- Reports say Coinbase is looking to purchase bitcoin custodial firm Xapo
- Coinbase reportedly beat Fidelity in the race to buy Xapo
- Coinbase working hard for global expansion
Cryptocurrency exchange Coinbase is in the final stages of talks to acquire Hong Kong-based digital assets custody provider Xapo for approximately $50 million plus an earn-out, sources told The Block, May 16, 2019.
Coinbase Mulling Expanding the Custody Business
U.S.-based Coinbase exchange often makes its way into conversations when speaking of the largest cryptocurrency exchange platforms across the globe. Coinbase – alongside Binance – is one of the few exchanges in the world with a market valuation in billions of dollars and has made several, albeit controversial, acquisitions in recent past.
Seeking to expand its digital assets custody business, Coinbase is said to be in “advanced talks” to bag one of the oldest and most popular bitcoin custodians in the crypto space, Xapo.
Reportedly, Coinbase has been locking horns with Fidelity Digital Assets – the newly christened crypto-focused offshoot of Fidelity Investments – for the purchase of Xapo for the past few weeks. Even more impressive is the fact that Coinbase eventually beat Fidelity Digital Assets to the purchase, the sources added.
A crypto startup turned unicorn outbidding a Wall Street giant speaks volumes about the level of commitment Coinbase possesses towards expanding its tentacles in the nascent industry. For Coinbase, the expansion into custody space makes sense strategically as it would not only help it diversify its business risk against the volatile movement of cryptocurrencies but also helps it cement itself as one of the best digital asset custody services provider in the ecosystem.
Mixed Reactions from the Crypto Community
If true, Coinbase’s acquisition of Xapo could be one of its most significant purchases to date as the latter has had a significant history in the digital asset space.
However, not all are excited at the prospect of Coinbase buying Xapo.
Matt Odell, the co-founder of blockchain-based messaging app Final Message, tweeted that he was surprised that Xapo agreed to sell their business to Coinbase instead of charging a small service fee to keep their revenue model afloat.
Xapo is one of the highest regarded custodians in the space, would prefer if they didn't get gobbled up by Coinbase along with the 700k bitcoin they hold.
Surprised they are considering this over charging a small service fee tbh. We discussed it further on RHR, uploading it now.
— Matt Odell (@matt_odell) May 16, 2019
Xapo’s existing revenue model generates money by facilitating over-the-counter (OTC) trades for customers using the bitcoin under custody. It charges absolutely nothing from customers who only want to store their bitcoin.
Further, blockchain podcast TokenTalk opined that there’s no substance to the rumors of Xapo selling to Coinbase or Fidelity Digital Assets.
Founded in 2012 by serial entrepreneur Wences Cesares, Xapo is one of the world’s premier bitcoin custody service providers. The company has raised some $40 million since its inception and currently holds 700,000 BTC worth $5.5 billion under custody (AUC.) Notably, the custodian also stores 226,000 BTC that are part of Grayscale Bitcoin Trust.
Some of Xapo’s early-stage investors include top-tier Silicon Valley VC firms such as Winklevoss Capital, Blockchain Capital, Digital Currency Group, and others.