By
Steve Muchoki
April 26th, 2024
Kraken’s strategy is driven toward attracting new institutional customers into the market.
Kraken, one of the leading cryptocurrency exchanges, is set to challenge Coinbase’s stronghold on Bitcoin custody services. This follows after the company revealed, in a Tuesday announcement, plans to launch an institutional service of its own.
For context, the US-based Coinbase exchange currently serves as custodian for about eight out of the 11 spot Bitcoin exchange-traded funds (ETFs) issuers that the Securities and Exchange Commission (SEC) gave the green light last month.
This was revealed by Coinbase CEO Brian Armstrong during an earnings call in early February. By implication, Coinbase currently custodies about 90% of the $36 billion in Bitcoin ETF assets. And, in just over a month, these issuers have amassed more than 300,000 Bitcoin in assets under management.
It is this one-man show that Kraken is looking to rival with its institutional service launch. According to the exchange, relying on one company to provide the vast majority of custodial services to spot Bitcoin ETF issuers can pose overconcentration risks.
Kraken to Leverage High Institutional Interest in Crypto
Meanwhile, it might also be noteworthy that Kraken’s strategic expansion is coming at a time when institutional interest in cryptocurrencies is at an all-time high. So, the company will be looking to cater specifically to institutional investors seeking secure and reliable custody solutions for their digital assets.
In an interview with TheBlock, Kraken’s Head of Institutional, Tim Ogilvie, acknowledged the risk of a single-party custodian (Coinbase), as well as growing institutional interest. Part of his statement reads:
“Institutional adoption of crypto is growing rapidly. The recent ETF approval has spurred broader institutional demand.”
For what it’s worth, the high institutional interest has been largely driven by the continued mainstream acceptance of Bitcoin, both as a store of value and as an investment asset. Therefore, Kraken is seeking to use its institutional service to pull together products and services tailored to meet the needs of institutional clients.
Eyes on New Entrants
In reality, Coinbase already has an established dominance in the institutional custody market. However, Ogilvie insists that Kraken’s strategy is driven toward attracting brand-new institutional customers. That is those who are yet to make their way into the market.
The move by Kraken underscores the all-round intensifying competition within the cryptocurrency industry. More so, it disrupts Coinbase’s status quo by offering an alternative to institutional investors who may begin to weigh their options in terms of security and reliability.
As the cryptocurrency market continues to mature, competition among industry players is expected to intensify. However, it is important to note that this kind of competition is healthy for innovation. That is as companies continue striving to develop various new products and services tailored to meet the diverse needs of institutional and retail investors alike.
