Coinbase buys Crypto Asset Manager One River in play on institutional demand

by Arthur · March 3, 2023

(Bloomberg) — Coinbase Global Inc., still reeling from a plunge in trading volume on its exchanges, is expanding into a less volatile corner of the cryptocurrency ecosystem with the purchase of One River Digital Asset Management.

Most read from Bloomberg

Unlike most of the prominent names in crypto, One River Digital, founded by macro trader Eric Peters as a unit of his hedge fund, has built a business to serve only the needs of institutional clients such as pension funds, avoiding retail clients altogether. This focus on long-term capital and money management over trading has made it less prone to the kind of wild swings in token prices and crypto exchange activity that others, including the new owner, are struggling with now.

“This is about wanting to bring more institutional capital into the crypto world,” Greg Tusar, Coinbase’s head of institutional products, said in an interview. “We expect to build – on the other side of this crypto winter – a fantastic asset management business.”

Tusar declined to disclose any terms of the acquisition.

One River Digital emerged in 2020 as one of the then largest holders of Bitcoin. Alan Howard, the co-founder of Brevan Howard Asset Management, was an early backer, and a 2021 funding round added Coinbase, Goldman Sachs Group Inc. and Liberty Mutual Group Inc. as investors. This deal valued One River Digital at $186 million.

The firm will be renamed Coinbase Asset Management with Peters as CEO and Chief Investment Officer. Its deputy CIO Marcel Kasumovich, a veteran of Goldman, Merrill Lynch and Soros Fund Management, will also continue in his role.

In an odd aspect of the acquisition, Peters will continue as CEO and CIO of his Stamford, Conn.-based hedge fund, One River Asset Management, which remains a separate firm.

“Having a dual role gives me insight into the worlds of digital and traditional assets,” said Peters, 56. “I’m betting on the convergence of the two over the next decade.”

In a note to clients, Peters described the relationship he formed with Coinbase, starting with One River Asset Management’s first Bitcoin and Ether purchases in November 2020. By the end of 2021, he had largely cashed out, generating more than $1 billion in profits for his clients and neatly sidestepped the crypto carnage that soon followed, including the collapse of the TerraUSD stablecoin and failures of Voyageur Digital Ltd., Celsius Network and FTX.

When Peters evaluated the options for One River Digital, he concluded that expanding asset management with one of the dominant players in the industry was simply too attractive to pass up.

“Did I want to compete with these guys or be in business with them?” said Peters. – It was a fairly simple decision for me.

Negotiations began about a year ago and dragged on through the crypto wipeout that erased nearly $1.5 trillion in token values by 2022.

After bidding up Bitcoin to nearly $69,000 in November 2021, investors and speculators alike abandoned crypto as one scandal after another sapped confidence in digital assets. At San Francisco-based Coinbase, both revenue and trading volume fell in 2022, and the company reported a full-year loss of $2.63 billion.

Coinbase, the largest US crypto exchange, already has several businesses dedicated to institutions, among them crypto custody, trading, staking and prime services, as well as a spot market for tokens and a derivatives exchange. Some of these businesses come under increased regulatory control. Coinbase Asset Management will be a separate division with appropriate controls and barriers to ensure customer confidence and regulatory compliance, Tusar said.

One of Peter’s early accomplishments at One River Digital was recruiting Jay Clayton, former chairman of the US Securities and Exchange Commission, as an advisor. It was Clayton who led the SEC crackdown that effectively killed the market for initial coin offerings, or ICOs.co

Clayton, who remains through the sale along with other members of One River Digital’s advisory board, predicted that there will be more consolidation as crypto matures.

“We’re going to see a lot more strategic combinations,” Clayton said in an interview. “Traditional financial players are starting to think about acquiring distributed finance or blockchain companies, especially those that have no legacy regulatory risk.”