Bitcoin exchange Coinbase has announced the creation of Coinbase Custody, a digital currency custodial service that is targeted at hedge funds and other institutional investors who have remained hesitant to invest in the crypto markets due to concerns over asset security and regulatory compliance.
Coinbase CEO Brian Armstrong announced the new service — which will launch in 2018 — in a blog post, stating that it is aimed at the roughly $10 billion of institutional capital that is currently “waiting on the sidelines”:
“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,” Armstrong wrote.
The Coinbase Custody website specifically lists support for bitcoin, ethereum, litecoin, and ERC20 tokens, and Armstrong previews that the service will support a “wide range of digital assets and currencies.” This will give investors the ability to sink their teeth deeper into the crypto ecosystem and place bets on ICO tokens and coins with smaller market capitalizations.
To utilize the service, clients must deposit a minimum of $10 million in assets and pay a $100,000 setup fee. After establishing an account, clients will pay a 10 basis point (0.10 percent) fee per month on the value of the coins and tokens stored in the system.
In exchange, institutional investors will receive access to features designed to give them peace of mind that their crypto assets will remain secure, including the ability to have multiple signers, audit trails, withdrawal limits, and optional insurance. They will also be assigned a dedicated account representative and will receive phone support.
The timing of this announcement is not surprising. The rise of bitcoin and ICOs has piqued the interest of hedge funds and other institutional clients, and billionaire trader Mike Novogratz says that he believes a “herd” of Wall Street capital is waiting to be injected into the ecosystem.
Many analysts expect that the trigger for this entry will be the addition of bitcoin futures contracts to U.S. derivatives exchange CME. Although CME’s contracts will be cash-settled — meaning that no party will interact with bitcoin directly — their launch could normalize bitcoin as a financial instrument and ease its price volatility. To wit, the $95 billion British hedge fund firm Man Group announced just this week that it would make bitcoin a part of its “investment universe” once futures are actively trading on a regulated exchange.
It is unclear how quickly institutions will leap into the markets, but when the herd does arrive, Coinbase hopes a significant portion of their money will make its way to its custodial service.