Buy Bitcoin $ 425M Coinbase Brokered MicroStrategy, Says Exchange

US cryptocurrency platform Coinbase facilitated MicroStrategy’s $ 425 million purchase earlier this year, the exchange said.

In an announcement on Tuesday, Coinbase revealed that MicroStrategy’s initial $ 250 million investment, which took place over a five-day period in August, came through Coinbase Prime, the exchange’s crypto brokerage arm formed following Tagomi’s acquisition in May.

That was followed in September by a further $ 175 million investment by the Virginia-based business intelligence firm, bringing MicroStrategy’s total investment to $ 425 million in bitcoin. MicroStrategy was the first publicly traded company to acquire a large chunk of bitcoin to hold on its balance sheet as the major treasury reserve asset.

In retrospect, data on the chain suggests that Coinbase was negotiating with a major customer in the months leading up to MicroStrategy’s announcement in August. A series of large amounts of bitcoin – nearly 80,000 in total – began moving out of the Coinbase Pro reserve starting in the middle of the year and ending in the autumn. “Those outflows went to Coinbase Custody wallets (interoperability with over-the-counter wallets), not wallet exchanges,” explained Ki Young Ju, CEO of analytics firm CryptoQuant, adding that Coinbase typically uses 8,000 BTC to make an initial custody wallet and requires a custody deposit of at least $ 10 million.

Michael Saylor, CEO of MicroStrategy, did not respond to CoinDesk’s request for comment by press time. Coinbase’s announcement quoted him from an earlier MicroStrategy press release that he said investing in bitcoin was part of the company’s “new allocation strategy.” The strategy aims to maximize the long-term value to shareholders by reflecting the use of the cryptocurrency as a store of value with more “value-taking potential than cash holdings.”

In Tuesday’s announcement, Coinbase outlined three reasons why MicroStrategy chose the exchange in San Francisco: routing the company’s smart order, trading algorithms and white glove service. Coinbase also said he had been involved in several pre-trade calls with the company during the onboarding process and was asked to conduct a small “trial trade”.

The test trade assessed data collected from Coinbase and was analyzed by the exchange’s OTC and Content teams. When the optimum speed to reduce the market impact was decided upon and implemented successfully, Coinbase received a green light from MicroStrategy to take forward the “bigger investment.”

Following the test, Coinbase implemented real-time trades using the time-weighted average pricing algorithm – a strategy that takes into account the average price of an asset over a given time to minimize market impact.

“Our system takes one big order and divides it into many small pieces that are executed across multiple trading locations,” Coinbase said via email. “The trading team achieved an average operating price that was less than the price it started buying.”

The Armstrong exchange can now claim market-blasting rights such as the one that helped a publicly listed company take a nine-figure leap of faith on bitcoin as a reserve asset.

UPDATE (December 1, 13:30 UTC): The headline and fourth paragraph have been modified to clarify that the quote from Michael Saylor included in the Coinbase publication comes from an old MicroStrategy press release.

UPDATE (December 1, 14:17 UTC): Added chart and comments from CryptoQuant CEO Ki Young Ju.