In an impeccable sign of the times, sources tell The Block that Coinbase may soon acquire Xapo, one of the first and most well-regarded Bitcoin custodians. This news has been divulged as data indicates that institutions are looking to siphon capital into the crypto asset space, thereby making custodians a necessity.
Coinbase & Fidelity Duke It Out Over Xapo
Reported by The Block on Thursday morning, the San Francisco-based cryptocurrency giant Coinbase is “in advanced talks” to purchase Xapo, a Zurich-headquartered custodian that purportedly owns at least 5% of all BTC in circulation, worth billions of dollars. In fact, Xapo has been reported to store the Bitcoin in Grayscale’s Trust (over 1% in circulation) in military vaults in Switzerland, sequestered away in mountain ranges.
Xapo, headed by “Patient Zero” Wences Casares, who adopted Bitcoin after he was slammed by multiple hyperinflations of the Argentinian Peso, is one of the earliest startups in the space, and has secured funding from Digital Currency Group, Winklevoss Capital, and Blockchain Capital.
Sources, who are “people familiar with the matter”, tell the outlet that Coinbase has an offer of $50 million and added contingent “earn-outs” on the table, but that Xapo has yet to shake on the proposed deal. They add that Coinbase and Fidelity’s resident crypto division, Digital Assets, have been duking it out over this deal, which is massive in and of itself. So far, as hinted at, Coinbase has the lead and was quicker on the draw, as the budding startup looks to bolster its embryonic custody business in a renewed drive to appeal to institutional players.
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This news comes after Coinbase has revealed that it really intends to delve into custody, citing growing interest from its institutional clients and contacts. Speaking at Consensus, Brian Armstrong, the technologist-turned-chief executive of Coinbase, revealed that his firm’s custodian crossed $1 billion worth of assets under management (AUM) this week, which was sourced from 70 institutions. Armstrong adds that this sum continues to grow by $150 million, signaling immense interest from the non-retail audience.
And in a Q&A session held on Wednesday night, the entrepreneur noted that Coinbase Pro’s volume is now 60% institutional, furthering the narrative that his company should continue to focus on the needs of big names, which many believe will mature the cryptocurrency market.
Institutions Flood Into Bitcoin
This comes as data has revealed that institutional players are also jumping headfirst into cryptocurrency, downing a red pill if you will. On Monday, for instance, the CME’s Bitcoin futures vehicle saw 168,385 BTC worth of volume on Monday, up from February record of 91,690 BTC. In a similar fashion, the Digital Currency Group’s subsidiary Grayscale was revealed Monday to have seen its flagship product, its Bitcoin Trust, post $141 million in volume today on markets.
And Fidelity Investments revealed that institutions are widely amicable towards the digital asset class. Out of the “more than 400 U.S. institutional investors” polled, 47% agreed that cryptocurrencies should have a place in their portfolios.
But this begs the question, will improved custody solutions spark widespread “FOMO” from some of the bigger names in the institutional side of markets?
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