Coinbase Completes Acquisition of Crypto Custodian Xapo

Coinbase, one of the largest cryptocurrency exchanges, has just acquired the custody business of Xapo, an institutional business service best known for storing Bitcoins (BTC) in a vault under a Swiss mountain. The acquisition follows Coinbase’s plans to expand its custody services, and could eventually lead to the San Francisco – based exchange storing over 5% of all Bitcoins in circulation.

According to an announcement made on Thursday, Xapo has been acquired for $55 million which was enough to outbid another strong contender – custody giant Fidelity. The firm stated that the new acquisition will help expand the company’s custody business as well as increase the assets under custody up to more than $7 billion.

The news follows weeks of speculation over the exchange’s intentions with Xapo, seeing as Coinbase Custody had acquired in early August Xapo’s largest client – crypto-asset manager Grayscale Investments who at the time reported having $2.7 billion under management. This is considered to be one of the largest crypto transactions in history.

Xapo, which launched in 2013, is known for its wallet services including physical storage vaults for Bitcoin, based in Switzerland, which are used to store customers’ crypto assets in an offline environment to ensure the safety of private keys. Prior to Grayscale being acquired by Coinbase, the firm reportedly held $5.5 billion worth of cryptocurrency.

Following the acquisition, Xapo will hold onto its exchange business, which lets ordinary consumers buy and sell Bitcoin. Xapo founder, Wences Casares, has stated that he will maintain his long-time role of CEO. In addition to that, Xapo will keep possession of the vault and use it to store Bitcoins on behalf of its retail customers.

According to Casares the retail exchange business has always been Xapo’s main focus, and the custody business had been established as a side business at a time when wealthy Bitcoin investors needed a secure place to park their digital wealth.

 “In choosing Coinbase, we are confident that the Institutional Custody Business is going to a company that can provide great insurance, borrowing and investment alternatives,” said Casares. “We believe that Coinbase will take this opportunity to prove to our customers that they deserve their business.”

Meanwhile, the majority of Xapo’s largest clients have agreed to transfer their assets to Coinbase, giving the company control of over 514,000 BTC, currently worth $5.3 billion. If Coinbase manages to sign the remaining clients, then its custody service will have more than 860,000 bitcoin in total under custody, worth over $8 billion.

Coinbase CEO Brian Armstrong, has stated that ”custody is a critical step toward the institutionalization of crypto economy. It’s likely to start off small—maybe a few billion under custody—but it will grow quickly to a point that it’s a meaningful piece of stable, recurring revenue for the company.”

Prior to the acquisition in July this year, Coinbase Custody claimed to hold more than $2.5 billion worth of crypto from roughly 100 institutional clients.

Coinbase’s new custody services will include regulatory support and insurance, as well as staking, which extends to a sort of proxy voting service for cryptocurrencies that have built-in voting mechanisms.

“Fundamentally, we have to help our investors earn a return on their assets. You can imagine lending out Bitcoin and earning interest on that,” said Coinbase Custody CEO Sam McIngvale.

In the meantime, Coinbase isn’t the only company trying to get into the custody space. Earlier this year, startup Anchorage announced $40 million in backing from finance giant Visa as it seeks to lure in more institutional clients. Meanwhile, Palo Alto-based BitGo is also said to be competing to be a player in the custody space.

Coinbase Switches Banks from Barclays to ClearBank in the UK

Barclays – the British multinational investment bank and financial services company – has reportedly ended their relationship with U.S. cryptocurrency exchange platform Coinbase.

According to industry sources, the London – based bank, is no longer providing banking services to Coinbase ending a relationship that started in March last year as the exchange expanded in Europe.

The news has caused unwarranted disruption, such as Coinbase users having reportedly been indirectly affected. The rare deal between the exchange and the bank gave its UK customers access to the Faster Payments Scheme (FPS) which allowed users to directly deposit and withdraw pounds into their exchange accounts.

However, the news of the split up has already slowed UK deposits and withdrawals, which now take days to process. The US exchange platform has already found a replacement UK banking partner in ClearBank.

ClearBank is one of the U.K. challenger banks that have come up on the radar in recent years to compete with market incumbents. ClearBank is expected to restore Coinbase’s FPS access by the end of the third quarter.

The reasons for the separation of Barclays and Coinbase are not clear. Currently, Barclays, ClearBank and Coinbase have all declined to comment on the matter.

