[2018-10-12] Coinbase Shuts Down Institutional Index Fund While Retail Activity

[cybersofts]

Cryptocurrency services provider Coinbase shut down its index fund service aimed at institutions this week, after reports suggesting a shift-of-focus to its retail users.

Another report indicated the business has lost over 80 percent of its clientele in 2018, which validates its move from institutions towards retail.


Failing to Entice Investors

At the time of launch, the index fund service was touted as the “S&P 500 index equivalent” of the cryptocurrency world. But, investors failed to adopt into Coinbase’s narrative and the fund attracted little interest.

The fund was part of a line of institutional-focused products launched by Coinbase. Launched in June, it aimed to attract accredited investors–who could allocate $250,000 to $20 million–for providing huge liquidity to the crypto-market. The fund was open to U.S.-accredited investors only.

Other institutional products include Custody, the business’ custodian service, and a rebrand of its exchange offering from GDAX to Coinbase Pro.

The fund provided investors with exposure to the crypto-market via a professionally-managed portfolio of the best-performing cryptocurrencies in a given period. At the time, Coinbase believed the old adage of index funds beating traditionally-managed funds would be their USP, and attract wealthy investors.

But, the exchange’s high fees and absence of most altcoins meant institutional investors were skeptical before investing in Coinbase fund. To address concerns, however, fees were brought down to one percent annually, a reduction of 50 percent.

Later, the fund was rebalanced to include altcoins – which typically swing much more than the relatively stable bitcoin – based on their addition to the platform.

The index fund has closed shortly after the announcement of Coinbase Bundle, a mini-index fund aimed at retail investors and amateurs. The so-called “basket product” was announced last month and allows users to buy five market-weighted cryptocurrencies with a minimum investment of $25.

During the launch Coinbase stated:

    “We expect that millions of people will make their first cryptocurrency purchase in the coming years.”

While the institutional move failed to attract investors, which eventually led to the exchange focusing on the retail demographic a majority of its $8 billion-valued company was based on, even the latter group is shying away from the company, based on a report by Tribe Capital.


80 Percent Retailers now Inactive

As reported by Bloomberg, Tribe found out Coinbase has taken one of the biggest hits following the cryptocurrency slump of 2018. Active users on the platform have reduced by 80 percent, according to research firm Diar, which confirmed a similar decline in its latest report.

Tribe researchers analyzed credit card information and bank transfers to Coinbase for their survey. While the research was limited to U.S.-based transactions and did not reflect the firm’s comprehensive business activity, Tribe notes the findings capture “overall trends” for Coinbase, which other crypto-exchanges are “likely” facing as well.

Coinbase’s faltering business is presumably a mix of 2018’s notorious bear market and a small pool of liquidity that fails to attract institutional investors.

Meanwhile, venture firms are investing heavily in the infrastructure facilitating the future cryptocurrencies, creating a perfect example of investing in spades prior to a gold rush.


Source: https://cryptoslate.com/coinbase-shuts-down-institutional-index-fund-while-retail-activity-down-80-percent/

[dreamhouse]

Well this is normal, the next wave of ups the customer count will be increased by 5000% and there will be scalability issue as usual

[gentlemand]

The idea was dead from the off. No pro would pay those fees. No pro would want involuntary exposure to Coinbase's threadbare selection of shitcoins. The launch of that quasi index fund looked weirdly naive to me and so it has proven.

Their custody service will no doubt become a thing, that's a real and pressing need for some. They should extend that and add more shitcoins to Coinbase Pro so people can make their own disasters without paying 1% per annum to Coinbase for the honour.

[1Referee]

Their custody service will no doubt become a thing, that's a real and pressing need for some.

I doubt that. Most of the elite Bitcoiners use Xapo as custody service. Coinbase has been left on the side, and that for a very long period of time.

Institutions don't want to have a non legacy party take care of billions worth of assets, so it will be up to banks to provide that service. I read that JPMorgan and a few other wall street banks are working on offering crypto custody services, so we'll see if that's more fruitful than what Coinbase has to offer.

Also, the bear market has been a major factor of failing products and significantly decreased interest in crypto as well.

[gentlemand]

I doubt that. Most of the elite Bitcoiners use Xapo as custody service.

Hmm. I dunno. I would've thought many an investor in the US would not want to park their finances in a foreign jurisdiction. I've no idea what uptake Coinbase's storage service has or will have but I would've though it would turn out to be a respectable amount.

[1Referee]

I've no idea what uptake Coinbase's storage service has or will have but I would've though it would turn out to be a respectable amount.

There might be some level of demand for that service, but I doubt it comes even remotely close to what Xapo has locked up in value terms.

On the other hand, we might even say that Coinbase in its current form as crypto bank is some sort of a custody service already. The majority of the rookie users genuinely think it's a wallet service and that their coins are safe up there due to Coinbase's insurance policy.

In the end, institutions don't want a non legacy party to function as custody service, and the Bitcoin elite doesn't want to use a service Brian Armstrong is CEO of. He hasn't exactly done much to respect Bitcoin, which is the main reason this industry is as big as it is today. That nicely explains the popularity of Xapo.

[BitcoinArsenal]

The news headline is a little bit misleading. I thought after reading the headline that it is negative for the crypto market, but on the one hand the index fund is closed, on the other hand it is only replaced by another similar product where anyone can invest, not just institutional investors with a minimum investment of $250k.

[BitHodler]

and the Bitcoin elite doesn't want to use a service Brian Armstrong is CEO of. He hasn't exactly done much to respect Bitcoin, which is the main reason this industry is as big as it is today. That nicely explains the popularity of Xapo.

I can't blame Bitcoiners for not liking the way he presents himself, especially with how closely tied to Roger Ver he is. The way they listed Bcash and the pump that followed was as scummy as it can get.

It took Coinbase so much time and effort to finally obtain regulatory approval, that I would expect them to stick with it for a longer while, especially with how as you mentioned the bear market is too much of an obstacle.

Every business suffers in the same way from bear markets, even Bitmain does with how there is probably +75% less demand for mining gear. All it takes to ignite demand is the price to bounce up.

[gentlemand]

and the Bitcoin elite doesn't want to use a service Brian Armstrong is CEO of. He hasn't exactly done much to respect Bitcoin, which is the main reason this industry is as big as it is today. That nicely explains the popularity of Xapo.

The real Bitcoin elite won't ever use a third party to store their coins. The people who came along afterwards are less ideologically committed and will choose whoever gets the job done even if they're a passive aggressive creep.

[1Referee]

The real Bitcoin elite won't ever use a third party to store their coins. The people who came along afterwards are less ideologically committed and will choose whoever gets the job done even if they're a passive aggressive creep.

Sure, a big chunk of the Bitcoin purists don't settle for anything less than cold storage where they control their keys in full, but there has been a shift in the way that some of them prefer to distribute the storage aspect of their holdings for various reasons. Do you think that the currently $7-$8 billion in Bitcoin holdings that Xapo takes care of comes from the latter group you stated?  

Are you comfortable holding hundreds of millions in Bitcoin in your home? No matter how anti third party the purists are, hedging a part of their risk this way is actually quite a smart move.

[cryptofonia]

Coinbase's steps look as step against crypto interests