Coinbase is all set to lure the institutional investors in the crypto market through its Coinbase Prime broker business. A team of former Wall Street executives is working together in bringing the big money through prime brokers which is a commonplace on the Wall Street but missing from crypto.
Coinbase prime targeting the pain-point of crypto market
One of the biggest venue to buy and sell cryptocurrencies in the US, Coinbase is all set to widen its institutional investors’ scope. The San Francisco-based company is targeting the biggest pain point present in the crypto market which is the lack of a prime broker.
On Wall Street, brokers that work as the middlemen are the ones that keep the conversation going by sitting between the institutional investors such as hedge fund managers and trading venues like exchanges.
When it comes to the crypto market, due to the entry barriers being high, these operations are not available. However, Coinbase has targeted this limitation by launching Coinbase Prime, a prime broker business. As stated on its website, Coinbase Prime is a “professional trading platform for institutional clients”. It provides dedicated institutional coverage in terms of,
“A dedicated team of institutional coverage professionals based in NYC will guide you through the onboarding process, advise on execution strategies, and deliver best-in-class client services and support.”
In Coinbase Prime, the company is offering some of the services offered by the traditional prime brokers. Onboarding large institutional clients and custody are few of those services that it has already announced.
Coinbase already attracted $10 billion, hedge fund
Now, Coinbase is also preparing to offer margin finance that is expected to be offered by the end of this year. Marginal finance will allow the firm’s institutional investors to borrow in order to trade or leverage a short position.
At the time of launch, Coinbase has mentioned,
“Over the course of the year we intend 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. We will also introduce platform improvements like multi-user permissions and whitelisted withdrawal addresses.”
The company has reportedly already had a $20 billion hedge fund onboard through its prime business only. Now, the team is further working on getting other bigger hedge funds. In 2018, prime broker units of the 12 largest banks collective brought in $4.9 billion in the first quarter. Entering the equities market in the 1990s, prime brokers are an integral part of Wall Street which is missing from the crypto market until now.
This is the reason according to experts why institutional investors are reluctant to enter the crypto market. Lack of prime brokers are apparently the biggest pain point in crypto as self-financing at each exchange makes the firm open to above average risks.
No prime broker means the trading firms have to suffer the loss if the issues in terms of hack or regulation arise.
This is certainly a positive step towards the institutional interest direction but Coinbase is not a registered exchange and this could raise potential conflicts in future.