INTRO: Recently, cryptocurrencies haven’t had the
best of times.
Bitcoin and Ethereum are down nearly 50% while many altcoins are down 70 to 80%.
And this makes sense given that interest in Bitcoin, NFTs, and crypto in general have
fallen off substantially.
During such downturns, one of the most desirable positions within the market is being the person
who’s selling the shovels.
Of course, crypto brokerages aren’t making nearly as much money as they used to given
lower trading volume, and their own stocks have been hammered by the market.
Coinbase, for example, is down nearly 70% from their all time high.
But despite this, Coinbase should still be profitable meaning that they’re able to
turn a profit in any sort of market conditions.
And as you would guess, the guy behind Coinbase, Brian Armstrong, is still doing quite well
with a net worth of just over $5 billion.
Ironically, Brian’s net worth stood at $16 billion just 12 months ago.
This means that on average net worth over the past year is about $10 billion depending
on how the crypto markets are performing.
Coinbase, however, hasn’t even been a thing for 10 years at this point.
So, here’s how Brian Armstrong made $10 billion in 10 years.
PRE-COINBASE: Taking a look back, Brian’s story dates
back to January 25, 1983 to San Jose, California.
Brian was born to a pretty well off family of engineers, and from a very young age, he
had a pretty strong inclination towards technology.
Nowaday’s this is nothing special given that this basically applies to all of us,
but back in the 1980s and 90s, average people were just starting to buy their first computers.
During high school, it looks like Brian was the classic computer geek who chose to learn
Java and CSS during his freetime.
Brian recalls that getting strange looks from his peers due to his quote “nerdiness”
was extremely common.
Weird looks weren’t the only thing that his coding skills got him though.
Brian was able to leverage his skills to design websites and programs for local businesses
and earn some nice money on the side.
Soon enough, Brian would graduate from high school in 2001 and he would attend Rice University
where he double majored in Computer Science and Economics.
While he likely performed great in school, he never put all of his eggs in one basket.
During college, he opened up a website that could match tutors with students called universitytutor.com.
The service wasn’t anything particularly special, but Brian was rather early to the
game having launched this service in June of 2003, and he ran the business quite well.
So he was able to capture quite a bit of marketshare and this would turn into a full time job over
the next several years.
Brian didn’t drop out of college either though.
Instead he would actually go onto complete a masters in computer science at Rice University
right after he finished his bachelors.
Brian also got an internship at IBM where he helped them create some Java based tools
that could be used in conjunction with network attached storage devices.
Anyway, shortly after finishing college, Brian would decide to take a one year trip to Buenos
Aires, Argentina, and this trip would turn out to be extremely influential.
You see, Argentina has been struggling with a chronic inflation problem for decades.
In 2004, you could only get 2.81 Argentine Pesos with one dollar.
Today, however, you can get 114.39 Aregentine pesos meaning that the currency is worth 40
times less relative to the dollar.
Living in Buenos Aires, Brian was witnessing this crisis firsthand, and this didn’t give
him a particularly positive view towards fiat currency.
After Brian returned to the US, he continued serving as the CEO of universitytutor.com.
But I don’t think you’d be surprised to hear that Brian was also constantly on the
look out for new opportunities.
One of these opportunities was working at Airbnb as a software engineer.
At the time, Airbnb was operating in 190 countries and Brian had a chance to work on their international
payment systems.
This experience made him realize just how difficult it was to send and receive money
in certain developing countries.
And this would give him the final push he needed to go all in on Coinbase.
FOUNDING COINBASE: While it wasn’t till mid 2012 that Brian
left UnversityTutor and went all in on Coinbase, by this point, he had already been working
on the idea for a few years in the background.
Brian first heard about Bitcoin in December of 2010 when he came across Bitcoin’s white
paper.
Being a serial entrepreneur since high school, Brian instantly knew that he had to try something
in this space, but he wasn’t sure about what exactly he should do.
Initially, it seems that Brian was interested in creating something like Venmo or Square
but for Bitcoin.
However, he quickly realized that Bitcoin wasn’t that great when it came to transactions
due to it’s high fees.
So, instead, he decided to just focus on helping people buy and hold crypto and this of course
led him down the crypto brokerage route.
Over the next two years, Brian would spend all of his free time writing code that would
allow users to buy and store various cryptocurrencies.
Brian also spent a lot of his time on the Bitcoin subreddit to better understand what
crypto enthusiasts were looking for, and this is when Brian would run into a man named Fred
Ehrsam.
Fred had a classic wall street job as a foreign exchange trader at Goldman Sachs.
In his freetime, he liked to trade Bitcoin, and this is what led him to the Bitcoin subreddit.
As you might’ve guessed, Brian and Fred would quickly become friends and Fred would
join Coinbase as a cofounder.
The duo was also able to secure $150,000 worth of startup capital from Y Combinator which
helped tremendously with initial startup expenses.
And with that the duo launched Coinbase on June 20, 2012.
At the time, coinbase was one of the only choices you had if you wanted to conveniently
buy bitcoin within the US.
So, naturally, all of the original crypto enthusiasts flocked over the Coinbase, Kraken,
and Bitstamp.
