Institutional Bulletin: Coinbase Files for IPO as Wall Street Bets Big on Bitcoin

The cryptocurrency industry is drawing ever more institutional players. This is reflected in both growing investments in infrastructure and the increasingly close attention they pay to Bitcoin as an asset class. The most significant developments of the past weeks are in ForkLog’s roundup.

Coinbase Files for IPO

The largest American cryptocurrency exchange Coinbase filed with the U.S. Securities and Exchange Commission (SEC) a Form S-1 filing for an initial public offering of shares.

“The S-1 is expected to take effect after the SEC completes its review, in line with market and other conditions,” the notice said.

Under Form S-1, companies are required to disclose basic information about assets and business; information about management and audited financial statements. Registration documents typically also include information on the total number of shares offered and the price per share.

Messari experts valued the potential Coinbase market capitalization at $28 billion after it goes public.

Rumors of Coinbase’s IPO preparations had surfaced in the press as far back as October 2018. At the time, chief operating officer and president Asiff Hirji implicitly confirmed them, signaling that it was not imminent. The exchange was valued at $8 billion then.

Paxos Raises $142 Million from PayPal Ventures and Other Investors

Paxos announced the closing of its Series C financing round, through which it raised $142 million. The round was led by Declaration Partners, backed by the family office of Carlyle Group co-founder David Rubenstein. It was joined by Mithril Capital (Peter Thiel), Alua Capital and PayPal Ventures.

The total investments in Paxos after this surpassed $240 million.

The company plans to use the funds to develop infrastructure solutions and create new products.

Paxos is regulated by the New York State Department of Financial Services as a trust company. Earlier in December the company filed an application for a nationwide trust bank license with the U.S. Office of the Comptroller of the Currency.

In July 2020, PayPal, the payments giant, selected Paxos to custody assets for its cryptocurrency service.

Wall Street Giants Invest $15 Million in Lukka

Financial giant S&P Global and institutional assets manager State Street Corp. led a $15 million funding round for Lukka, a crypto data provider.

The Series C round also included CPA.com, a developer of financial accounting tools, part of the American Institute of Certified Public Accountants (AICPA).

According to Lukka CEO Robert Materazzi, the company’s success owes much to its ability to build institutional-grade software. The new investments may also reflect growing interest in the crypto industry from major players.

Founded in 2014 Lukka raised $25 million in prior rounds. The company provides data for 160 crypto funds. It is also known for a set of tools for tax accounting in the crypto industry.

Ruffer Investment Buys Bitcoin Worth $744 Million

This week, in a letter to shareholders, the British investment company Ruffer Investment Company stated that 2.5% of its portfolio would be allocated to purchasing Bitcoin as a hedge against the devaluation of world currencies.

Ruffer noted that Bitcoin diversifies its investments alongside gold and inflation-linked bonds.

The wording in the letter allowed using 2.5% of funds in one of the funds, but later in response to a journalist Zac Voell’s request the firm confirmed that its position in Bitcoin amounts to £550 million (~$743.7 million) or 2.7% of assets under management (~$27.3 billion).

MicroStrategy Raises $650 Million to Buy Bitcoin

On December 11, the analytics-software provider MicroStrategy Inc. announced raising $650 million in debt financing for subsequent investment in Bitcoin. The amount surpassed the initially stated financing by $250 million.

MicroStrategy offered accredited investors convertible senior notes unsecured at 0.75%. Interest is to be paid semi-annually, starting in 2021. Maturity is December 15, 2025, unless the company redeems or converts earlier. Information on the purchasers of the debt instruments is not disclosed.

On December 5, MicroStrategy chief executive Michael Saylor announced the third investment in digital gold. After purchasing 21,454 BTC (~$250 million at the time of the transaction) in August and 16,796 BTC for $175 million in September, the company bought an additional 2,574 BTC for $50 million.

Because of plans to issue convertible bonds, Citi analysts cut ratings on the company’s shares, after which their price fell sharply.

Billionaire Alan Howard Backs Hedge Fund that Invested $600 Million in Bitcoin

One River Asset Management, a volatility-focused hedge fund, quietly acquired bitcoins worth over $600 million, joining forces with Brevan Howard Asset Management co-founder Alan Howard and the aforementioned Ruffer Investment.

One River CEO Eric Peters said he started a new company in response to rising institutional interest in cryptocurrencies.

According to him, One River completed the purchase of digital assets in November, before Bitcoin hit $16,000. The firm has commitments that will allow its holdings in Bitcoin and Ethereum (ETH) to reach about $1 billion by early 2021, Peters added.

“There will be a generational shift to this new asset class. Flows have only just begun,” he says.

The administrator of One River Digital funds is Northern Trust. The execution partner and custodian is Coinbase.

