The latest news that Coinbase has secured a $20 billion hedge fund for its custody service should be of no surprise. The company has been expanding rapidly. From prime brokerage services to custody, Coinbase has been doing everything to woo traditional investors.
I am not going to rehash the pros and cons in terms of Securities Laws here, because the important thing to consider is that Coinbase is seemingly leading the charge to further mainstream crypto exchanges. After all, despite what BlackRock and Goldman have posited (and of course later turned away from) that cryptos are just a fad, there are plenty of institutional and traditional investors waiting to jump into cryptos. Security has been a major factor in preventing from doing so.
So how does custody accounts answer security concerns?
Let’s understand that most security concerns come from centralized exchanges getting hacked. While decentralized exchanges have a host of issues such as fraud concerns, there is less of an issue with a direct hack resulting in billions removed. Most people invested in cryptos utilize cold storage ledgers to ensure their money is protected from hacks, but this is not a method that mainstream investors, especially institutional investors are interested in employing for their customers.
Backed custody accounts (insured by a third party like a hedge fund) along with dedicated and segregated cold storage adds a high level of security that changes the paradigm and swings exchanges like Coinbase further towards a traditional financial structure.
Coinbase’s approach under their newest offering Coinbase Custody, is to offer segregated and dedicated cold storage, dedicated coverage from ETC an outside institutional firm, insurance, and more.
Is this enough to assuage institutional investors’ concerns?
“Coinbase actually is one of the ones right now who are making history.”
Rudolf Medvedev of Ternion says the following on Coinbase’s moves:
“Coinbase actually is one of the ones right now who are making history. They see what is required by the market right now. And are operating. Not only they will set an example. Possible or not we will see later. But example on to achieve institutional money being safe. But many will be able to follow the example as well afterwards.”
With institutional investors still waiting out the crypto storm. Coinbase’s moves are set to hook them in as customers. But, they are not the only ones. Newer exchanges are certainly following their lead.
Ultimately, the money is there to drive cryptos forward and with security concerns beginning to wane, look for the crypto community to begin to fracture even more over centralized exchanges verses decentralized ones. The fact is, Coinbase and others that are implementing a comprehensive approach to security are fast becoming the drivers in what has been a ideologically driven industry.
I for one, believe that Coinbase’s moves will be followed by many others. The crypto revolution will continue.