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Crypto M&A deal: Coinbase in advanced talks to acquire Xapo

crypto M&A deal

US-based cryptocurrency exchange Coinbase is reportedly in advanced stages of acquiring custody provider Xapo for a whopping $50 million to augment its custody business. Xapo has two core products- an easy access wallet and a lockdown vault, both intended to provide secure Bitcoin solutions. 

Reportedly Xapo holds as much as $5.5 billion of assets under custody when factoring in Bitcoin’s current price at $8000 and the ~700K bitcoins under custody. Interestingly, under Xapo doesn’t charge its customers for storing Bitcoin but is instead generates revenue by enabling OTC trades with the Bitcoin’s under custody. Xapo has raised $40 million in Venture funding from industry leading VC firms such as Pantera Capital, DCG, Winklevoss Capital and Greylock partners among others, according to InWara’s Venture Funding database.

If this deal concludes it will mark Coinbase’ 13th acquisition in its portfolio of blockchain and crypto companies and will the second most capital intensive deal.

crypto M&A deal

Previous acquisitions include for a whopping $100 million and Paradex for a cool $34 million. Coinbase’ latest concluded acquisition of Neutrino landed the company in hot water as Neutrino’s leadership being nearly identical to that of Hacking Team, which had reportedly been accused of human rights violations.

What’s the role of a custodian? And why are they important

In traditional finance, a custodian is a financial institution that holds its customers’ securities for safekeeping to minimize the risk of theft or loss. Usually, custodians store securities in electronic or physical form and are often large, reputable institutions.

So what’s a crypto custodian?

Crypto custodians safeguard cryptocurrency and digital assets, although technically Bitcoin and cryptocurrencies don’t qualify as a security, as they’re not backed by any assets. Private keys, which are used to conduct crypto transactions are a complex set of alphanumerics, making it near impossible to remember. Your crypto assets can be easily stolen if hackers gain access to your private keys and since crypto transactions are anonymous it’ll be nearly impossible to tell who stole it. 

A solution to this is storing private keys in online crypto wallets or hot wallets but even this as its downsides. As demonstrated by the recent hack of Finance exchange where hackers got away with $41 million worth Bitcoin’s. The safest option is cold wallet storage and crypto custodians often employ several types of cold wallet storage solutions. 

Another reason why they are important is for compliance with SEC regulation, customers with assets worth more than $150,000 are by law required to store the holdings with a qualified custodian.

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