On Thursday, cryptocurrency exchange Coinbase (COIN) Global announced its receipt of conditional approval from a significant federal regulator, enabling it to operate as a national trust bank. This endorsement from the Office of the Comptroller of the Currency (OCC) marks a pivotal moment for Coinbase, enhancing its legitimacy and credibility with institutional clients, as noted by Greg Tusar, Vice President of Institutional Product.
Currently, Coinbase holds a limited-purpose trust charter licensed by the New York Department of Financial Services, which permits the custody of digital assets for clients at the state level through its institutional service, known as Coinbase Prime. The new national trust bank charter will elevate Coinbase’s status, allowing it to protect customer assets and perform various payment-related functions. However, it should be noted that this charter does not permit the acceptance of deposits or lending against them, nor does it usually provide the same FDIC insurance as a full-service national bank charter.
Tusar expressed optimism regarding the charter’s future potential, stating, “A federal charter will unlock a broader addressable market for us.” He pointed out that Coinbase currently serves as the custodian for over 80% of the world’s digital asset ETFs, with many asset managers and hedge funds looking for assurance from organisations holding such charters.
In a broader context, the approval signifies a trend where the cryptocurrency sector, once seen as isolated from traditional finance, is finding pathways to further legitimacy. The OCC has also granted conditional charters to several other crypto companies in recent months, including BitGo, Circle Internet Group, Fidelity Digital Assets, Ripple, and Paxos. Other major players like Morgan Stanley, EDX Markets backed by Citadel Securities, and World Liberty Financial, have also expressed interest in obtaining a national trust charter.
Coinbase National Trust Company, which submitted its application for this OCC charter in October 2022, will have to satisfy several procedural requirements before achieving full charter approval. These requirements include convening its inaugural board meeting, adopting necessary bylaws, developing payment systems, and successfully passing a pre-opening OCC examination.
As of June 2023, Coinbase’s institutional business managed approximately $245.7 billion in assets, which accounts for roughly 7% of the overall cryptocurrency market. This statistic underscores the significant scale at which Coinbase operates and its role in the evolving financial landscape.
Overall, Coinbase’s journey toward becoming a national trust bank, while still navigating the regulatory landscape, signifies a significant shift that may enhance its operational capabilities and attract a broader range of institutional clients.
