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Coinbase wants to make cryptocurrencies mainstream finally. Bitcoin and Ethereum
are nothing new. However, the whole crypto madness is still pretty overwhelming
and intimidating for most people, and Coinbase is working to change that.
They have big goals and big money. With more than 56 million users,
the company just recently went public by getting listed in the Nasdaq stock exchange,
We often talk about companies going public in this show, but this one is different because it is the
first time a fully crypto-oriented company did it, and many expect this unprecedented
move to mark the beginning of a new era of legitimization and trust in the crypto industry.
And just in case, Coinbase is not a cryptocurrency. It does many things
that we'll talk about, but it is mainly known for being a cryptocurrency exchange—a platform
for investors and consumers of all kinds to buy, sell and trade these digital assets.
Their ultimate goal is to lead the crypto-economy revolution,
to change the financial system as profoundly as the internet did with information
and communication. They want to do it by making digital currencies accessible for everyone to
fulfill their financial needs, leaving conventional banks out of the equation.
But they're not the first ones to go after this. Competition has increased and
there are even some iconic failures. Just look at popular Japanese exchange Mt Gox,
where some good 850,000 Bitcoin got lost in 2014. And that just one example.
Things have changed quite a lot in the last seven years, but what is different about Coinbase? Is it
going to become the next giant of the crypto era? Let's talk about it in this Company Forensics.
The origins
Brian Armstrong, the founder of Coinbase, first worked as a software engineer at Airbnb.
He experienced the struggle to make money transactions between consumers
and contractors internationally at a high rate.
That, alongside his previous bad experiences with the financial system,
made him want to find a more effective way to make transactions.
Bitcoin was the first cryptocurrency made public in 2009. It was still pretty underground when
Armstrong eventually got his hands on it. But We're working on a whole video
on blockchain to talk about things like cryptos or NFTs in more detail. So Stay tuned for that.
For now, let's say that the blockchain technology that makes Bitcoin and other cryptocurrencies
possible is a network that allows different value transactions directly between peers.
Transactions can be secured and overseen by all the participants in the network
instead of one prominent provider such as a bank or a government.
That simple fact can make cryptocurrencies all the more transparent and more efficient
than regular currencies, which are prone to bureaucracy and corruption.
The minds behind Bitcoin were a group of so-called cypherpunks, and they were all
about disruption and digital justice. Right after the crisis in 2018, It was created as
a technological solution to transparency and oversight in the financial system. However,
that may be hard to tell apart from all the crypto craziness going on these days.
Still, Bitcoin and its philosophy fit like a glove to the problem Armstrong
was trying to solve. So he joined forces with Fred Ehrsam, a former trader at Goldman Sachs,
and they both founded Coinbase in 2012. The intention was to make
cryptocurrencies available to more and more people and open up a new economy.
Around ten years later, and several hundred million dollars in funding, the company has
made history by bringing cryptocurrencies into the mainstream financial markets.
How much is Coinbase worth?
On April 14 2021, Coinbase got listed in the Nasdaq stock exchange, valued at a whopping $86
Billion. Mind you, that was more than the value of the New York Stock exchange,
which had a $67 Billion market cap at the time. That is nuts.
But, how did Coinbase get there? Back in its early days, the company started up
in the iconic Y Combinator program. It raised a first seed round of investment for around $600K
in 2012. Later, in a series of investment rounds throughout the decade, they raised $547 Million.
At this point, you may be wondering: how does Coinbase make money? Well, it's mostly through
transactional fees. Every time a purchase, sale, or trade happens on the platform,
they get a fee, and that still makes up for the majority of their revenue.
They're working to diversify that so that they don't depend only on trading volume,
which can be quite volatile still in the crypto world.
But that was how they surpassed the $1 billion revenue mark.
Their rapid growth went hand in hand with the Bitcoin hype
in the last few months. By April 14, the day Coinbase stock went public,
Bitcoin was at an all-time high valuation of more than $64K per coin, after months of a crazy hype.
That was wonderful for Coinbase and the crypto world in general.
But just the day after Coinbase went public, Bitcoin started a downfall.
Its price came from $64K in April, all the way down to $32K by the time we wrote this,
in June. That means that Bitcoin can still lose around half its value in a matter of a few weeks.
And just as Bitcoin helped Coinbase climb in value, it also brought it down when it fell.
Coinbase's newly released shares started trading for $328 per share in April and went down to $224
in late June. That's a considerable and fast drop in value for any stock.
And that right there seems to be the more existential challenge that Coinbase faces as
a company. That is, being subject to the value and behavior of its underlying assets, the cryptos. In
simple words, it's hard to think of Coinbase succeeding if Bitcoin or more cryptos fail.
That also is a dilemma for investors who may rightfully
wonder whether to invest in Coinbase or Bitcoin instead.
These digital assets have come a long way in over a decade. However,
the wild ups and downs in value still make them a highly volatile and risky investment for most
people. There are thousands of digital coins now, so many that they are referred to as altcoins or
alternative coins. And there's everything in the mix, from serious companies to scams and jokes.
Coinbase supports 50 of those thousands of coins for now.
They hope to grow that number and have more serious cryptos on the platform. Still,
with all the craziness and the little regulation, they need to do it carefully.
But, most importantly, they need to create more products and services
around cryptocurrencies so that Bitcoin's swings don't leave them out in the open.
For that, Coinbase is building an effective bridge between the traditional
financial system and the new crypto economy - allowing wealth to move easily from one another.
A major factor in achieving that goal is smartphones. Now that billions of people
can access the internet using their smartphones, Coinbase wants to get
all of those people to use cryptocurrencies. It's a long road, but they are en route.
A critical aspect of opening up cryptocurrencies includes allowing
people to earn them by completing jobs or tasks with Coinbase Earn.
That will enable more people to have cryptos and get involved, not just investors.
And they want to enable people to spend those assets,
just like they would do with a regular bank account. As a result, more and more
businesses now take cryptocurrencies as payment, which is only going to increase.
The company also has a Pro platform for more sophisticated investors to trade and manage higher
volumes. In addition, they plan to enable things like borrowing and lending, an essential aspect
of an economic system that would allow people to build new things on top of cryptocurrencies.
Coinbase knows it can't create a new economic system on its own. So,
they are investing in new companies, and helping develop a new wave of crypto-native businesses.
Similar to what happened with the internet, many traditional companies are finding their way to
the crypto world now, but most importantly, many are being created natively into the crypto space.
According to Armstrong, the company may eventually open up some of its internal
APIs and become something like AWS but for crypto companies. That would be huge and
would allow many new companies to build on the infrastructure they use to create their products.
So, Coinbase is on its way to disrupting the economy, and they have support from investors,
from individuals to institutions. But they need to incentivize new products and services to
create a new financial system that is not so dependent on Bitcoin's unpredictable nature.
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So, back to Coinbase, what do you think? Can the company thrive, regardless of the volatility of
cryptocurrencies? Will it be the next giant of the crypto era? Let us know what you think down in the
comments; we'd love to hear your thoughts on Coinbase and just cryptos in general.