The price of bitcoin skyrocketed in the year 2017. Coinbase, one of the world's largest cryptocurrency exchanges, was in the right place at the right time to capitalize on the spike in interest. Even so, Coinbase isn't interested in taking its crypto gains for granted. To stay ahead in a much larger cryptocurrency market, the company is plowing money back into their master plan. Up until 2017, the company's revenue was reported at $1 billion and over $150 billion of assets were traded across 20 million customers.
Coinbase, a San Francisco based company, is known as the leading cryptocurrency trading platform in the United States and with its continued success, landed at the No. 10 spot on the CNBC Disruptor list in 2018 after failing to make the list the previous two years.
On their path to success, Coinbase has left no stone unturned in poaching key executives from New York Stock Exchange, Twitter, Facebook, and LinkedIn. In the current year, the size of its full-time engineering team has almost doubled.
Earn.com was bought by Coinbase this April for $100 million. This platform allows the users to send and receive digital currency while replying to mass market emails and completing micro tasks. Currently, the company is planning to bring a former Andreessen Horowitz venture capitalist, Earns founder and CEO as its first-ever chief technology officer.
According to current valuation, Coinbase valued itself at about $8 billion when it set out to buy Earn.Com. This value is much higher than the valuation of $1.6 billion which was estimated at the last round of venture capital financing in the summer of 2017.
Coinbase declines to comment on its valuation despite the fact that it has more than $225 million in funding from top VC's including Union Square Ventures, Andreessen Horowitz and also from the New York Stock Exchange.
To meet the needs of institutional investors, the New York Stock Exchange is planning to start its own cryptocurrency exchange. Nasdaq, a rival of NYSE is also contemplating a similar move.
• Competition is Coming
As competing organizations look to take a bite out of the Coinbase's business, Coinbase is looking to other venture capital opportunities in an attempt to build a moat around the company.
Dan Dolev, a Nomura instant analyst, said that Square, a company run by Twitter CEO Jack Dorsey could eat into Coinbase's exchange business because it started trading cryptocurrency on its Square Cash app in January.
According to the estimates by Dolev, Coinbase's average trading fees were roughly 1.8 percent in 2017. Fees this high could drive the users to other cheaper exchanges.
Coinbase is looking to become a one-stop shop for the institutional investors while hedging its exchange business. To lure in that white glove investor class, the company announced a fleet of new products. This class of investors has been especially cautious to dive into the volatile cryptocurrency market.
Coinbase Prime, The Coinbase Institutional Coverage Group, Coinbase Custody and Coinbase Markets are the products launched by the company.
Coinbase feels that there are billions of dollars in institutional money which can be invested in the digital currency. It already has the custody of $9 billion in customer assets.
Institutional investors are concerned about security despite knowing Coinbase has never suffered a hack like some other global cryptocurrency exchanges. Coinbase president and COO said that the impetus of launching the Coinbase custody last November was the lack of trusted custodian to safeguard their crypto assets.
• Currently Wall Street Shifts from Bashing Bit to Cryptocurrency Backer
According to latest data available from Autonomous Next Wall Street's, interest in cryptocurrency seems to be increasing. At present, there are 287 crypto hedge funds, while in 2016, there were only 20 cryptocurrency hedge funds that existed. Goldman Sachs has even opened a cryptocurrency trading desk.
Coinbase has also introduced Coinbase Ventures, which is an incubator fund for early-stage startups working in the cryptocurrency and blockchain space. Coinbase Ventures has already accumulated $15 billion for further investments. Its first investment was announced in a startup called Compound which allows one to borrow or lend cryptocurrency while earning an interest rate.
At the beginning of 2018, the company launched Coinbase Commerce, which allows merchants to accept major cryptocurrencies for payment. Another bitcoin startup was BitPlay, which recently raised $40 million in venture money. Last year BitPlay processed more than $1 billion in bitcoin payments.
The proponents of blockchain technology believe that in the future, cryptocurrency will be able to eliminate the need for central banking authorities. In the process, it will lower costs and create a decentralized financial solution.
• Regulatory Security Remains Intense
To keep access limited to four cryptocurrencies, Coinbase has drawn a lot of criticism. But they must tread carefully while the U.S. regulators deliberate on how to police certain uses of the technology.
For cryptocurrency exchanges like Coinbase, the matter of concern is whether or not cryptocurrencies are securities which would be subject to Securities and Exchange Commission jurisdiction. Coinbase is admittedly slow to add new coins because the SEC announced in March that it would apply security laws to all cryptocurrency exchanges.
Wall Street Journal reported that Coinbase met the SEC officials to register itself as a licensed brokerage and electronic trading venue. In such scenario, it would become easier for Coinbase to support more coins and also to comply with security regulations.