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Coinbase Partners with US DOJ Agency in $32M Crypto Custody and Trading Deal

Last Updated July 2, 2024 9:37 AM
Teuta Franjkovic
Last Updated July 2, 2024 9:37 AM

Key Takeaways

  • Coinbase Prime wins $32.5M contract to manage and liquidate cryptocurrencies seized by the USMS.
  • The company reported a strong institutional trading volume of $256 bn in Q1 2024 and emphasized its commitment to assisting law enforcement agencies.
  • Coinbase faces regulatory challenges but has received positive rating upgrades from Bank of America and KBW.

The US Marshals Service (USMS), which is part of the Department of Justice (DoJ) and handles asset forfeiture, has entered into a partnership with Coinbase Prime, the brokerage arm of the prominent cryptocurrency exchange Coinbase.

This partnership is designed to manage custody and facilitate trading services for the substantial cryptocurrency assets held by the USMS, according to a blog post  by Coinbase on Monday.

$32.5M Contract to Manage USMS Seized Crypto Assets

The announcement  detailed that Coinbase Prime was chosen for this role by the USMS due to its established reputation and capability to provide institutional-grade cryptocurrency services.

According to the agreement, USMS will compensate Coinbase Prime with $32.5 million.

In return, Coinbase Prime will manage and liquidate the large volumes of major cryptocurrencies currently held by the USMS.

This arrangement further cements Coinbase Prime’s status as a reliable custodian. As of this year, it safeguards over $330 billion in assets.

Since its inception nearly three years ago, Coinbase Prime has become the preferred platform for institutions and major digital asset holders, making it commercially popular.

It has positioned itself as a key partner for various spot cryptocurrency exchange-traded funds (ETFs).

Bolstering Law Enforcement Ties Amidst $256 Bn Institutional Trading Quarter

In the first quarter of 2024, Coinbase reported an impressive institutional trading volume of $256 billion.

In a recent blog post, Coinbase highlighted its ongoing commitment to assisting law enforcement agencies, a pledge that dates back to the creation of its law enforcement program in 2014.

According to  the company:

“Today, Coinbase works with every major U.S. federal, state, and local law enforcement agency, as well as international agencies on every continent. Growing the cryptoeconomy means promoting safe and efficient markets, and these partnerships are critical to our mission.”

The choice of Coinbase for custody services coincides with the US government’s recent sale of 3,940 Bitcoin, valued at approximately $240 million, which was seized from a narcotics trafficker in 2014. Just last week, this significant transaction took place.

With these activities, the US government has become one of the largest holders of Bitcoin, accumulating about 200,000 coins—worth roughly $5 billion—through various seizures linked to criminal enterprises.

Coinbase Faces Regulatory Hurdles Amidst Legal Battles and Positive Market Outlook

Coinbase, while establishing itself as a significant player in the cryptocurrency custody and trading space, has not been without its regulatory challenges.

In April, the US District Court for the Southern District of New York, under Judge Katherine Polk Failla, allowed the SEC’s lawsuit against Coinbase to move forward. This legal action challenges whether Coinbase operates as an unregistered securities exchange, broker, and clearing agency. Coinbase had sought to dismiss the lawsuit but was unsuccessful.

Adding to its regulatory woes, Coinbase has recently claimed that both the SEC and the Federal Deposit Insurance Corporation (FDIC) are unjustly hindering its attempts to access certain documents. The exchange argues that these documents should be accessible under the Freedom of Information Act (FOIA), indicating a possible overreach or misuse of authority by the regulators.

On a more positive note, Coinbase has seen an improvement in its financial market standing. Bank of America recently upgraded  its rating on Coinbase shares from underperform to neutral, significantly raising its price target from $110 to $217.

Similarly, the investment banking firm KBW adjusted  its price target for Coinbase, increasing it from $160 to $230, while maintaining a market performance rating. These adjustments reflect a growing confidence in Coinbase’s market position and future prospects despite its ongoing regulatory battles.

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