Coinbase Reportedly in Advanced Talks to Acquire Xapo’s Crypto Custody Business

Francisco Memoria

U.S.-based cryptocurrency exchange Coinbase is reportedly in advanced-stage talks to buy cryptocurrency custody provider Xapo, for about $50 million. The deal’s goal would be to boost its custody business and diversify revenue sources

According to a report by crypto news outlet TheBlock, citing sources familiar with the matter, both Coinbase and Fidelity Digital Assets were ‘locked in a neck-and-neck race’ for the crypto custody firm, and Coinbase ended up coming out on top.

Fidelity Digital Assets is Fidelity Investments’ bet to bridge crypto and traditional finance. The firm is reportedly going to start buying and selling the flagship cryptocurrency bitcoin within “a few weeks.” Fidelity Investments is notably one of the largest financial firms in the world, with $7.2 trillion worth of assets under management (AUM).

Coinbase beating Fidelity to the Xapo sale, per the news outlet, shows the cryptocurrency firm is looking to “aggressively diversify its revenue to be less prone to the cyclical nature of cryptocurrency trading.”

Xapo itself has raised a total of $40 million since 2012, and its main product is cold storage vault custody of BTC. According to the report it has $5.5 billion of assets under custody (AUC), which means it has over 700,000 BTC under custody. Bloomberg has in the past reported the company held $10 billion, 7% of BTC’s supply, in its vaults.

The crypto custody firm’s business model revolves around generating revenue enabling over-the-counter (OTC) trades for customers using the bitcoin it has under custody, as it doesn’t charge users to store their funds in its cold storage.

The company has seen firms like the Digital Currency Group, Winklevoss Capital, and Blockchain Capital invest in it, as well as top Silicon Valley VC firms like Greylock Partners and Index Ventures.

If the deal goes through, Xapo will join a number of companies Coinbase has acquired over the last few months. These include Earn and Toshi, which turned to Coinbase Earn and Coinbase Wallet. Earlier this year the firm acquired analytics company Neutrino in a controversial move, as its team was associated with Hacking Team, a group that’s said to have developed software that aided human rights abuses.

Zuckerberg Says Libra Can Boost Facebook's Ad Revenue, China Sees It as a Much Bigger Deal

Facebook CEO Mark Zuckerberg has, during a shareholder meeting, explained how the Libra cryptocurrency project will help the social media giant make money. China, on the other hand, published a book addressing the challenges Libra poses, arguing it could become the future of world currency.

In a transcript posted by Thomson Reuters, we can read Zuckerberg replied to a question asked by a shareholder on how Facebook will be making money off of the Libra cryptocurrency project. Zuckerberg responded by going into Libra’s potential impact on e-commerce on Facebook, and its potential impact on advertising revenue.

According to the social media giant’s CEO, Facebook does not charge a set price for ads and instead works with a bidding system, where every business trying to advertise will bid to compete for ad space. The system, Zuckerberg said, allows them to get the “lowest possible price.”

He added that combining ads with an effective payment tool such as Libra can benefit businesses further as it could make commerce more efficient:

If we can make commerce be more effective for businesses if when they run an ad, somebody who clicks on that ad is now going to be more likely to buy something because they actually have a form of payment that works that’s on file.

Advertising on Facebook, as such, becomes more worthwhile for businesses, which could in turn see them bid higher on ads and increase overall ad prices. This would effectively boost Facebook’s 0s advertising revenue.

Zuckerberg also reiterated other advantages of Libra, pointing out the payments infrastructure “hasn’t been updated in a very long time.” China, which has plans to launch its own digital currency called DCEP, sees Libra as more than a way for Facebook to make money.

Libra Could Hit China’s Efforts to Increase Yuan Influence

In a book published by the Central Party School of China to educate government officials on digital currency and propose policy measures to deal with emerging challenges like the Libra project, experts argue the latter is an excellent example of a public-private partnership and has the potential to become the future of world currency.

This would mean, according to the book titled “Discussing Digital Currency with Leading Officials,” that Libra could get in the way of the Chinese government’s attempt to increase the influence of the yuan.

Hongzhang Wang, former chairman of the China Construction Bank and one of the authors on the book’s preface, said in a recent article:

China originally relied on mobile payment to get ahead, but now Libra has the potential to change the game again.

Wang added that this would allow companies in the U.S. to build a digital currency system that could “threaten or even surpass” Alipay and WeChat Pay using blockchain technology.

Featured image via Unsplash.