However, one unnamed source claimed that the Barclays-Coinbase relationship was simply a pilot program that had run its course. The source further added that Barclays has probably held Coinbase back, preventing it from listing certain coins and tokens.

A CEO of a U.K. crypto company who chose to remain nameless has also voiced his opinion on the saying, citing:

“It is my understanding that Barclays’ risk appetite has contracted a little – I’m not sure exactly why or what’s been driving that, maybe there has been some activity they are not happy with. But it’s about Barclays’ comfort level with crypto as a whole.”

Coinbase first secured a bank account with Barclays in early 2018 and by August it already began rolling out support to let UK customers buy and sell cryptocurrency in Pounds sterling. The exchange had also been granted an e-money license by the U.K. Financial Conduct Authority (FCA), making it to be the first crypto platform to gain access to FPS.

Meanwhile, earlier this week, Coinbase delisted Zcash – a privacy-centric cryptocurrency, which uses a technology called zero-knowledge proofs to hide details of transactions from blockchain watchers. According to sources, the decision was made in accordance with Clearbank’s wishes, as it was uncomfortable indirectly supporting a currency with features that make law enforcement’s job harder.

ClearBank is also working with FCA-regulated crypto broker BCB Group. Most recently, the broker announced a deal to bring Luxembourg-based exchange BitStamp onto Faster Payments for the sterling pound.

Although, Barclays has taken the decision to take less risks when it comes to crypto, the global bank still provides operational banking services to Blockchain, the U.K. wallet provider which recently announced plans to move into the exchange space with its super-fast PIT trading service.

Grant Thornton Reveals the Firm Audited $10 Billion Worth of Cryptoassets

Most recently, international auditing firm Grant Thornton has revealed that it has audited more than $10 billion worth in cryptoassets within the first quarter of 2019. On top of that, these audits accounted for 40 different cryptocurrencies across more than 100 million addresses.

Founded in Chicago in 1924, Grant Thornton LLP (Grant Thornton) is the U.S. member firm of Grant Thornton International Ltd, one of the world’s leading organizations of independent audit, tax and advisory firms. The global auditing firm has revenues over $1.8 billion and works with a broad range of public and private companies, government agencies, financial institutions, as well as civic and religious organizations.

Johnny Lee, national practice leader for Forensic Technology Services at Grant Thornton, has noted in a statement that

“Cryptocurrency companies must contend with an auditing challenge that is at once simple and complex. First, can you prove that you own and control the assets you are claiming as yours? And, second, do those assets really exist – and can you prove as much?

Whilst inconsistencies have been discovered between the blockchains and balance sheets, the firm was not allowed to disclose such cases.

Markus Veith, a partner in the Audit practice at Grant Thornton and leader of the firm’s Digital Assets practice, has disclosed that the firm had spent 4 years developing technology platforms and auditing methodologies which would allow creating point-in-time balances for cryptocurrencies.

Grant Thornton’s proprietary hybrid-cloud audit platform allows the firm to provide a wide range of solutions to its clients. The platform has audited for 40 cryptocurrencies, including Bitcoin (BTC), Bitcoin Cash (BCH), Ethereum (ETH), Ripple, EOS, Monero, Zcash, USDC and all ERC20- compliant tokens.

In addition to that, Veith said the firm has also created proprietary methods for testing the ownership and existence of each of these currencies, with features that are more efficient and effective than public blockchain-explorers would otherwise provide.

To scale these capabilities to the rapid testing of tens of millions of addresses, the firm has generated proprietary forensic nodes for certain complex currencies such as ETH, BTC, BCH.

Currently, the firm serves between 15 and 20 clients that are highly leveraged in crypto assets, including prominent crypto-denominated exchanges.

Since launching four years ago with one institutional client that only held BTC, the firm had taken a risk to innovate and challenged itself to take on more digital assets. According to the firm, since the market bottomed out in 2018, the firm’s clients have diversified their portfolios. Noteworthy, Grant Thornton has also become the firm of record for Coinbase’s USDC.

Coinbase Launches Debit Card for Customers in the UK

San-Francisco-based digital currency exchange Coinbase has decided to launch a visa debit card – „Coinbase Card“ – which will enable its customers in the U.K. and the EU to pay in-store and online with cryptocurrency. The news was announced in a blog post published on April 10th.

Following this partnership, the exchange aims to facilitate the payment process, stating that the Coinbase Card will be supported by the customers‘Coinbase account crypto balances, allowing them to purchase goods for everyday necessities worldwide.

