Cryptocurrency exchange Coinbase has acquired the institutional business of cryptocurrency wallet and custody service provider Xapo.

Coinbase said in an announcement on Thursday that the deal will help expand its custody business and will increase its assets under custody to be more than $7 billion.

According to a Fortune report on Thursday, Coinbase acquired Xapo's institutional business for $55 million after beating another strong contender, the investment giant Fidelity.

Coinbase Custody's CEO Sam McIngvale indicated in the report that the exchange could look into crypto lending business in the future. “Fundamentally, we have to help our investors earn a return on their assets. You can imagine lending out bitcoin and earning interest on that,” McIngvale was quoted as saying.

Launched in 2013, Xapo is known for its wallet services including physical vaults stationed in Switzerland that are used to store customers' crypto assets in an offline environment to ensure the safety of private keys.

Fortune's report added that with this deal, most of Xapo's biggest clients have already decided to move their crypto assets to Coinbase, which will now store more than 514,000 bitcoin for Xapo's customers, worth $5.3 billion at its current price.

In May this year, Coinbase CEO Brian Armstrong said at CoinDesk's Consensus 2019 event that Coinbase Custody had just crossed $1 billion in assets under management at the time with 70 institutions.

The report today said if Coinbase would be able to onboard remaining customers of Xapo, then its custody service will have more than 860,000 bitcoin in total under custody, worth over $8 billion.

"In choosing Coinbase, we are confident that the Institutional Custody Business is going to a company that can provide great insurance, borrowing and investment alternatives," said Xapo's founder and CEO Wences Casares. "We believe that Coinbase will take this opportunity to prove to our customers that they deserve their business."

Brian Armstrong image via CoinDesk