Cryptocurrency services provider Coinbase shut down its index fund service aimed at institutions this week, after reports suggesting a shift-of-focus to its retail users.
Another report indicated the business has lost over 80 percent of its clientele in 2018, which validates its move from institutions towards retail.
Failing to Entice Investors
At the time of launch, the index fund service was touted as the “S&P 500 index equivalent” of the cryptocurrency world. But, investors failed to adopt into Coinbase’s narrative and the fund attracted little interest.
The fund was part of a line of institutional-focused products launched by Coinbase. Launched in June, it aimed to attract accredited investors–who could allocate $250,000 to $20 million–for providing huge liquidity to the crypto-market. The fund was open to U.S.-accredited investors only.
Other institutional products include Custody, the business’ custodian service, and a rebrand of its exchange offering from GDAX to Coinbase Pro.
The fund provided investors with exposure to the crypto-market via a professionally-managed portfolio of the best-performing cryptocurrencies in a given period. At the time, Coinbase believed the old adage of index funds beating traditionally-managed funds would be their USP, and attract wealthy investors.
But, the exchange’s high fees and absence of most altcoins meant institutional investors were skeptical before investing in Coinbase fund. To address concerns, however, fees were brought down to one percent annually, a reduction of 50 percent.
Later, the fund was rebalanced to include altcoins – which typically swing much more than the relatively stable bitcoin – based on their addition to the platform.
The index fund has closed shortly after the announcement of Coinbase Bundle, a mini-index fund aimed at retail investors and amateurs. The so-called “basket product” was announced last month and allows users to buy five market-weighted cryptocurrencies with a minimum investment of $25.
During the launch Coinbase stated:
“We expect that millions of people will make their first cryptocurrency purchase in the coming years.”
While the institutional move failed to attract investors, which eventually led to the exchange focusing on the retail demographic a majority of its $8 billion-valued company was based on, even the latter group is shying away from the company, based on a report by Tribe Capital.
80 Percent Retailers now Inactive
As reported by Bloomberg, Tribe found out Coinbase has taken one of the biggest hits following the cryptocurrency slump of 2018. Active users on the platform have reduced by 80 percent, according to research firm Diar, which confirmed a similar decline in its latest report.
Tribe researchers analyzed credit card information and bank transfers to Coinbase for their survey. While the research was limited to U.S.-based transactions and did not reflect the firm’s comprehensive business activity, Tribe notes the findings capture “overall trends” for Coinbase, which other crypto-exchanges are “likely” facing as well.
Coinbase’s faltering business is presumably a mix of 2018’s notorious bear market and a small pool of liquidity that fails to attract institutional investors.
Meanwhile, venture firms are investing heavily in the infrastructure facilitating the future cryptocurrencies, creating a perfect example of investing in spades prior to a gold rush.
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