Coinbase has acquired Xapo’s custody business.
Xapo’s custody service is aimed at customers who need to store large volumes of cryptocurrencies, which are stored in cold wallets kept in a vault located beneath a Swiss mountain. This vault is a depot for ultra-rich customers, with elaborate security measures including several layers of granite and armed guards.
According to Casares, Xapo will retain ownership of the deposit and use it to store bitcoins on behalf of its retail customers. Meanwhile, Coinbase has developed its own security measures, including systems to store private keys – which unlock Bitcoin wallets – in secret locations across different cities.
Xapo’s exchange activities will remain with the company, and founder Wences Casares says he will retain his role as CEO.
Casares himself said that the custody business was a marginal activity and that the main focus has always been the exchange.
“It’s hard to do a consumer business well at the same time as an institutional business. Earlier this year, we looked for a home for it”.
Casares is originally from Argentina and has always stated that the majority of Xapo’s consumer business takes place in South America and other developing countries. With regard to custody services, there is little information known due to obvious privacy and security reasons.
Most of Xapo’s major custody clients have agreed to transfer their funds to Coinbase, delivering 514,000 BTC to the company. In the event that it also obtained custody of the other Xapo customers, Coinbase would manage 860,000 BTC, corresponding to almost 5% of the more than 17.8 million BTCs in circulation.
The company now claims to have more than 150 customers for its custody business and CEO Brian Armstrong says they are averaging 10 new customers and $200 million of new assets in custody per week.
Coinbase’s challenge is to attract investors who are still wary of adding cryptocurrencies to their portfolios by offering a secure, regulatory-compliant crypto-asset storage system.