Coinbase, Major Investment Firm Team up to Launch $500 Million Crypto Fund

Francisco Memoria
  • Coinbase and Wilshire Phoenix have recently teamed up to launch a fund capped at $500 million.
  • The fund is set to use a "novel approach" to help clients gain exposure in the crypto ecosystem.

Coinbase Custody, a unit of San Francisco-based cryptocurrency exchange Coinbase, has recently teamed up with New York-based investment firm Wilshire Phoenix to launch a cryptocurrency fund capped at $500 million.

According to a recently published press release, Wilshire Phoenix expects the fund to be launched later this year, to provide its clients exposure to bitcoin through a “novel approach” that’s reportedly set to mitigate “some of the risks” associated with the flagship cryptocurrency’s volatility.

Per the release, the investment fund “may” make it easier for financial institutions and investors to gain exposure to the cryptocurrency ecosystem. It won’t, however, “simply hold bitcoin.”

Per the document, investors and financial institutions may find it hard to buy and hold cryptocurrencies as under America’s Generally Accepted Accounting Principles (GAAP), their pricing models imply specific challenges. The investment firm believes its patent-pending system will provide a solution.

To limit counterparty exposure and “unnecessary additional fees” normally associated with investment funds, the firm will also not use derivatives or “any form of leverage” to help clients gain exposure to bitcoin, the press release states.

Bill Hermann, the founder and CEO of Wilshire Phoenix, stated that Coinbase Custody provides the firm a best in class platform on which to securely store digital assets.” The document adds:

While the fund is not intended to replicate a direct investment in Bitcoin. It will seek to provide investors and financial institutions with the ability to gain exposure to Bitcoin while mitigating some of the risks involved from sudden price movements of Bitcoin.

Sam McIngvale, general manager of Coinbase Custody Trust, added the San Francisco-based company is not only offering Wilshire Phoenix clients’ secure storage for their cryptocurrencies, but also the “ability to perform GAAP-compliant audits whenever the need arises.”

Coinbase, as CryptoGlobe covered, expects to wrap up this year with profits of over $455 million, up from $380 million last year, when most cryptocurrencies surged to new all-time highs. Last year, at one point, it was adding 50,000 users a day, its CEO Brian Armstrong revealed.

Recently, the host of CNBC’s “Crypto Trader” show Ran NeuNer stated Coinbase set planning for an initial public offering (IPO). Asiff Hirji, the firm’s chief operating officer (COO), recently revealed it isn’t planning to raise funds via an IPO “any time soon.”

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Trans-Fee Mining Crypto Exchange 'FCoin' Insolvent After Mistakenly Being Too Generous

One of the first cryptocurrency exchanges to adopt the controversial trans-fee mining (TFM) model, which has been called a “disguised ICO” has paused trading and withdrawals over a shortage of crypto worth up to $130 million.

According to a statement published by FCoin’s founder Zhang Jian, a former Huobi CTO, the exchange is now unable to process withdrawals as its reserves are down by between 7,000 to 13,000 bitcoin, worth over $130 million at press time, over an issue that’s “a little too complicated to be explained in a single sentence.”

Zhang’s statement details the cryptocurrency exchange wasn’t hacked, nor is it pulling an exit scam on its users. He detailed that an internal system error gave users more mining rewards than they should have received, noting the error wasn’t detected for a long period of time.

The transaction-fee mining model, which saw FCoin’s trading volume surpass $5 billion per 24 hours numerous times, sees the cryptocurrency exchange incentivize trading via its own token, FT. FCoin reimbursed users for transaction fees paid in BTC or ETH with FTs until 51% of the coin’s supply was distributed, and redistributed 80% of the BTC and ETH it collected to those holding FT tokens.

The controversial model drew criticism and saw Zhang defend it, claiming it was a misunderstood invention. At the time, he said:

If you look back at history, all new things were not recognized at the beginning. Many were believed to be fraud. Jack Ma was recognized as a fraud when he first promoted the internet in China.

Various cryptocurrency exchanges started adopting the TFM model shortly after, with research showing these platforms had unusually thin order books and low traffic taking into account the trading volumes they had.

According to Zhang, the errors in FCoin’s system gave away too many tokens in mining rewards from mid-2018 to mid-2019, when a complete back-end auditing system was implemented. As throughout 2019 the price of FT kept on dropping, Zhang and his team reportedly used their own funds to buy back tokens and drive up demand, a decision he claims was an error.

This, as it gave users a chance to sell their FT tokens and withdraw as much as possible from their accounts, while FCoin bought up tokens that kept on losing value. Zhang’s announcement came shortly after FCoin suspended its platform over a risk-control issue.

Zhang is now reportedly manually processing users’ withdrawal requests sent via email. The founder of the exchange claimed he will “switch tracks” to start again, and noted he hopes he can use the profits made from new ventures to “compensate everyone for their losses.”

Featured image via Unsplash.