Just days after Coinbase CEO Brian Armstrong revealed his company managing more than $1 billion in cryptocurrency assets through their custodial service, reports are surfacing that the exchange is negotiating an acquisition of Xapo.
According to sources familiar with the deal, the Block reported on May 16 that Coinbase is advanced talks to purchase the custodial service of Xapo for $50 million in an effort to further their position as the premier institution for cryptocurrency custody. The article also claims that Coinbase is in close competition with Fidelity Digital Assets to acquire the custodial service, with the latter viewing Xapo as a strong entry-point into the industry.
While the negotiation is far from concluded, Xapo would represent a substantial prize for either organization to acquire. Xapo is reported to have over 700,000 BTC under custody, worth $5.5 billion. According to the Block,
Xapo’s core product is cold storage vault custody of bitcoin, with rumors that the company holds as much as $5.5 billion of assets under custody (AUC) at the current $BTC price near $8,000, reflecting ~700K bitcoin under custody. Xapo custodies 226,000 BTC that are part of Grayscale Bitcoin Trust.
Xapo is also helmed by serial entrepreneur and staunch Bitcoin supporter Wences Cesares. Cesares, hailing from Argentina, is one of the more historic figures in the industry of cryptocurrency, earning the moniker “Patient Zero” as the original influencer for cryptocurrency in Silicon Valley.
The anonymous sources seem to believe that Coinbase is edging out Fidelity Digital Assets in the bid for Xapo. The Block claims that Fidelity Investments has been making an effort over the last year in bridging their traditional investment services with cryptocurrency and blockchain, since bringing in Tom Jessop as head of corporate business development in 2018, who holds experience in blockchain startups. Xapo represents a massive amount of leverage for the company to springboard into the industry of cryptocurrency, by targeting high-value institutional investors looking for custodial services.
However, with Coinbase currently in the front-running for purchasing Xapo, the U.S. based exchange is signaling its business model moving forward that will diversify beyond collecting trading fees. Given the cyclic nature of cryptocurrency and the extreme volatility the markets have exhibited thus far, Coinbase could find more steady ground by becoming a premier custodial provider for Bitcoin and other prominent cryptocurrencies,
“The addition of several billion of AUC would be a huge shot in the arm for Coinbase. Under Xapo’s current business model, customers are not charged for storing their bitcoin. Rather, they generate revenue by enabling over-the-counter (OTC) trades for customers using the bitcoin under custody.”
Since its founding in 2012, Xapo has raised $40 million in funding, with David Marcus and Winklevoss Capital included among its list of prominent investors. Adding Xapo would contribute to the list of recent deals Coinbase has been making, including the acquisition of Earn within the past year, which has been reformed into the educational portal Coinbase Earn.