If you’re active in the crypto community and have been on Linkedin at any time in the previous year, I am sure you’re aware of how much of a ‘wild west’ the OTC market is … so it should come as a relief that safe options are finally advancing, thanks in part to Coinbase.
On Wednesday, March 17, Coinbase Custody completed its first cold-storage OTC trade.
The San Francisco-based cryptocurrency exchange revealed that the trade occurred after its custody service had been “directly integrated” with the OTC desk at Coinbase Pro.
The company noted that the development was a “major unlock” for its clients as it marked the schedule of “immediate” liquidity. Previously, a trader would have to withdraw properties from cold storage– where the private keys are kept a gadget not linked to the web– to a “hot,” or web-based wallet on a trading platform to perform a trade. Market conditions can alter rapidly in the time it requires to do all this, meaning ideal trades could go up in smoke before they can act.
Connecting the two departments hints that clients can leverage the OTC desk without needing to move funds out of cold storage, according to the post. Customers “can buy OTC and settle possessions straight into Custody,” Coinbase included. The integration happened due to client need.
Sam McIngvale, CEO of Coinbase Custody Trust explained, “Being able to trade while their funds are held safely in cold storage is a feature that we’ve heard loud and clear that our customers want,” adding, “Coinbase offers the world’s largest regulated pool of crypto liquidity. Being able to access this market quickly and safely unlocks tremendous benefits for our customers.”
Coinbase Chief on crypto custody misunderstandings
In February, co-founder and CEO of Coinbase Brian Armstrong described what he believes to be four common misconceptions about crypto custody solutions. Armstrong’s arguments tackled the understanding that hot storage is always needed to supply the necessary versatility and speed to carry out trades.
Armstrong noted that taking part in a Proof-of-Stake (PoS) network and making returns on staked coins does not necessarily suggest the latter requirement to be kept in a hot wallet. He also disentangled the relationship between single-key holders and whether storage is hot or cold, and mentioned hardware security modules, arguing that they can come close to the security of cold storage.
Indeed, several of Coinbase’s competitors in custody and OTC trading have integrated the two functions recently, with the same goal: accelerating the settlement of trades to the essential institutional investors while keeping coins safe in cold storage.
For instance, in January, market maker Genesis Trading partnered with custody expert BitGo so that their mutual clients can trade without requiring to get rid of coins from offline storage (a procedure that, as noted above, can take hours and even days).
Another OTC store, OTCXN, has similar arrangements with custodians Kingdom Trust and Prime Trust.
Other digital currency exchanges are likely to follow suit.