Coinbase Moves Proves Cryptocurrency Isn't Going Away
The big news this week was made by Coinbase.
It was announced that the firm purchased One River Digital Asset Management. This might not seem like a big deal yet it is.
One River is a company that provides custodial cryptocurrency services for financial institutions. In other words, this is a bridge to major firms, potentially accessing larges sums of money. As the FTX mess showed, custody is vital for these types of companies.
A move like this is in stark contrast to a lot of the FUD that we hear about cryptocurrency. Between the threat of regulation along with Gary Gensler riding on his high horse, many are led to believe this is all going to disappear. After all, people like Charlie Munger are calling for its ban.
Make no mistake: Coinbase is not Wall Street. It is, however, as close as you can get. Do not look for that company to carry the tenets of Satoshi Nakamoto forward. Ultimately, I would not be surprised to see the company bought out a major bank such as Goldman Sachs.
So why does this prove that cryptocurrency is not going away?
Big Money Not Going To Lose Out
This move by Coinbase proves there is an enormous market to tap into. It is no secret that Wall Street is keeping a close eye on cryptocurrency. While they can talk about loving blockchain and not crypto, the reality is they want in because they can make money off it.
Picture this: Wall Street funds manage trillions of dollars of assets. Coupling this with profits generated from cryptocurrency could create enormous fees for these firms. At the same time, there will be charges for custody of the assets, another profit-center.
Of course, people could custody their own cryptocurrency and do not need any of these institutions but that is not how the system is set up. People, for the most part, are too lazy to learn what is required. Hence, they are willing to make Wall Street richer by allowing them to provide the financial services.
And Wall Street is drooling to get their hands on cryptocurrency services.
The move by Coinbase, a half a step removed from Wall Street, is an example of how we are seeing the industry cater to this market. Ultimately, Coinbase's future is not from having people swapping a few thousands dollars of Bitcoin for USD. Instead, it resides in tapping into the trillions that Wall Street is sitting upon.
Imagine the custody fees it can charge hedge funds, insurance companies, and pension funds. All of this is going to be in alignment with the regulation that is set down.
Of course, none of it is required since it is regulation that prevents these firms from just holding cryptocurrency themselves. At the same time, the regulators were also the ones who were asleep when Wall Street sold the world on the idea that mortgage backed securities were the same as U.S. Treasuries. One Great Financial Crisis later and nobody went to jail.
Follow The Money
This is all Wall Street sees. Obviously, we often discuss other things such as network effect and the building of value. None of this matters to the money crowd. To them, it is all about money in, more coming out.
There are trillions of dollars around the world. Not all of it is going to find its way into cryptocurrency. However, by putting in some infrastructure, the likes of Coinbase seek to tap into the fee structure that is being developed and pull in money onto its balance sheet.
In the end, this is not a move being made in isolation.
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