Good to see you again, Julian.
And look, I want to get right
into this conversation with Bryan Armstrong, the CEO of
Coinbase. Brian, let's kick off. Look, it's been an interesting
start to the year for Bitcoin. We've seen a big rally markets
generally higher, what's been driving that action?
Yeah, well, I mean, just zooming out, we've seen crypto go
through many different cycles over the last 10 years, there's
probably been four of these cycles where there's rational
exuberance and despair. And so we always just try to zoom out
and not get too attached to short term price fluctuations.
But I think you're right, Bitcoin is up 71% year to date,
we may have seen the bottom, we may not we'll have to see. And I
think one of the big things driving that is probably, you
know, the collapse of Silicon Valley Bank has caused a renewed
interest in people saying, Hey, what are the alternatives out
there? Maybe there's a financial system that's not so connected
to the traditional banking system that's more fair and free
and global? And of course, that's that's cryptocurrency.
Yet, when we look at better the data, we're not yet seeing
retail participation, bank volumes remain quite thin. Is
that what you're what you're clocking into on Coinbase?
Well, I mean, retail sentiment tends to fluctuate again, with
these, these cycles. And so you know, just zooming out, we look
at as often developer activity, right, that's a good indicator
of where things are going in the future. And actually, developer
activity is up year over year, even, you know, in 2022, it came
down quite a lot. But the developer activity was up. And
so that that's a positive indicator. We also shared in our
q4 earnings, for instance, that there's been an increased
onboarding of institutional customers. So I think there's
been, even though the market has had some turmoil, there's been a
flight to quality and Coinbase is really, you know, the only
publicly listed company in the US are financials are audited.
And so people want to participate in the crypto space,
they're going to come to Coinbase. And look,
your share price is up 90 odd percent this year, as well, in
tandem with what we've seen in the markets, you know, investors
are looking at Coin basis versus wondering what's going to happen
next year, is this year you returned to profitability?
Well, I don't want to make any, you know, future forward looking
statements. But I will say we are I shared this in our q4
earnings as well, we're adjusting the business to sort
of generate EBITA in any market environment, whether that's up
or down. So of course, we had several cost reductions, you
know, headcount reductions over the last year, we really want to
operate the business with operational efficiency. So we
can, we can generate that EBITA. And one thing that was really
positive as well, we've seen a big shift in our revenue away
from trading fees towards, you know, subscription and services,
we call it. And so that's now almost half of our revenue. It's
making our business a lot more predictable through these big up
and down cycles. Are you expecting
to have to do any more layoffs this
year? No, we've, you know, we model out every year with a bull
base and bear case and through any of those scenarios, we don't
think we'll need to reduce headcount further. But, you
know, no CEO can predict the future perfectly. And you always
have to make sure if something really unforeseen does happen,
you adjust quickly.
I know you've been very interested in international
expansion here in the UK, in parts of Europe and elsewhere,
as well. One jurisdiction I wanted to get your thoughts on
was Hong Kong, because this is a fascinating one, you know, the
Chinese mainland crackdown on crypto over the last few years.
Now, Hong Kong is sort of trying to position itself as a crypto
hub. Is this a new market? You're looking at in terms of
expansion?
Yeah, I mean, I think it's really exciting what's happening
in Hong Kong, it's it is kind of paradoxical with the Chinese
government, you know, taking over it, they've China has, of
course, banned crypto as sort of an oppressive regime. But
surprisingly, Hong Kong is actually leading in a bit in
terms of getting that regulatory clarity. And just zooming out,
we're actually seeing really good regulatory clarity emerged
in Europe with a mica legislate legislation. You know, here in
the UK, I've been meeting with top government officials, and
there seems to be strong movement towards a stable coin
bill. You know, we're seeing some of that in Singapore and
other countries around the world. So I think that's really
positive. And basically, that's the big thing that will unlock
growth in crypto is we need that regulatory clarity. We actually
need more of that in the US, the US is a little bit behind on
this. And certain regulators are taking more of a regulation by
enforcement approach, which is not helping.
Yeah. And you've been sort of talking and been pretty critical
of the SEC and others as well, in terms of their regulatory
approach. What does that mean for coin basis business in terms
of are you looking at other jurisdictions to set up shop in
terms of headquarters? Relocation, anything of that
Yeah. Well, you know, we're a business with a, like any
sort?
business, we have a budget, and we have to decide where to
allocate it. And so that means what products we want to build,
but it also means what countries we want to invest in, in any
given year. And with the US kind of lagging a little bit having
this this regulation by enforcement approach that's
really instead of just creating a clear rulebook, so everybody
has to play on a level playing field. We are looking at other
markets. I think the UK is actually a very good one for us.
