Coinbase Secures $20 Billion Hedge Fund and Plans to Offer Margin Financing for Institutional Investors

In early July 2018, San-Francisco based startup Coinbase launched its custodian solution for institutional investors. The leading digital asset exchange has now secured a $20 billion hedge fund to offer investors a greater variety of financial services.

Coinbase Custody Draws Institutional Capital into Crypto

The everyday investor’s go-to service for buying and selling cryptocurrency, Coinbase, is finding ground in the institutional investment sector by purchasing a $20 billion hedge fund through its prime broker, Business Insider reports July 19.

The name of the specific fund was not disclosed in the report. However, Coinbase confirmed they are also working to get other funds to trade on its platform.

Coinbase Rebrands GDAX Platform to Coinbase Pro, Acquires Paradex
Related: Coinbase Rebrands GDAX Platform to Coinbase Pro, Acquires Paradex

Coinbase launched its prime broker service, Coinbase Prime in early 2018.

Non-existent in the crypto world, prime brokers connect institutional investors, such as hedge funds, with exchanges and other investment firms to provide a bundle of services including, margin financing. According to Business Insider, Coinbase plans to offer margin financing for institutional clients by the end of 2018.

Margin financing allows investors to borrow securities and funds to trade, increasing potential profit and enabling leveraged short positions.

In an interview with Business Insider, Greenwich Associates’ consultant Richard Johnson said: 

“Coinbase is pursuing a lot of different initiatives that make sense and take it closer to or are more similar to traditional finance: custody, financing, lending, security tokens, and the institutional portal. They have the resources to fund them and will surely have some successes.”

Without prime brokers, investment firms are subject to the same vulnerabilities as exchanges, including hacking, operational faults, and technical errors. Through Coinbase Prime, Coinbase hopes to vertically integrate its prime-broker, exchange and custody services to become an aggregate solution for institutional investors seeking to enter the cryptocurrency sector.

Coinbase took a step towards drawing in institutional capital when it launched its digital assets custodian solution, Coinbase Custody on July 2, 2018.

Coinbase Backpedals Approval to List Security Tokens

Days after announcing SEC and FINRA approval to acquire Keystone Capital Corp., Digital Wealth LLC, and Venovate Marketplace Inc, Coinbase retracted its statement and revealed that it supposedly never needed the SEC’s permission to finalize its acquisitions.

Coinbase spokeswoman Rachael Horowitz told Bloomberg:

“It is not correct to say that the SEC and FINRA approved Coinbase’s purchase of Keystone because SEC was not involved in the approval process. The SEC’s approval is not required for the change of control application.”

Related: Coinbase: Never Needed SEC Approval to List Security Tokens

It appears Coinbase is moving forward with its newly acquired alternative trading system (ATS) license, broker-dealer license and registered investment advisor (RIA) license to list security tokens on its platform in the future.

However, it is unknown whether the SEC will intervene before any tokens make their way onto the Coinbase markets.

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