Coinbase Publishes Institutional Strategy, as US Competition Rises

Coinbase, the largest cryptocurrency exchange in the United States, released a statement this morning regarding its institutional service offering. The statement lays out five core principles that the firm says will guide its institutional service offering.

Tuesday's announcement comes just a few months after Coinbase announced that it was launching a set of products for institutional clients. These include an institutional-grade Trading Platform Trading Platform In the FX space, a currency trading platform is a software provided by brokers to their respective client base, garnering access as traders in the broader market. Most commonly, this reflects an online interface or mobile app, complete with tools for order processing.Every broker needs one or more trading platforms to accommodate the needs of different clients. Being the backbone of the company’s offering, a trading platform provides clients with quotes, a selection of instruments to trade, real In the FX space, a currency trading platform is a software provided by brokers to their respective client base, garnering access as traders in the broader market. Most commonly, this reflects an online interface or mobile app, complete with tools for order processing.Every broker needs one or more trading platforms to accommodate the needs of different clients. Being the backbone of the company’s offering, a trading platform provides clients with quotes, a selection of instruments to trade, real Read this Term, custody services, and an improved pool of Liquidity Liquidity The term liquidity refers to the process, speed, and ease of which a given asset or security can be converted into cash. Notably, liquidity surmises a retention in market price, with the most liquid assets representing cash.The most liquid asset of all is cash itself.· In economics, liquidity is defined by how efficiently and quickly an asset can be converted into usable cash without materially affecting its market price. · Nothing is more liquid than cash, while other assets represent The term liquidity refers to the process, speed, and ease of which a given asset or security can be converted into cash. Notably, liquidity surmises a retention in market price, with the most liquid assets representing cash.The most liquid asset of all is cash itself.· In economics, liquidity is defined by how efficiently and quickly an asset can be converted into usable cash without materially affecting its market price. · Nothing is more liquid than cash, while other assets represent Read this Term.

Today, we’re sharing a set of core principles that will guide our institutional business. This set of fundamental beliefs will act as our North Star as we design, develop, and operate our institutional suite of products. https://t.co/w7lZvBaLb0

— Coinbase (@coinbase) August 20, 2018

Coinbase has also taken a number of steps to become a regulated broker-dealer. Such a status would provide the firm with a greater level of legitimacy and institutional customers with greater regulatory protection, something often lacking in the cryptocurrency industry.

The five core principles released this morning are fairly innocuous. In fact, they seem more aimed at promoting Coinbase’s institutional products, and reassuring potential institutional clients, than anything else.

Given how discerning Finance Magnates' readership is, I’m sure you can determine the ins and outs of the five principles, which are as follows:

1. Operate a fair and orderly market
2. Protect customers with institutional-grade infrastructure and processes
3. Enforce transparent market rules and governance
4. Provide fair access to all market participants
5. Publicly disclose listing practices and market rules

As noted, these seem to be aimed at reassuring institutional investors that Coinbase can provide the necessary setup in which they can trade. Such reassurance may be necessary, not just because of the ‘wild west’ feel of cryptocurrency markets, but because Coinbase is facing stiff competition from other American firms.

Beating the competition

A report this Tuesday from the Financial Times indicates that bitcoin trading with the Chicago Mercantile Exchange (CME) has increased dramatically over the past twelve months. Average daily bitcoin futures trading with CME now stands at BTC 30,000.

CME is not the only firm to have jumped on the cryptocurrency bandwagon. Chicago Board Options Exchange (CBOE) has also allowed clients to start trading bitcoin futures and is averaging BTC 5000 per day.

Both firms are offering bitcoin futures and not, as Coinbase does, spot trading. Nonetheless, CME’s average daily trading volume is almost three times as high as Coinbase’s average of BTC 11,000 per day.

That disparity may be due to the nature of the products Coinbase is offering. More probable is that both CBOE and CME are more established and, consequently, more trusted by and experienced with institutional traders.

If Coinbase is serious about entering the institutional space, it seems plausible that they too may start to offer futures in cryptocurrency trading. Moreover, they will certainly wish to capture some of CME and OBOE’s client base. Whether they will succeed is likely to depend on whether or not they can put those five principles into practice.