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.

SEC Delays Three Bitcoin ETF Proposals Again

The United States Securities and Exchange Commission (SEC) announced that it delays its decision on three Bitcoin (BTC) exchange-traded fund (ETF) proposals.

The ETFs, proposed earlier in the year came from Bitwise Asset Management, VanEck/SolidX and Wilshire Phoenix, and filed with exchanges NYSE Arca and Cboe BZX. The applicants are hopeful that there will be some progress on the ETF front hoping to become the first asset manager to offer a regulated investment vehicle based on Bitcoin.

The SEC decision for listing VanEck has been delayed to October 18, while Bitwise’s proposal on NYSE Arca will know its fate on October 13. The Wilshire Phoenix’s United States Bitcoin and Treasury Investment Trust will be the most recent decision announcement on September 29. The SEC shared the same statement for each of them:

“The Commission finds it appropriate to designate a longer period within which to issue an order approving or disapproving the proposed rule change so that it has sufficient time to consider this proposed rule change.”

Exchange traded funds (ETF) are a type of security that tracks a basket of assets proportionately represented in the fund’s shares. The SEC approval is highly anticipated by the community, as this would make Bitcoin exposure for institutional investors much more accessible.

The VanEck proposal was filed in January, while Bitwise’s current application was filed in February. The Wilshire Phoenix proposal was published on July 1, 2019. Attempts for Bitcoin ETF approvals have been consistently rebuffed by the SEC over the last couple of years, the main reason being fear of market manipulation that can’t be monitored by the agency.

Today’s news marks the latest in a series of delays on a Bitcoin ETF. The SEC had previously delayed its decision on VanEck and Bitwise’s ETF applications in March, and again in May.

Following the May decision, the SEC decided to publish a set of questions, available to the public, in order to gather more information and opinions about VanEck’s proposal.

The SEC has the right to postpone its decision (usually up to 3 instances) on proposed financial products in order to gather information or further analyze a rule change that would allow the listing.

China Close to Launching Its Own Digital Currency

China’s central bank – People’s Bank of China (PBoC) – has announced that is nearly ready to issue its own sovereign digital currency, according to a senior official.

Mu Changchun, deputy director of the People’s Bank of China’s payments department, has revealed that the bank’s virtual currency was “almost ready” for release. The news was announced by Mu at the China Finance 40 Forum over the weekend.

According to the news report, researchers have successfully developed a prototype that adopts blockchain architecture after five years of research and it is “close to being out.” However, details about the launch have yet to be known.

China’s central bank will reportedly launch its digital token through a two-tier system, with PBoC on an upper level and commercial banks on a secondary level as legitimate issuers.

Mu further explained that issuing a digital currency using a pure blockchain architecture would be difficult to achieve in a country as big as China due to the fact that retailers require high concurrency performance. The bank said it wouldn’t rely on blockchain exclusively, and would instead maintain a more neutral stance on which technology it decides to use.

According to Mu, this will improve accessibility, enhance adoption rates amongst the public as well as promote innovation amongst commercial entities. In addition to that, the digital currency is designed to be suitable for small-scale retail high-frequency business scenarios.

Mu has stressed that the institution’s aim is for the digital currency to replace M0, or cash in circulation, rather than M2, which would generate credit and impact monetary policy. The digital currency would also support the Yuan’s circulation and internationalization, he said.

According to patents registered by the PBoC, consumers as well as businesses would download a mobile wallet and exchange their yuan for the digital money, which they could use to make and receive payments. It is further indicated the wallet would store a digital currency issued by the central bank or any authorized central entity that is encrypted like a cryptocurrency with private keys, offers multi-signature security and is held by users in a decentralized way.

Currently, there are 52 patents filed under the name of the Digital Currency Research Lab of the PBoC, with the latest published in October 9th 2018, having been submitted on March 26th 2018.

Meanwhile, the news comes as global central bankers take a skeptical view on Facebook’s cryptocurrency project – Libra. Earlier in July, former governor of the PBoC Zhou Xiaochuan claimed that Libra poses a threat to payments systems and national currencies and he believed it should come under central bank oversight to prevent potential foreign exchange risks and protect the authority of monetary policy.

Walmart Files Patent to Launch Separate Digital Currency

One of the largest retailers in the world – Walmart – has reportedly filed a stablecoin patent in the United States, similar to the Libra token proposed by Facebook. The patent was filed with the US Patent and Trademark Office (USPTO) on August 1st.

According to the filing patent – “System and Method for Digital Currency via Blockchain”, the document outlines a proposal for “generating one digital currency unit by tying the one digital currency unit to a regular currency; storing information of the one digital currency unit into a block of a blockchain; buying or paying the one digital currency unit.

Similar to Facebook’s Libra, Walmart’s filing patent suggests that the proposed coin could help provide finance for those with limited access to banking services – one of the major claims Facebook has made for Libra, most likely in an effort to appeal to the public and of course the regulators.

Using a digital currency, low-income households that find banking expensive, may have an alternative way to handle wealth at an institution that can supply the majority of their day-to-day financial and product needs,” Walmart states.

It is further noted that the stablecoin is most likely to be pegged to the US dollar and will support a zero or low fee transaction, as well offer storage for users’ funds, which can be spent, for instance, at retailers or partners, and easily converted to cash. Otherwise, the token will be available for use anywhere.

Notably, users of the stablecoin could even earn interest, according to the filing patent. With Libra, interest earned on the scheme’s potentially vast reserve funds would eventually go to Libra partners that back the company. Walmart, on the other hand, says its token could store user’s purchasing histories on the blockchain, and then apply related savings to their subsequent purchases in a similar way to loyalty points.

According to the retailer giant, the blockchain-based digital currency could further challenge banks by removing the need for credit and debit cards:

The digital currency may act as a pre-approved biometric […] credit. A person is the ‘credit card’ to their own digital value bank.”

Walmart envisions that the scope of its digital currency could extend to form part of wider, blockchain-powered service ecosystem, imagining the creation of an “open-platform value exchange for purchases and for crowdsource work.

This would allow customers to buy products or services for themselves and for others — for instance, making use of the platform to hire a technician for repairs, an associate or a designated shopper for a given amount of time.

Meanwhile, Walmart has already been using blockchain for tracking products such as fresh greens and pharmaceuticals. In addition to that, the company has applied for other patents such as products relating to tracking packages, power supply payments and delivery fleets.