Cryptocurrency exchange operator Coinbase has announced the launch of Coinbase Custody, a custody service that will provide secure storage for institutional investors looking to trade cryptos. In the past month, over 100 hedge funds focused solely on crypto investing and trading have launched, according to Coinbase. This shows that the industry has seen a lot of growth, probably reflecting high customer demand.
Coinbase’s new offering is designed to support further growth in the sector, and marks a strong push by the company into the institutional sphere. Additionally, Coinbase announced that the company is expanding its electronic marketplace with an office in Chicago, launching a suite of tools that will support institutional investors trading cryptos, dubbed Coinbase Prime, and is providing support for institutional clients via its Institutional Coverage Group.
Rolling out custody services for institutional clients could help bring more firms into the crypto space. Coinbase Custody can be used by institutional clients like sovereign wealth funds, pension plans, or asset managers that want to engage in crypto trading, but need somewhere secure to store their assets, according to Recode. Securely storing digital assets is a major concern for these firms, and has perhaps been a barrier to entry — custody services are commonly available for other financial instruments, yet have been lacking in the crypto sector.
This service will make investing in cryptos more accessible for financial institutions by providing a critical component needed to responsibly engage in trading of the assets. As a result, Coinbase may succeed in getting more firms to invest in cryptos on its platform.
Meanwhile, launching institutional services will help diversify Coinbase’s business. Offering services to institutions will add a new revenue stream for Coinbase, and marks a major shift in its overall strategy. The company has made a name for itself as a way for the masses to access cryptos, and the launch of this suite of products is a clear departure from that focus.
If Coinbase is successful in its efforts to woo institutions, it could cement a reputation as a trusted platform among a client base that’s far more lucrative than retail investors. Moreover, Coinbase already has experience in storing cryptos safely, with around $20 billion crypto assets currently entrusted to it. We will therefore probably see many firms choosing to work with Coinbase, which will also boost the crypto industry as a whole.
Of the many technologies reshaping the world economy, distributed ledger technologies (DLTs) are among the most hyped. DLTs are most often associated with cryptocurrencies like Bitcoin, but such coverage sidelines the broader use cases of DLTs, even though they stand to make a far bigger impact on the broader the financial services (FS) industry.
DLT’s value lies in its ability to centralize record-keeping, while cutting out the need for authorization by an overseeing party, instead allowing a record to be confirmed by multiple parties with access to the database. This means DLTs have the potential to streamline financial institutions’ (FIs) operations, boost data security, improve customer relationships, and drastically cut costs. But many FIs have struggled to implement DLTs and reap the rewards, because of organizational obstacles, but also because of issues rooted in the technology itself. There are a few players working to make the technology more usable for FIs, and progress is now being made.
In a new report, Business Insider Intelligence takes a look at what DLTs are and why they hold so much promise for FS, the sectors in which DLTs are gaining the most traction and why, and the efforts underway to remove the obstacles preventing wider DLT adoption in finance. It also examines the few FIs close to unleashing their DLT projects, and how DLTs might transform the nature of FS if adoption truly takes off.
Here are some of the key takeaways from the report:
- DLTs are proving attractive to FIs because of their ability to act as a single source of truth, distribute information securely, cut out middlemen, improve transaction times, and cut redundancy and costs.
- DLTs like blockchain and smart contracts stand to save the FS industry up to $50 billion a year through improved operational efficiencies, reduced human error, and better regulatory compliance.
- The technology is being explored actively across FS, with trade finance, insurance, and capital markets proving especially active. Overall adoption is still low because of organizational and technical hurdles, but these are now being eliminated, promising to boost implementation.
- A few FIs have pulled ahead of the curve and are very close to taking their DLT projects live, if they haven’t already. These players can serve as useful case studies for other institutions in getting their DLT solutions live.
In full, the report:
- Looks at what DLTs are, and why the FS industry is working hard to make use of them.
- Gives an overview of the financial segments which are seeing the most DLT activity, and what they stand to gain.
- Outlines efforts being made to make DLT more approachable and usable for the FS industry.
- Examines use cases in which FIs have managed to take their pilots live, and what they can teach their peers.