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Coinbase Facilitated $425M Bitcoin Transaction for MicroStrategy

Earlier this year, Coinbase, the U.S. cryptocurrency platform, brokered a $425 million Bitcoin purchase for MicroStrategy, according to the exchange. 

Coinbase in an announcement on Tuesday disclosed MicroStrategy’s first $250 million investment that had happened over a five-day period in August which came through Coinbase Prime. The exchange’s crypto brokerage arm was created subsequently after the acquisition of Tagomi in May. 

In addition to the initial investment, a $175 million investment was made in September by the Virginia-based business intelligence firm, totalling MicroStrategy’s investment to $425 million in Bitcoin. MicroStrategy has become the first publicly-traded organization to buy large quantities of bitcoins to retain its balance sheet as a primary treasury reserve asset.

Reserve of Bitcoin Held in Coinbase Pro Wallets vs. Bitcoin Price | Source: CryptoQuant

On-chain data indicates Coinbase was transacting with a big user in the months leading up to MicroStrategy’s declaration in August. In the mid of 2020 and near the end of autumn, a series of huge chunks of Bitcoin, around 80,000 in aggregate, started going out of Coinbase Pro’s reserve.

“Those outflows went to Coinbase Custody wallets (interoperated with over-the-counter wallets), not exchange wallets,” further adding that Coinbase generally utilizes 8,000 BTC to create a preliminary custody wallet and requires at least a custody deposit of $10 million.

Ki-Young Ju, CryptoQuant CEO

MicroStrategy CEO, Michael Saylor did not reply to CoinDesk’s request to comment by press time. Coinbase in its announcement mentioned him from a previous MicroStrategy press release, stating that investment in bitcoin is part of the organization’s “new allocation strategy.” The strategy targets to optimize long-term appreciation for shareholders while also demonstrating the crypto’s usage as a store of value with higher “appreciation potential than holding cash.”

In an announcement made on Tuesday, Coinbase, which also recently launched an anti-human trafficking drive, gave three rationales as to why MicroStrategy has selected the San Francisco-based exchange: the organization’s smart order routing, white-glove service, and trading algorithms. It further said it has been engaged in numerous pre-trade calls with the organization in the course of onboarding procedure and was also asked to carry out a small “test trade”

How Coinbase got a “go-ahead” from MicroStrategy

The test trade evaluated information collected from Coinbase and was studied by the exchange’s OTC and Coverage teams. When the best possible pace to reduce the market impact was chosen and effectively carried out, Coinbase got a go-ahead from MicroStrategy to go forward with the “large investment”

Subsequently to the test, Coinbase carried out real-time trades through the time-weighted average price algorithm, a strategy that considers the average price of an asset over a particular time to reduce the market influence. 

“Our system takes a single large order and breaks it into many small pieces that are executed across multiple trading venues. The trading team achieved an average execution price that was less than the price at which buying started.”

Coinbase to Coindesk

This news is a prominent public relations victory for Brian Armstrong, the CEO of Coinbase, after a New York Times article claimed maltreatment of black employees and several service interruptions at the time of a volatile market period.

Brian Armstrong’s exchange can now demand bragging rights in the market as someone who assisted a publicly listed company to have Bitcoin as a reserve asset and take a nine-digit leap of faith.

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