For many of these guys, the brokerage didn’t matter all that much given that they had no
plans of keeping their coins on the brokerage.
Most of these guys instantly transferred their coins into their Bitcoin wallets and eventually
into cold storage options.
Nonetheless, Coinbase was able to make quite a bit of money with each bitcoin purchase
or sale thanks to their hefty commission fees.
Even today, their fees are rather high especially in comparison to the stock market.
For example, if you buy $10,000 worth of crypto, you have to pay Coinbase between $40 and $60.
Despite these fees, Coinbase has never really struggled with a lack of interest given that
crypto returns are so high that these fees often seem insignificant in comparison.
Within just the first two years of launching, Coinbase was able to grow to 1 million users.
And this exponential growth made it extremely easy to raise money.
In May of 2013, Union Square Ventures invested $5 million in Coinbase.
At the time, this seemed like an extremely risky move given that this was the biggest
funding round in Bitcoin startup history.
But, knowing that this stake would eventually grow to $4.6 billion, I think it worked out
just fine.
Just a couple of months after this, Coinbase would raise another $25 million, and with
that, they were off to the races.
BUILDING AN EMPIRE: Using all of this new found capital, Brian
would continue making Coinbase more secure.
For example, in 2014, Brian purchased insurance for all of the Bitcoin stored on Coinbase
servers.
Similarly, Coinbase also launched their vault system which is supposed to offer extremely
secure bitcoin storage.
Such initiatives made Coinbase customers feel a lot more comfortable and many of them started
to hold more crypto inside Coinbase itself.
Aside from upping the reliability of coinbase, Brian also worked on expanding their features.
One of their biggest launches came in 2015 when the company came out with Coinbase Exchange.
This exchange was more geared towards crypto traders and enthusiasts and boasted significantly
lower fees and bid ask spreads.
It also came along with more sophisticated charts, indicators, and limit orders.
Yet, I don’t think Coinbase Exchange was ever able to reach its full potential.
First of all, they had a branding crisis for a few years.
Initially, they were renamed Global Digital Asset Exchange before they were eventually
renamed Coinbase Pro.
Aside from this branding issue, i don’t think Coinbase Pro actually ever reached its
target market.
Even though Coinbase Pro is an exceptional service and quite popular, the vast majority
of people who use Coinbase Pro are simply crypto hodlers who want lower fees.
It seems like the high frequency traders far prefer the offerings from Binance which is
evident in their substantially higher trading volume.
Coinbase currently averages about $1 billion per day in trading volume.
Meanwhile, Binance averages nearly $30 billion per day in trading volume.
While Coinbase didn’t quite winover the trading market, this experience allowed them
to better understand their average customer and position in the market.
Coinbase isn’t the platform for traders, it’s the platform for everyday crypto holders,
and this became extremely evident during the 2017 bull run.
In the last quarter of 2017, Coinbase’s user count nearly doubled in a matter of months.
We saw a similar growth percentage in the first quarter of 2021 as well.
Brian has since chosen to lean into the casual demographic and launch features that would
appeal to them.
For example, in October of 2020, Coinbase launched, Coinbase worked with Visa to launch
their own debit card which apparently offers up to 4% back in rewards.
And more recently, Coinbase ran an extremely successful ad at the 2022 superbowl.
The ad wasn’t anything super flashy or anything.
It was literally just a QR code that was bouncing off the walls of the screen.
However, given that it garnered 20 million hits in one minute, crashed the entire Coinbase
website, and caused Coinbase to jump from 186 in the app store to number 2, I think
it’s safe to say that the ad was a roaring success and that brings us to where we are
today.
COINBASE TODAY: Likely the biggest event for Coinbase aside
from the Superbowl ad in recent history is their IPO.
Unfortunately, unlike their superbowl ad, their IPO wasn’t a roaring success.
The IPO was actually extremely hyped, and people bought in signifcnatly on the day of
the IPO.
But, coinbase has sold off eversince.
Also, something that we should note is that the peak of Bitcoin was literally on the exact
day that Coinbase IPOd.
Bitcoin did go onto make a new all time high last November, but this was new peak was only
marginally higher than the old peak, and I think the general consensus is that the April
peak was the more significant peak.
So, Coinbase’s IPO was literally the peak of the crypto market.
This is quite ironic given that Coinbase usually has the opposite effect on crypto.
Whenever a crypto is listed on Coinbase, it often surges given that a lot more people
are able to buy the given crypto.
But I guess Coinbase themselves being listed was bad luck for the crypto market at least
in the short term.
Looking forward, given that crypto is still only in it’s infancy, it’s likely that
Coinbase has significant growth left both in terms of their total user count and the
average holdings per user.
And at this rate, I think that Brian is on track to hit the $100 billion mark within
the next 10 to 20 years if not sooner.
Fortunately, Brian is trying his best to put all this wealth to good use.
A few years ago, he founded givecrypto.com which is a nonprofit that distributes cryptocurrency
to people living in poverty.
He has also signed the giving pledge which means that he has pledged to give away the
vast majority of his wealth.
Considering such wholesome ambitions, I believe he deserves all the success he’s achieved
so far, but that’s just what I think.
Who’s your favorite crypto brokerage?
Comment that down below.
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