all across the globe due to uncertainty in the regulations. But this has changed recently, especially in the US. The SEC has opened its guidelines to allow cryptocurrency businesses to offer services in a regulated manner. Other than Coinbase, Goldman Sachs-backed Circle also applied for cryptocurrency brokerage license recently.
Another cryptocurrency giant Xapo already offers cold-storage service for institutional investors, but doesn’t offer any of the other services associated with custodians.
Cryptocurrencies are prone to frequent thefts. Indeed, exchange desks and wallet services frequently get hacked. Regulated custodian services like Coinbase Custody can go a long way in instilling faith of investors in the safety of their investments.