It's our, you know, the first country we went into outside of
the US, it's our second highest revenue country, and the UK,
we've seen really great leadership from everyone from
the pm to city minister, kind of talking about how they want
crypto to be based here in the UK, they want it to be a web
three hub that's really attractive for us. And so we
have an office here we have a presence. I think we're probably
going to invest more.
Let's talk about the SEC a little bit. They issued your
WELS notice not too long ago, have you got more clarity on
precisely what the SEC is worried about right now?
Unfortunately, no. You know, we've met with them over 30
times in the last year. And then of course, you know, they
allowed us to go public as the next one, we filed in had many,
in depth conversations with them about our business. But even
over the last month, or sorry, the last year, we had 30
meetings, and never got a single piece of feedback from them
about what we could be doing better or differently. And then
this WELS notice arrived. And so it's really, it's really
unfortunate, I think we're gonna have to actually end up going to
court to get the clarity we need and create that case law. It's a
really, it's an abdication of responsibility. I mean, the
regulator's job is to publish a fear rulebook, and allow that
market to be safe, but also to flourish in that country. And I
think they've completely abdicated responsibility,
investors are worried that this could turn out to be a years
long battle we seen with ripple, for example, in the SEC, this is
going on, and going on for some time, are you prepared for a
battle with the SEC of this kind of length?
Absolutely. I mean, you know, we never seek litigation. But it
seems in this case that they have initiated it. And if we
need to get the courts to get the clarity that we need, that
we're very prepared to do that. I think the law is on our side,
and the SEC has to follow rule of law, I think their actions
have not would not be sympathetic to a jury. And so
we're very prepared for this. We're going to court to win.
Just to be clear, I think we have a very strong case. And
that's what exactly what we intend to do.
In terms of regulation in the US, what is it that you would
like to see at this point, because the SEC has been very
much leading by enforcement at this point in time. Other
jurisdictions like cam in the UK very much thinking about how to
bring crypto assets into the regulatory fold, etc. So what is
it in terms of the US that you'd like to see?
Yeah, so there's a few pieces, I think, you know, getting a
clear, stable coin bill passed in the US, that would be a great
first step, there's a couple parties already working on this.
The next big piece, I think, would be to just to get
comprehensive legislation around the centralized actors and
crypto, let's not, you know, figure out the decentralized
thing. I'll talk about that in a second. But there's clear
consensus that the centralized exchanges, custodians, etc,
should be regulated, they can apply to a lot of the best
practices from traditional financial services. Europe has
already done it, you know, UK is working on it. So there's no
reason why the US needs to be left behind. I think getting
clarity about what's a commodity and what's a security, we have
this crazy situation right now, where the heads of these two
federal regulators in the US are making contradictory statements
almost every few weeks, about, you know, Aetherium, for
instance, like the CFTC says, commodity the SEC says,
security. So of course, you know, how is a business supposed
to operate in this environment where even the federal
regulators can't agree
chitlins against them without argue? Well, we've told you what
they are. We've said what a security is. We've been very
clear on that.
Yeah. But what am I supposed to do, if the other federal
regulator that we have to work with is saying something
contradictory, right. And I want to make a good point here, which
is that, you know, him making a speech is not regulation, that's
it's offering an opinion, we need something clear. And there
is a there's something called the Administrative Procedures
Act in the US, they're required by law to engage with industry
have a comment period, and publish a clear rulebook, and
they are not doing that. And so this rhetoric, you know, kind of
playing for political points or to the media is not helping
anybody. In fact, it's causing a lot of harm to the US economy
and the US consumer.
But I just want to get your take on a couple more things.
Firstly, your stock, you've been selling it over the past few
months, there's been a lot of speculation made about from the
crypto community about why this is happening. How do you
respond, and particularly around the SEC, WELS? Notice when
there's more stock being sold?
Oh, well, yeah, I mean, I think about a year ago, I mentioned I
was going to sell about 2% of my holdings over the next year. And
so, you know, it's important for me to kind of fund other
initiatives in science and technology. And I think, you
know, if you've been working on something for 10 years, and you
know, 97% of your net worth, isn't it? I'm going to slowly,
you know, over the next like, 510 years, like slowly diversify
and just your Outlook now for the rest of the year. What are
out of that,
your expectations in terms of the broader markets? You
mentioned, institutional players are sort of coming back into the
fold. Do you expect those retail participants to come back in or
or do you think they've just been heavily burned by the last
cycle?
Retail Investors, their sentiment fluctuates along with,
you know, crypto prices, or it's not even necessarily the prices
because that's very trading focus. It's really about what
are the new use cases? So in past crypto cycles, we saw
things like, you know, NF T's people got excited about or defy
right, and, you know, new emerging use cases, I think
those are the things which tend to drive these these crypto
price cycles. And so, you know, I feel very confident that
crypto is going to increase over a period a long period of time,
but what happens in any given quarter or month or year? I
don't know