trading

Coinbase has unveiled the next phase of its OTC roll-out, and it shows where crypto trading is heading

Quick Take

  • Coinbase is bringing together its custody services and its OTC desk, allowing users to trade directly out of cold storage for the first time
  • The exchange says it will be “substantially more efficient” to trade, as well as more secure
  • Sources say the move is a big indicator about the future of trading in digital assets.

Coinbase is preparing to usher in a new era of crypto trading.

The U.S. crypto exchange announced Wednesday that its OTC trading desk will now complete trades directly from cold storage, aiming to address concerns about moving funds out of custody to trade. The move means Coinbase Custody clients will no longer need to transfer their assets online and onto the exchange to complete an OTC trade.

“We’ve had custody clients asking for this since the day we launched our OTC desk,” the CEO of Coinbase’s custody business Sam McIngvale told The Block. “I think this will be the defacto way to trade.”

Coinbase discreetly launched its OTC desk late last year for U.S. accredited investors, later expanding into Asia and Europe. Coinbase Prime, the prime broker service, acts as an agency broker by agreeing on a trade price with clients and overseeing the trade, with most large traders opting to execute larger trades in over-the-counter, or OTC, markets. However, this is the first time it is lending its OTC services to Coinbase Custody, its custody business.

“OTC trading desks are more prone to fraud and dishonesty. The combination of OTC trading desks and custody solutions would give the security of an exchange market with increased liquidity,” Jessica Schaefer, CEO and Founder of consultancy-ground Bevel, explained.
 
Potential clients in the space agreed.
 
“This is the natural evolution of the space,” CEO of crypto hedge fund Crescent Ali Hassan told The Block. “Custody does not work effectively without a proper settlement and clearing service. By allowing clients to trade directly out of cold storage, Coinbase is graduating from pure custody/ pure OTC and moving into the traditional prime brokerage model. Connecting the pipes between custody and trading simplifies the investment process and likens it to traditional asset investing.”
 
The move echoes BitGo, which launched a similar product in January after partnering with Genesis Trading to allow users to execute trades without taking their assets out of its custodian. However, as a major exchange, Coinbase expects to be a serious rival, saying it anticipates “many Coinbase Prime clients” to sign up to its custody service rather than moving funds to other OTC desks.

Coinbase says it tested its first trade out of cold storage last week and said contrary to earlier expectations, it did not take any longer to complete than online trades.

“It’s actually remarkably more efficient”, said McIngvale. “Custody clients used to have to have to take their crypto out of cold storage first, which could take an hour, but now it’s direct.”

It may also be a relief for the exchange itself.

“This would make crypto trading from cold storage more accessible, forgoing the difficulty of generating liquidity on short notice,” Schaefer added.