Coinbase Launches ‘Prime’ Service in Push to Lure Big Institutional Investors
Coinbase has unveiled a spate of products and services aimed at major players in the financial industry. Tuesday’s announcement, which included a new “white glove” offering called Coinbase Prime, comes as the San Francisco digital currency exchange seeks to entrench its dominant position in an increasingly competitive U.S. cryptocurrency market.
In addition to the new Prime service—which offers sophisticated trading and data tools to institutional investors—the company also announced “Coinbase Markets,” which will draw on its new Chicago office to create a souped-up version of its existing exchange service.
“In the past few months, over 100 hedge funds announced plans to trade and invest in cryptocurrency, signaling heightened interest from institutional clients and financial services professionals for a source of liquidity and custody for their digital assets,” the company said in a statement.
Meanwhile, Coinbase confirmed the imminent launch of a Custody service in partnership with ETC, an SEC-regulated broker-dealer. The custody offering, which has been in the works since last year, provides extra security measures and complies with a series of regulations required by banks and investment companies.
All of this comes at a time when big banking names, including Goldman Sachs, are preparing to wade into the cryptocurrency markets. In response, companies like Coinbase are scrambling to build the sort of trading and security infrastructure to which they are accustomed. Hence, services like Prime.
“[Prime] will fill a missing piece of critical infrastructure needed for institutions…Coinbase intends to offer lending and margin financing products to qualified clients, high touch and low touch execution services like over-the-counter (OTC) trading and algorithmic orders and new market data and research products,” the company explained.
As for Coinbase’s Prime tool, it will see the company take its existing trading platform (known as GDAX) and create a version exclusively for sophisticated institutional investors. Many of the new offerings—including “latency performance, on-premise datacenter colocation services and institutional connectivity”—will be built up in the new Chicago office, whose opening was reported earlier this month.
Battle for a New Era of Crypto Customers
Unlike past investment trends, big banks and hedge funds were late to discover the growing popularity of digital assets like Bitcoin and Ethereum. But in recent months, they’ve started to make up for lost time.
This has set off a fight to lure these large order books. The competition has pitted Coinbase against Boston-based Circle, which is smaller but offers products like so-called block trading, a tool that helps institutions make large transactions without tipping the market about impending trades. The suite of products announced by Coinbase on Tuesday appear intended to challenge Circle for business as institutional trading expands.
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Meanwhile, the stock-picking app Robinhood, which is popular with many millennials, recently announced a major foray into cryptocurrency, albeit on the consumer side.
The competition also comes at a time of uncertainty over when exchanges will increase the number of cryptocurrencies that are available for sale. While a listing on a big exchange typically triggers a price spike, regulators are warning that many digital assets are in fact securities that must be registered before they can be traded.
Coinbase has so far taken a very conservative approach, listing only four currencies so far (Bitcoin, Bitcoin Cash, Litecoin and Ethereum), and raising questions about when it will add more.
In an interview, Adam White, vice president and general manager of Coinbase Institutional, said the company is “absolutely committed” to adding new assets, but referred Fortune to a blog post about how and when Coinbase will do so.
White added that he believes Coinbase’s history of staying on the right side of regulators, coupled with its rapidly expanding suite of products and services, will put the company in a strong position to maintain its lead as more major financial players rush into crypto.
“We’re seeing the growth of institutional trading happening before our eyes. It’s a good thing. It means more capital and better infrastructure,” said White. “I think Coinbase is incredibly well positioned to win this space.”
An earlier version of this story incorrectly referred to Coinbase Markets not Coinbase Prime when describing how the company is adapting its GDAX platform.