Users will be able to spend their Bitcoin (BTC), Ether (ETH), Litecoin (LTC) and other cryptocurrencies “as effortlessly as the money in their bank.” Coinbase claimed it will instantly convert cryptocurrency to fiat currency, such as the British pound (GBP), whenever customers complete a transaction using the debit card. The card supports all digital assets available for purchasing/selling on the Coinbase platform.

To help customers with managing their funds, the exchange platform has decided to launch an app for the Coinbase Card on iOS and Android, which gives customers the option to select which cryptocurrency wallet they will use for their purchases. The application offers immediate access to receipts, transaction summaries and spending categories amongst other available features.

Customers can download the iOS or Android app straightaway and securely link it with their Coinbase account. Once linked, the Coinbase balance will be immediately available. This is the first debit card to link directly with a major cryptocurrency exchange in the U.K. and EU.

Previous similar products required customers to deposit a certain amount of cryptocurrency onto the card before purchasing goods. Meanwhile, Coinbase announced that for the first 1,000 customers, the exchange will waive the card issuance fee of £4.95.

Electronic money institution Paysafe Financial Services Limited will issue the Coinbase Card. Customers can make contactless, chip and PIN payments as well as withdraw cash from ATMs.

At the moment, the card is only available for U.K customers. Coinbase said the exchange plans to add support for other European countries in the near future.

In a similar move, banking startup 2gether announced last month that it was launching a prepaid Visa debit card which enables users to spend cryptocurrencies. According to the company, the 2gether card will enable its customers to process payments with either Euros cryptocurrencies such as Bitcoin (BTC), Ethereum (ETH), Ripple (XRP), Bitcoin Cash (BCH), EOS, Stellar (XLM) and Litecoin (LTC).

Coinbase Custody Starts Offering Staking as a Service Starting with Tezos

In a blog post published on March 29th, cryptocurrency exchange Coinbase has announced a brand new service for its investors – staking crypto assets to accrue value.

Coinbase Custody, which serves as a storage facility for institutional investors, is looking to expand its suite of services to include staking — a means by which Proof-of-Stake (PoS) cryptocurrency networks encourage activity. The exchange will start off with offering staking for Tezos (XTZ).

Proof-of-stake (PoS) is a type of algorithm by which a cryptocurrency blockchain network aims to achieve distributed consensus. In contrast, the algorithm of proof-of-work (PoW) based cryptocurrencies such as Bitcoin uses mining; that is, the solving of computationally intensive puzzles to validate transactions and create new blocks.

In PoS-based cryptocurrencies it is required of the users to participate by depositing assets to the network and then helping validate transactions and create new blocks. As a result, they receive payouts much like traditional miners in a PoW system.

Additionally, users who have assets to stake but don’t want to take part in the arduous process can instead delegate their assets to someone else. Participants who choose to stake their crypto assets earn passive income, which ranges from around 5% to 25% annually, depending on the network and the level of participation.

In order to win over institutional investors who might be wary of the risk/reward profile of PoS, Coinbase Custody is assuring its clients that all staked coins will stay in fully-insured cold storage. As such, the exchange will post the necessary bond to bakers out of its own pocket; therefore there is “zero risk” to its custody clients.

Through its offline storage service, investors will be able to participate in networks such as Tezos using Coinbase as a regulated intermediary.

Sam McInvale – head of product at Coinbase Custody – has affirmed that one of the reasons why the exchange is starting off with Tezos and later on following on with other delegated PoS is especially because they are able to keep their clients’ funds in cold storage at all times.

He demonstrated that in the case of Tezos, bakers must post a bond equal to 10% of the total being staked. Hence if a client makes a $100 million worth of XTZ deposit, Coinbase would post a bond of $10 million worth of the tokens to its baker to meet that.

According to the exchange, clients will have the opportunity to make a return on their XTZ, which has been estimated at an annual return of around 6.6%, after all Coinbase fees have been deducted.

Custody clients with Tezos tokens will be automatically delegated from cold storage to the Coinbase baker. However, the exchange does not currently have plans to allow its custody clients to delegate to other external bakers.

Following this announcement, Coinbase revealed as well that it would add similar support for decentralized autonomous organization (DAO) MakerDAO’s governance token Maker (MKR), with further tokens to receive support throughout the year, which Coinbase Custody clients will be allowed to vote on.