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    Ever since Coinbase announced its new custodial service, it’s brought about different views on what is going to happen to Bitcoin’s price. There’s a big misunderstanding (and a lack of actual information) as to exactly how their currently-awaiting investors plan to use the service, leading to complications with figuring out how it’s going to play out. Here, we will take a look at what the service is and why it is both a big deal and not, depending on how you look at it.

    What is the Custodial Service?

    Essentially, Coinbase’s custodial service means that they will hold your coins for you – securely. Rather than worrying about security on your own, private keys being stolen/lost, or setting things up improperly, you can allow Coinbase to handle it all for you. That puts all the weight of security of funds on the company, while you can sit back and enjoy the potential returns. Now, it is worth noting right off the bat that this is geared towards institutional investors, and they require a minimum deposit of $10 million. So the service is not just for the average person, but those with that much need to ensure that every security precaution possible is taken at all times, and that’s what the service provides.

    How Much is Coming In?

    They are estimating $20 billion to be moved into their service. Considering Bitcoin currently has a market cap of $113 billion as of this writing, that is a pretty large amount. There’s no information on how many institutional investors are already confirmed to be moving over to them or anything, though, so this number could be based on hopes and dreams, rather than reality, or it could even be much smaller than what ends up actually being moved. In any case, they definitely have grand plans for the new service.

    More Money Coming in Means More Value, Right?

    Not so fast. This is where the trick comes in: there’s no information at all as to how much of the money they are hoping to bring in is already in the system. For example, let’s say you’re a big crypto investor that already has $1 billion in BTC. When you move it to the custodial service, it’s now protected by them, but it hasn’t increased the market cap at all since no coins were actually purchased. The big question here becomes that of how many new institutional investors will jump into the fray now that they can get involved with very large sums and not have to deal with all of the security on their own. As more fresh money comes in, assuming they are clearing through the order books, the price will rise accordingly. And it’s worth noting that $20 billion would not boost the market cap by $20 billion, but multiples of that (with some claiming as high as 25-50x).

    How Should This Information be Used?

    At the end of the day, the point of this is that the new Coinbase custodial service is awesome news – for institutional investors who don’t want to handle the storage of their own coins. For investors in Bitcoin, however, the information is meaningless. There’s just not enough to go by at this point, and it could end up being a big deal or could result in little to no change at all.

     

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