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Coinbase Focuses on Institutional Investments with $57M Boost After Failed Retail Lend Program

Published September 6, 2023 10:56 AM
Teuta Franjkovic
Published September 6, 2023 10:56 AM
Key Takeaways
  • Coinbase Prime users already invested over $57M in a new loan scheme.
  • When Coinbase announced its $180 million bond buyback program, a new thing arrived.
  • After BlockFi and Genesis Global infamously failed, Coinbase appears to have benefited.

In an effort to fill the void created by the demise of companies like BlockFi Inc. and Genesis Global Holdco, Coinbase Global Inc. has launched  a crypto lending service for US institutional investors.

According to a recent filing  with the US Securities and Exchange Commission (SEC), customers of the largest US crypto exchange’s Prime service have already contributed with $57 million to the loan program.

A full-service prime brokerage platform called Coinbase Prime enables institutions to execute trades and maintain assets.

“With this service, institutions can choose to lend digital assets to Coinbase under standardized terms in a product that qualifies for a Regulation D exemption,” Coinbase said  in a statement on Tuesday.

Not the First Lending Mission

Coinbase once offered lending services through Coinbase Borrow  to retail investors but ceased new loans in May. The same team, Coinbase Credit, oversees the new institutional program.

In June, the SEC sued Coinbase for offering and selling securities without registration, linked to its staking-as-a-service program, where customers entrusted their currencies to Coinbase in exchange for network security rewards. A number of US states asked  Coinbase to stop offering its staking services as well.

The three lenders Celsius Network, BlockFi, and Genesis Global were among the most well-known cryptocurrency lenders to declare bankruptcy during the past year. A cascading succession of failures caused by lenders getting caught making hazardous bets that didn’t pay off significantly decreased investors’ alternatives for borrowing and leverage.

Coinbase Prime Main Differences

Although they are all a part of the Coinbase ecosystem, Coinbase, Coinbase Pro, and Coinbase Prime have different features and are geared toward various user types.

The most straightforward of the three, Coinbase is for inexperienced investors who want to purchase, sell, and retain bitcoins.

With advanced trading options including limit orders and margin trading, Coinbase Pro caters to more seasoned traders. OTC trading and options for cold storage are among the features of Coinbase Prime, which is for institutional investors. Although they each offer unique features and costs, all three systems are reliable and safe.

The launch of Coinbase Prime is the latest step in Coinbase’s ambition to provide a comprehensive prime brokerage service to its institutional clients.

When it purchased institutional brokerage firm Tagomi  in May 2020, that really got going. In February, I first learned of Coinbase’s efforts to increase its lending capacity.

It was a strategy to take advantage of the market opportunity created by the aforementioned financial crisis that crippled companies like BlockFi and Genesis Capital. It is crucial to have a reliable prime broker so that hedge funds and family offices can trade on many exchanges.

To succeed in this, however, Coinbase will have to get over a few obstacles. For starters, the SEC has already criticized the company for running a business that combines tasks that would normally be carried out separately on Wall Street.

The second concern is Coinbase’s potential limitations in offering customers access to a wide range of venues due to direct competition. The third point, not exclusive to Coinbase but impacting all crypto lending, is the end of undercollateralized lending, a challenge for many institutions.

Coinbase Boosts and Expands Bond Repurchases

The news arrived on the same day Coinbase made public its plan to buy back $180 million worth of bonds.

In a corporate statement  on Tuesday, September 5, 2023, the San Francisco-based crypto exchange increased its offer for outstanding 3.625% senior notes due in 2031 from $150 million to $180 million, extending the expiration date to September 18, over two weeks.

The action arrived after Coinbase boosted its payout for the bonds on August 21 from the 64.5 cents it first paid investors when the tender was first announced earlier in the month to 67.5 cents on the dollar.

According to the statement , creditors to the exchange turned in notes worth $50 million at face value by the deadline and tendered an additional $211 million after that. The outstanding principal amount of the bonds due 2031 was $1 billion.

For the tender offer, Citigroup Global Markets Inc. is acting as dealer manager.

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