Coinbase Custody Trust Company LLC is a wholly owned subsidiary or Coinbase Inc, and has just acquired approval from the New York State Department of Financial Services (NYDFS) to operate as a “limited purposes trust company.” The coins it can hold on trust include Bitcoin (BTC), Litecoin (LTC), Ethereum (ETH), Ethereum Classic (ETC), Bitcoin Cash (BCH), and Ripple (XRP). Most surprising is the inclusion of XRP in this list, given that the coin is not listed on the exchange itself due to its regulatory uncertainty. Coinbase COO Asiff Hirji praised the NYDFS decision, indicating that –
“[The NYDFS] has proven itself to be a strong advocate in its support for the responsible growth of the cryptocurrency industry. The New York State Limited Purpose Trust charter, which now enables Coinbase Custody to act as a Qualified Custodian for crypto assets, builds on our unparalleled success as a crypto custodian.”
What are custody solutions?
A qualified custodian, most typically a bank, is an institution or individual who holds funds on behalf of another, with the aim of minimizing theft and loss of funds. Cryptocurrency custody solutions are generally provided to institutional clients, and there is presently a lack of affordable custody solutions in the cryptocurrency space. This is partly because it is a new industry with very few standardized procedures for storing various types of cryptocurrencies, and also because it entails far greater risk given the nature of crypto assets. Cold storage is generally regarded as the most secure type of storage as the funds are not kept online (in contrast to ‘hot’ storage), but apparently, even this is not 100% safe. Cryptocurrency exchange Trado.io recently had their cold storage wallets compromised, through the damage was minimized. As per Coinbase –
“Coinbase Custody is a combination of Coinbase’s battle-tested cold storage for crypto assets, an institutional-grade broker-dealer and its reporting services, and a comprehensive client coverage program.”
Coinbase targeting institutional investors with NYDFS approval
Coinbase has been releasing various products and services orientated towards institutional investors in the past year, including a suite of institutional products, a cryptocurrency mutual fund, and an improved trading platform. The exchange has also opened a Japanese office and launched Coinbase Commerce to make cryptocurrency payments accessible to millions of online merchants and consumers.
Many are expecting an increase in institutional investment in 2019 and beyond. There have been numerous studies released that show that the demand is increasing, as well as evidence that institutions have been investing via the OTC market. There is also increased regulatory acceptance and continued integration between the fiat financial and legal markets with the cryptocurrency industry. The NYDFS approval represents further legitimization of the cryptocurrency industry and its gradual integration into the existing regulatory infrastructure.
Digital Nomad with an interest in Zen and Blockchain technology.
Law graduate with 3 years experience as a consultant in the capital markets industry and 4 years experience freelancing on UpWork as a Creative Writer.