Coinbase Bets on Institutional Investors with One River Acquisition

Cryptocurrency exchange Coinbase has turned its attention to institutional investors with the purchase of One River Digital Asset Management.

Coinbase Bolsters its Institutional Offering

Coinbase (COIN) acquired the Stamford, Conneticut-based institutional digital asset manager and SEC-registered investment adviser, the company said Friday. ORDAM will now become Coinbase Asset Management (CBAM) and operate as an independent business, with its current CEO Eric Peters at the helm, under the Coinbase umbrella.

The two companies previously partnered to offer separately managed accounts (SMA), an alternative to mutual funds, in February 2022.

"The acquisition aligns with our long-term strategy to unlock further opportunities for institutions to participate in the crypto economy," Coinbase said in its statement.

The company already boasts $130 billion of quarterly institutional trading volume and more than $50 billion of institutional assets on its platform. As of Q4 2022, 25% of the 100 largest hedge funds in the world by assets under management (AUM) worked with Coinbase.

Coinbase Deal Aligns with SEC Rule Changes

The Coinbase acquisition comes only a day after Securities and Exchange Commission (SEC) Chair, Gary Gensler, once again rocked the crypto sector with his comments on crypto exchanges.

In prepared remarks ahead of a virtual meeting of the regulator's Investment Advisory Committee, Gensler questioned the ability of some crypto exchanges to be "qualified custodians".

"To be clear: Just because a crypto trading platform claims to be a qualified custodian doesn’t mean that it is," Chair Gensler stated.

The comments by the SEC Chair relate to a recent rule change by the regulator, in which commissioners voted on Feb. 15 to include crypto assets in its custody rules for investment advisors.

Investment advisors would be mandated to hold their digital assets with a qualified custodian. That is where the Coinbase deal makes sense as the publicly-listed exchange joins forces with an SEC-approved investment advisor. Coinbase could find itself able to invite institutional investment flows while other exchanges are grappling with documentation for a stock market listing or qualified custodian application.

The Bottom Line

Brian Armstrong, CEO of Coinbase, told Bloomberg TV on Wednesday that the company’s interests "are aligned" with the SEC. Armstrong said the exchange had a "good relationship" with SEC staff members and would "continue to invest" in those relationships. With the acquisition of One River, Coinbase is positioning for institutional investment demand on the right side of the law.