Kyle Samani is one of a small group of investors who have tested the new Coinbase custody service for institutional investors. A solution to a problem that has been causing the hedge fund manager a long headache.
Samani is a managing partner at Multicoin Capital and earns his money through millions of strong bets on the cryptocurrency market. As if the job was not nerve-wracking enough, the manager faces a problem that has long since broken his head: to make sure that his holdings are not stolen.
The hedge fund manager does not fiddle with his private assets, but uses his customers’ money to earn profits by trading in cryptocurrencies. Sumani describes this obstacle as the “last barrier” that currently stands in the way of a major capital wave by institutional investors:
“There are many investors where custody is the last barrier,” he said in a telephone interview with Bloomberg. “Over the next year, the market will realize that safekeeping is a solved problem. This will release a large capital wave.“
Coinbase wants to tackle and solve this problem with its custody products. The company said custody is currently the safest solution for institutional investors to trade cryptocurrencies. Over $ 20 billion in crypto assets could go into custody as soon as it becomes available, estimates Sam McIngvale, who heads the Coinbase project.
Such projects would allow a large number of institutional buyers to expand their equity-filled portfolios to include cryptocurrencies such as Bitcoin and Ethereum. In addition, the service would give Samani and other fund managers, who are already active in the market, a reassuring feeling.
Most investment advisors are required by the Securities and Exchange Commission (SEC) to hold client funds with a qualified custodian bank. Institutional investors have long relied on global custodians such as JPMorgan to protect their securities, billions and even diamonds. But cryptocurrencies pose a new challenge: purely digital assets are vulnerable to hackers, and lost funds are hard to track and recover.
Originally published at medium.com on June 19, 2018.