One of the largest crypto exchanges Coinbase has secured $20 billion hedge fund through its custody service Coinbase Prime, Business Insider reports July 19.
The Coinbase team is also working to attract other large hedge funds to its site.
According to Business Insider, Coinbase took up the challenge of creating a full-scale service of prime brokerage on Wall Street, which helps institutional investors carry out cryptocurrency transactions.
The prime brokerage service is usually provided by investment banks to hedge funds. The service allows hedge fund managers to transfer most of the functions associated with the operational servicing of trades to the bank, while they themselves have the opportunity to focus on the investment strategy.
Colleen Sullivan, CEO in cryptocurrency venture firm CMT Digital, said that the lack of a fully functional prime brokerage service in the field of cryptocurrency remained one of the main obstacles for large Wall Street players to enter the cryptocurrency market. She said
“If there is no main broker, the companies involved in the transaction will be directly affected by the events suffered by the exchange, such as hacking, regulatory issues, operational issues, technical issues and many other issues. All of this can result in a loss of cash and digital currency for the companies involved in the transaction.”
Sources also reported that Coinbase is preparing to provide its institutional clients with access to margin trading, so that they can use borrowed capital to increase the potential profitability of their positions and open short positions.
In the future, with the help of its brokerage service Coinbase Prime, Coinbase plans to help institutional investors choose the best trading platforms, even if they belong to competing companies.
In May of this year, in addition to Coinbase Prime, the Coinbase team introduced another service for institutional investors – Custody, which allows customers to store large amounts of digital money.
Robert Hockett, a professor of law at Cornell University, noted that such a Coinbase activity with the provision of brokerage services Coinbase Prime is likely to attract the attention of the SEC.
“This raises conflict concerns, given Coinbase’s also running a coin exchange, reminiscent of those that the Commission has found when securities firms have attempted to combine these two roles.”