Guggenheim Partners Invests $500 Million in Grayscale Bitcoin Trust

In late November, Guggenheim Partners, which oversees more than $200 billion in assets, stated plans to direct 10% of assets of its Macro Opportunities Fund into Grayscale Bitcoin Trust (GBTC).

Macro Opportunities Fund assets are around $5 billion. Investments in GBTC would thus amount to about $500 million. The firm is not considering other direct or indirect crypto investments.

Earlier in the week Bitcoin set a new all-time high, rising above $23,700, after which Guggenheim Partners’ investment director Scott Minerd predicted a rise to $400,000. He said he was impressed by the rapid rise in Bitcoin price, though he called buying above $20,000 “somewhat more problematic.”

“Our fundamental work shows that Bitcoin should be worth about $400,000,” says Guggenheim’s Scott Minerd https://t.co/9QyOWyYAVA pic.twitter.com/uojQqaKPia

— Bloomberg TV (@BloombergTV) December 16, 2020

Guggenheim Partners invests across asset classes on behalf of private companies, pension funds and sovereign wealth funds. Investments in GBTC are viewed as portfolio diversifiers.

NYDIG Raises $150 Million Across Two New Bitcoin Funds

The New York Digital Investment Group (NYDIG) raised $150 million in two institutionally oriented new Bitcoin funds. SEC filings indicate that NYDIG Digital Assets Fund I received $50 million, and NYDIG Digital Assets Fund II $100 million,

The first fund invests exclusively in Bitcoin. The information on the strategy of the second Bitcoin fund is not yet available.

Both are launched as a merged investment fund, allowing multiple investors. This simplified fundraising under Rule 506 (c) of Regulation D, not requiring SEC registration.

The $50 million contribution to NYDIG Digital Assets Fund I came from two investors. All $100 million in NYDIG Digital Assets Fund II came from one large client.

NYDIG is associated with Ben Lawsky, the creator of the BitLicense for virtual currency activity in New York State.

MassMutual Invested $100 Million in Bitcoin

The Massachusetts-based insurer MassMutual, serving 5 million clients, invested $100 million in Bitcoin. One of the main drivers for buying the cryptocurrency was the rise in inflation of the dollar.

The insurer also bought a $5 million stake in NYDIG. MassMutual’s Chief Investment Officer Tim Corbett noted that both deals would benefit clients over the long term.

MassMutual has been operating since 1851 and oversees $235 billion in insurance accounts.

Swiss Stock Exchange SIX to Launch Institutional Digital Asset Gateway

The blockchain platform SDX of SIX Group and custodian Custodigit will launch an “Institutional Digital Asset Gateway” Institutional Digital Asset Gateway in Q1 2021.

After regulatory approval, the partners will present the full value chain for access to digital assets for banks.

Financial institutions and their clients will have access to trading, smart-order routing, settlement and custody of cryptocurrencies, and access to secondary markets. The platform’s functionality will be expanded during 2021.

Custodigit was created in 2018 by telecom and IT provider Swisscom and crypto bank Sygnum with FINMA licensing.

SBI Holdings and SIX to Build Blockchain Platform for Institutional Clients

The digital subsidiaries of SIX Swiss Exchange and Japanese financial conglomerate SBI Holdings announced the launch in Singapore of a blockchain platform for institutional clients from Europe and Asia.

The initiative awaits regulatory approval. It is expected no later than 2022.

The joint venture SIX Digital Exchange (SDX) and SBI Digital Asset Holdings will offer issuance, listing, trading, and central securities depository infrastructure for digital assets, cryptocurrencies and regulated security tokens.

“A focus on global liquidity. This is what institutional investors want — to trade from 9 to 16 on the ‘home’ market, then move to the next and the next,” said SDX chief Tim Grant.

Opinion: Institutions Will Protect Bitcoin from Government Intervention

Institutional investors could be a natural shield for Bitcoin against excessive government control, argues ShapeShift CEO Eric Voorhees. In his view regulators worry that crypto is used only by retail investors. Expanding the audience through large, stability-seeking players could improve the industry’s outlook.

“Making Bitcoin accessible to institutions will level the playing field for everyone. That is the essence of Bitcoin: to democratise control over money,” said ShapeShift’s CEO.

He suggested that widespread adoption of digital gold could occur within the next five to ten years as the asset becomes a global currency standard. For now, crypto remains in the early stages of corporate adoption, but 2020 proved pivotal for Bitcoin in this regard, Voorhees noted.

MetaMask to Release Institutional Version of Ethereum Wallet

The Ethereum company ConsenSys announced the upcoming release of an institutional version of the MetaMask wallet. The new version is aimed at trading firms and custodians, offering “institutional-grade features.”

“Users will be able to deposit, exchange and borrow tokens, and to invest in Ethereum applications. The familiar MetaMask interface will be retained, but with security and reporting features required for a professional DeFi service,” the ConsenSys statement said.

One of the first to adopt the new features will be Curv, which is developing its own DeFi product.

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