Coinbase sees fast-growing interest in its prime brokerage biz from multi-strat hedge funds

It's been over a year since the crypto prime brokerage races kicked off.

Last May, a string of firms — including DCG's Genesis Global Trading, BitGo, and B2C2 — announced they would begin offering the crypto world's version of prime brokerage services. Coinbase entered this quickly developing market via its acquisition of brokerage firm Tagomi.

On Monday, Coinbase announced the new beta version of their prime product, which essentially is an upgrade of the old Tagomi product but more integrated into the broader Coinbase exchange and custody platform. The announcement indicates how much the prime brokerage market has developed over the last year.

In an interview with The Block, former Tagomi co-CEO Greg Tusar said that transactions via Coinbase Prime have grown over the last few months. Tusar is now Coinbase's VP for institutional products. 

"The trades are in the 10s of millions now and much bigger," Tusar, a former Goldman Sachs partner, said.

Coinbase Prime sits between the market and helps large investors execute trades across various venues, including Coinbase's native exchange. Tusar said that the facelift to the platform will draw more clients.

"It's not just smashing together Tagomi and Coinbase," he said. "When you onboard with Coinbase Prime and set up your permissions to say these people can do X, these addresses are whitelisted; it's an integrated experience that institutions have come to expect."

Tusar added:

“The product makes it much more simple to trade and move between custody and trading. We can offer a line of credit that is in line with how much is in custody. It is super streamlined from a workflow perspective. It's all integrated. This is a one-stop-shop."

Still, Coinbase has competition. Mike Novogratz's referred to prime brokerage services as a "straight down the middle pitch." It's become a strong area of focus for the firm following its acquisition of BitGo. Genesis, meanwhile, is close to integrating derivatives into its platform. That's something that Coinbase is considering, but does not currently offer. NYDIG, which is another Coinbase competitor, is also looking to win over its institutional clientele.

Institutions have flocked to Coinbase, with institutional volumes hitting $215 billion in the first quarter of 2021 relative to $30 billion in Q1 2020.

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Tusar identified multi-strategy hedge funds as one fast-growing opportunity for growth for the prime business.

As previously reported by The Block, large funds with billions under management — such as Point72 and Millennium — are exploring how they can get involved in crypto. In equities, such funds rely on prime brokers, which extend credit and sit between exchanges and their own trading desk operations.

"It's a nascent but super fast-growing part of the business," Tusar said. "Part of what will grow the prime financing part of our offering. We have already seen quite a few. Started with macro, then we saw multi-strategy hedge funds come in. Most of the conversations start with data."