Coinbase, one of the most popular digital-coin exchanges for retail investors, has its eye on institutional cash looking for a way into cryptocurrencies.
The San Francisco-based firm will sell what it bills as digital-coin custodial services for money managers like hedge funds, sovereign wealth funds and family offices that have been hesitant to dive into the wild world of cryptocurrencies. The product, called Coinbase Custody, is designed for clients with stricter financial controls, Coinbase said.
In traditional finance, custody banks like BNY Mellon and State Street Corp. hold securities, keep records, track performance and provide other services for institutional investors. Those functions are potentially valuable in cryptocurrencies, where exchanges have repeatedly been subject to infiltration and theft by hackers.
According to a blog post on Medium by Coinbase Chief Executive Officer Brian Armstrong Thursday, Coinbase will charge a $100,000 setup fee for its new offering, which is only available to investors with at least $10 million in deposits. The Commodity Futures Trading Commission in some cases claims regulatory jurisdiction for firms if they offer services to investors with less than $10 million in total assets.
“By some estimates there is $10 billion of institutional money waiting on the sidelines to invest in digital currency today,” Armstrong wrote. “When we speak with these institutions, they tell us that the number one thing preventing them from getting started is the existence of a digital asset custodian that they can trust to store client funds securely.”
Many traditional financial firms have been skeptical of investing in digital tokens given the market’s speculative nature, regulatory uncertainty and criminal activity, with JPMorgan Chase & Co. CEO Jamie Dimon famously calling bitcoin a fraud. Others have been more welcoming, with CME Group Inc. planning to offer bitcoin futures.