How Coinbase Quietly Became the World’s Biggest Bitcoin Bank

 

On August 15, the San Francisco-based digital currency exchange Coinbase announced that it had acquired the cryptocurrency custody service Xapo’s institutional branch. The business move puts Coinbase in the limelight, making it the largest custodial service for digital assets worldwide, with more than $7 billion under custody.
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Coinbase Acquires Xapo’s Institutional Arm and Now Commands $7 Billion Worth of Digital Assets

As early as 2010, Bitcoin supporters such as Hal Finney predicted that someday most BTC transactions would occur between massive bitcoin-backed banks. Finney believed that if a digital currency like bitcoin was to gain mass adoption, the network would not be able to include every single financial transaction in the world. The renowned cryptographer said that large bitcoin-backed banks would fill the void and “work like banks did before the nationalization of currency.” Fast forward to today, where firms like Coinbase are holding massive amounts of digital assets in custody. On Thursday, the California exchange announced that it had acquired Xapo’s institutional crypto operation and established itself as one of the largest crypto custodians worldwide. Coinbase published a blog post in regard to the acquisition and stated:

In just over one year since launch, Coinbase Custody has grown to over $7 billion in Assets Under Custody (AUC) stored on behalf of more than 120 clients in 14 different countries, making it the largest, most globally recognized and most trusted institutional custodian in the world.

Coinbase Growth Since 2012: $8 Billion Valuation, $600 Million in Annual Revenue

Coinbase has come a long way since Brian Armstrong and Fred Ehrsam started the company back in 2012. That year Coinbase allowed users to buy and sell BTC using a bank transfer and quickly became one of the biggest BTC providers next to Mt. Gox. Throughout 2012 and 2013, investors and venture capitalists started seeing potential in Armstrong and Ehrsam’s company and began to invest. The founders participated in a Y Combinator startup incubator, received $5 million from Fred Wilson in May 2013, and $25 million from Andreessen Horowitz, Union Square Ventures (USV), and Ribbit Capital in December 2013. By 2014, Coinbase users grew to more than one million accounts and the assets under the company’s control continued to grow exponentially from there. The cryptocurrency community really took notice of how large Coinbase had grown two years later, when in February 2016, Brian Armstrong told the public that “[Coinbase is] now storing about 10% of all bitcoin in circulation.”

In February 2016, Coinbase claimed to store 10% of all BTC in existence.

Coinbase is now valued at over $8 billion, after closing a funding round in 2018 for $300 million to “accelerate the adoption of cryptocurrencies and digital assets.” In 2019, despite stiff competition, the San Francisco tech company has estimated revenue between $569-650 million. Binance comes close to Coinbase, with The Block reporting in February that the exchange pulled in $446 million in profits. Kraken captures $150 million annually, Bitstamp $17M, Bitfinex $10M, and Itbit $4M in revenue. Coinbase has around 800 employees and the firm has made roughly 10 acquisitions since 2012. The company acquired startups like Blockr, Earn.com, Cipher, Digital Wealth, Keystone Capital, Blockspring, and now Xapo’s institutional arm. Coinbase has also made various equity investments like the recent cryptocurrency derivatives exchange Blade as well as acquiring Horizon Games, Textile, Near, and Dharma.

In 2017 Speculators Estimated Xapo Held $10 Billion Worth of Bitcoin With Keys Spread Across 5 Continents and a Swiss Military Bunker

Xapo started its business similarly to Coinbase, but did not offer its bitcoin wallet and cold storage vault services until March 2014. The Hong Kong-based company was founded by Wences Casares and Federico Murrone and..........

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