Coinbase acquires institutional crypto custody business

Coinbase acquires institutional crypto custody business

The largest US digital currency exchange, Coinbase, has acquired the institutional business of crypto wallet and custody provider Xapo. The San Francisco-based exchange announced the deal yesterday in a blog post, saying that it “caps off a tremendous period of growth and innovation for Coinbase Custody”.

Coinbase described Xapo, which has a “Bitlicense” in the state of New York, as “a pioneer in the storage of crypto assets, leading the industry in the creation of security techniques that have kept their customers’ cryptocurrency safe since 2014”. The exchange also indicated that it aimed to “extend Xapo’s legacy”.

Coinbase launched its own custody service in July 2018, as part of its push to attract more institutional clients. Following the deal, the business now has over $7 billion in assets under custody, “stored on behalf of more than 120 clients in 14 different countries”.

While Coinbase did not disclose the financial terms of the Xapo acquisition, Fortune reported yesterday that the company had paid $55 million to buy the business. The publication cited an unnamed source familiar with the matter, who also said that Coinbase had outbid investment giant Fidelity to make the deal.

While there were companies that made higher bids than Coinbase, they lacked the security or regulatory credentials to satisfy Xapo’s clients, the firm’s founder and chief executive officer Wences Casares told Fortune. He also explained that retail customers had always been Xapo’s main focus.

“It’s hard to do a consumer business well at the same time as an institutional business. Earlier this year, we looked for a home for it,” Casares said.

According to the source cited by Fortune, Coinbase added some 514,000 Bitcoins to its assets under custody, as a result of the deal, as most of Xapo’s largest clients agreed to transfer their assets to the exchange’s custody service. Coinbase could further gain some 350,000 BTC if it manages to attract the remaining Xapo clients.

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