COINBASE CRYPTO CUSTODY
Coinbase’s German branch becomes the first firm to provide custodial services in the cryptocurrency market. The custodial services were authorized by the German financial regulator, BaFin. BaFin issued the first custodian license to Coinbase Germany.
What is crypto custody?
You must be wondering what crypto custody is and how it works.
Crypto custody are services wherein a third party, in this case coinbase, provides storage and security services to the users for cryptocurrencies. These third parties provide both, hot storage and cold storage facilities for cryptocurrencies.
Hot storages are storage facilities for cryptocurrencies that are connected to the internet whereas cold storages are archived and are not connected to the internet.
In November 2019, the Parliament of Germany passed a law which required crypto firms to apply for a license to start custodian services and other operations. If said law was not followed, the companies were asked to leave the German crypto market.
Coinbase accepted the law and applied for a license in late 2020.
Consequently, BaFin issued its first ever custodian license which has permitted Coinbase (Germany) to provide custodial services in the cryptocurrency market. The financial regulator recognized crypto custody as “newly introduced as a financial service.”
According to the regulator’s official website, owing to the lack of regulation in the crypto markets and custodial services being relatively new to the financial sector, BaFin created “an interdisciplinary, cross-divisional and cross-departmental team to deal with the complex issues relating to crypto custody business.”
In addition to the license allowing coinbase to provide custodial services, the regulator also granted the company the license to commence proprietary trading in cryptocurrency assets.
However, BaFin reiterated the risks involved in the crypto market and related services. It announced that only the service providers will be supervised and regulated by the regulator. The corresponding services and the crypto values or crypto accounts do not fall under the purview of BaFin and they would not be responsible for the loss due to the irregularity in certain services.
BaFin also highlighted the risks involved in “individual financial instruments” and said that they stand by the existing warnings issued by them. Financial instruments like Bitcoin do not fall under the purview of BaFin.
How does this benefit Coinbase?
Since Coinbase is the first company in Germany to receive a license, it will not face any competition from other institutions in the German market. Moreover, BaFin has received several applications but has yet to contemplate whether to give licenses in the coming months. Until any firm is granted a license, Coinbase can form a huge client base and generate revenues from proprietary trading and custodial services. Since Coinbase has prior experience in this area in other countries, it can establish a good business in Germany within a less time frame.
How does this benefit German investors?
Coinbase’s custodial service provides utmost security for the retail holding in cryptocurrencies. Coinbase can be a secure platform for retailers to hold their cryptocurrency holdings as Coinbase currently manages $20 billion worth crypto assets already. Moreover, they develop and update their security to vault maintenance, staking wallets and infrastructural networks regularly so as to ensure maximum security.
Coinbase stores the crypto assets in an offline cold storage which rules out the possibility of loss of assets due to hacking or virus. Coinbase has a reputation of being a secure server having lasted 7 years in this business without losing any digital assets of its customers.
The best benefit of all is that Coinbase offers a 2-hour withdrawal of the deposited assets during business hours and 24-hours for beyond business hours.
Moreover, the assets deposited in the Coinbase custody are insured by financially secured and A+ rated insurers. The insurance policy covers both cold and hot storage assets. The Coinbase operates under New York laws and the company is regularly audited by the regulators to avoid any illegal activities.
Coinbase claims to be the only exchange which provides seamless liquidity and trading services in the cryptocurrency market.
The license will be a boon for Coinbase’s international business revenue. It will also gain status as a market leader in custodial services. Coinbase will thrive in the crypto market and will soon become the leading crypto firm, at least in Germany and its influence will have an impact on the rest of the business in Europe.