CHAPTER EIGHT
Coinbase Institutional Update
Coinbase Institutional continues to be the leading partner powering the world's largest and most sophisticated institutional investors and corporations on their crypto journey. We provide integrated solutions that marry an advanced trading platform, custody, and prime services to support all institutional client types through the full transaction lifecycle. While price declines and lower trading volumes dominate the headlines, we are encouraged by user sentiment, growing partnerships, blockchain scaling, and increasing institutional adoption.
In 2022, we continued to grow the number of institutions onboarded onto the Coinbase platform, including Brevan Howard, Invesco, GSA Capital, Millennium Global, Koch Disruptive Industries, the Chicago Bulls, Banque Syz (Switzerland), and Trading 212 UK). Moreover, clients like PIMCO and Marex Solutions either began or continued their campaign into the crypto economy. As of the end of 3Q22, roughly 25% of the 100 largest hedge funds in the world (by reported assets under management) have chosen to onboard with Coinbase. We've also made key partnerships with BlackRock and Google Cloud, which we discuss below. Lastly, Coinbase Cloud is playing a pivotal role in onboarding institutions to (1) build on blockchains through our Node product, (2) earn rewards through staking thanks to Alluvial, the enterprise-grade staking solution, and (3) capture PBS-enabled MEV rewards via Flashbots.
Powering the world's largest and most sophisticated institutions:
Our institutional investor client base represented half of the US$101B of assets on our platform ($51B), as well as 84% of all trading volumes on the exchange, as of end 3Q22. The composition of those institutional volumes, however, have shifted away from majority altcoins in 4Q21 and 1Q22 towards trading mainly in BTC and ETH (together comprising 66% of volumes) in 3Q22.
Between September 21 and October 27, Institutional Investor conducted a survey (sponsored by Coinbase) of 140 institutional investors to get a read on current sentiment and their outlook toward digital assets since the start of the crypto winter. Despite current market conditions, overall sentiment towards digital assets remained positive, with 72% supporting the view that digital assets are here to stay (86% among those currently invested in crypto and 64% among those planning to invest). Among the top reasons to invest, participants pointed toward goals of higher returns, accessing yield opportunities, investing in innovative technology, and having the potential for long-term appreciation.
Chart 27. Trading volume on platform (US$B)
Chart 28. Institutional trading volumes by asset
Partnerships
In 2022, we announced a series of industryleading partnerships, reflecting Coinbase's role in helping some of the preeminent industry leaders execute on their crypto strategies.
- Google Cloud. In October, we announced a strategic partnership with Google Cloud. As part of this partnership, select Google Cloud customers will be able to pay for their services via select cryptocurrencies facilitated by Coinbase Commerce, our merchant payments solution. Web3 developers will also gain access to Google Cloud's public blockchain datasets via Big Query, powered by Coinbase Cloud's Node service. And Google will use Coinbase Prime for institutional crypto services, such as secure custody and reporting.
- SS&C. We also announced a partnership with SS&C, a global provider of services and software for the financial services and healthcare industries, to offer its clients access to Coinbase Prime. With the partnership, traders using Eze Investment Suite can manage their crypto trading processes in one place, from pre-trade compliance to custody.
- BlackRock. In August, we announced a strategic partnership with BlackRock, the world's largest asset management company, to provide institutional clients of Aladdin®, BlackRock's end-to-end investment management platform, with direct access to crypto through connectivity with Coinbase Prime. Coinbase Prime will provide crypto trading, custody, prime brokerage, and reporting capabilities to Aladdin's Institutional client base, some of whom are, or may become clients of Coinbase. Since announcing the partnership, we have continued building technology and working on integration, and plan to have our offering available to clients in the first half of 2023.
- Signet. Coinbase Exchange has joined Signature Bank's Signet to empower users to fund and settle their Coinbase accounts in real time, 24/7/365. Users can now add USDC to the web3 ecosystem in under 10 minutes.
Coinbase Ventures
Coinbase Ventures was launched in 2018 with a mandate to support the growing crypto ecosystem by investing in the leading teams and projects pushing crypto forward. While venture funding conditions tightened considerably in 2022, developer activity remains healthy and the tools available to web3 developers grow more robust by the day. We also continue to see great companies emerge, though there is some dichotomy at play with respect to fundraising - highly sought after founders continue to raise despite the market conditions, while many others struggle to pull together a full syndicate without demonstrable traction. All stakeholders have had to reset valuation expectations (founders for rounds currently being raised and investors for investments made in 2021) and deals that are getting done are taking longer to come together. In an uncertain macro environment and with the fallout from FTX, investors across the board are being more patient in deploying capital.
On the upside, there's still a record amount of dry powder that ultimately needs to find a home, and many high-quality entrepreneurs continue to build in crypto and web3. It’s worth reminding readers that some of the most successful projects of today were funded during the previous bear market of 2018-19 (e.g. OpenSea, Alchemy, Uniswap). In the meantime, funds are dedicating more time and resources to supporting their existing portfolio founders and building out their own operational functions.
Coinbase Ventures currently has more than 400 portfolio companies, with nearly 150 added in 2022. At the highest level, we break the market down into the categories described in our pie chart below. The distribution of total investments in 2022 by sector is as follows:
Chart 29. Deals by product area in 2022
For more details on the team’s investments and market outlook, please reference their quarterly reports (1Q22 / 2Q22 / 3Q22).
https://coinbase.bynder.com/m/4888c95272561d10/original/2023-Crypto-Market-Outlook.pdf
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