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How Coinbase Could Secure Funding From Hedge Fund?

How Coinbase Could Secure Funding From Hedge Fund?

Coinbase, which is engaged in cryptocurrency exchange and wallet, has been in a position convince hedge fund to secure a funding of $20 billion. The company has sought it for the purpose of offering custodial services to its users through “Coinbase Custody.” The new venture is aimed at attracting big institutional investors, who are waiting to enter the crypto currency market. In any case, this is a key area of expansion as it comes in the wake of cyber criminals hacking some of the big exchanges.

Independent Broker

Coinbase pointed out that Electronic Transaction Clearing (ETC), an Independent broker, has helped to secure the new service. The broking firm is operating in line with the regulations of the Securities and Exchange Commission (SEC), according to cointelegraph. If the reports are to be believed, then the crypto currency exchange has also sought alliances with other big hedge fund firms. The company did not want to disclose the hedge fund name that came up with $20 billion funding.

The crypto wallet service provider intends to expand its services within the sector. For instance, it intends to provide margin finance to those interested before the current year ends. The company’s objective is to attract institutional investors and the margin financing is aimed at driving them to borrow to engage in trading. At the same time, Cornell University’s law professor, Robert Hockett, thinks that the decision of Coinbase to start a prime brokerage service could invite the attention of SEC.

Conflict Concerns

The professor has every reason to back his opinion. To support his point of view, Hockett said, “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.” This might suggests that the digital coin exchange would have to get the permission of the SEC before it starts offering the services.

Significantly, Coinbase has to eat its own words earlier this week when it announced about the acquisition of three companies. Though the exchange indicated that the SEC has given its permission for these acquisitions, it was forced to retract its own statement later. The exchange said initially that it was allowed to list digital coins that were classified as securities. Later, the same firm admitted that none of the regulators in the United States gave their stamp of approval for acquisitions.

Emerging Sector

One of the reasons for retracting its own statement is that there was no need for Coinbase to get approval from the SEC if the earlier report was true. However, the Financial Industry Regulatory Authority (FINRA) approval appears to be a necessary one.

In any case, the move assumed significance since institutional investors are yet to enter the crypto currency sector in a big way. They are shunning the sector since the sector is largely unregulated. Once, the segment comes under the regulatory purview, there is every possibility of institutional investors foraying into it. However, those equipped to manage them stands to gain when they start looking at the sector.

About the author


Steven Hopper

High school teacher, volleyball coach, husband and travel fanatic. I write to reflect on my own learning and share it with others.

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