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Rise And Fall of Coinbase

How Coinbase turned into the most preferred cryptocurrency exchange platform in the United States and what it holds for the future...

When it comes to crypto assets, an app going by the name ‘Coinbase’, is a formidable force. Coinbase is the most well-known cryptocurrency exchange in the United States. The firm, which has been around since 2012, lets customers purchase, trade, and store crypto assets including Bitcoin, and Ethereum, among others.


History of Coinbase


It all started when Brian Armstrong, a former developer at Airbnb, gained an insight into the future of cryptocurrency after reading a manifesto written by Satoshi Nakamoto in 2010.

Armstrong gambled on Bitcoin and started building a custom software environment in Ruby and JavaScript that allowed him to acquire and store Bitcoin.

His hard work bore fruition when Armstrong's business received $150 000 from Y Combinator, the most powerful Silicon Valley incubator. Fed Ehrsam recalls how he and Brian Armstrong started the company together in 2012 from a two-bedroom apartment. At that time, Bitcoin (BTC) was just trading at a mere $6.

Back then, “bitcoin was the crazy idea that the world could have digital money for everyone,” writes Armstrong. Fred also writes that the two co-founders had only one mission, making crypto easy-to-use for all.

Fred Ersam, a former Goldman Sachs management, also backed the idea. Coinbase acquired trust from the banks with which it eventually collaborated thanks to Fred. More interesting is how the two co-founders met each other. As Fred recalls they first interacted on Reddit having a bullish view on Bitcoin (BTC) and the overall crypto space.


Coinbase Failed IPO


While Coinbase captivated investors and skyrocketed on its first day of trading, the stock has since fallen by approximately 50% and 65 percent from its highs. This is because Coinbase’s IPO might not really be an IPO. Coinbase's listing is notable in that it is not an initial public offering (IPO, but a direct listing.

Let us compare Coinbase’s case with the IPO of Robinhood, a stock brokerage company. Direct listing shares of Coinbase are not assigned at a pre-determined price like IPO shares of Robinhood are.

For Robinhood, Investment bankers set the share price as high as they believe the market will bear in an IPO since they are usually paid a percentage of the total money raised. This figure is based on preliminary indications of interest from institutional investors.

In the case of Coinbase, there is no pre-determined price set by a group of investments, instead, the market on the first trading day affects the opening price. Due to this, IPOs of companies like Robinhood attract new capital and are less volatile than direct listings as in the case of Coinbase.

Competitions with Binance


Due to the exchange business becoming competitive, Coinbase is facing tough competition from new companies. Binance is one such competitor. Binance, a Chinese startup founded only four years ago, has evolved rapidly, now selling over 350 currencies and producing a spot trading volume of $757 billion in March, over ten times that of Coinbase.

While Binance is ranked lower than Coinbase in terms of quality and security, it is usually regarded as the most creative, having launched one of the first crypto derivatives platforms for more advanced traders.


Binance moved its operations abroad after cryptocurrency restrictions in China, but it has gone afoul of regulators in other countries, forcing it to offer a stripped-down version of its online trading platform in the US. This is where Coinbase has an edge, as it has actively worked to comply with existing laws and regulations, keeping it in the good books of the law.


Coinbase Business Model


Coinbase's business strategy revolves around the fees it charges for exchanging cryptocurrency. Its brokerage costs range from 1.5 percent to 4.0 percent, depending on the user's payment method; credit cards have higher fees than bank transfers owing to the added risk.

Coinbase's brokerage purchases crypto assets via GDAX rather than an independent exchange. This provides the organization with a reliable internal liquidity source.

Given how frequently exchanges are hacked or otherwise compromised, this is critical; Coinbase's brokerage does not rely on anybody else for liquidity. Credit card transaction fees, referral fees for advertising courses, a custody service, and earnings from venture investments are among the other sources of revenue.


Exit from India


Within three days of its inception, Coinbase pulled out of India, the nation with the most crypto investors worldwide. Brian Armstrong, the company's co-founder, and CEO has since said that they left due to "informal government and Reserve Bank of India pressure."

On April 7, Coinbase started its crypto trading business in India, allowing its Indian customers to acquire cryptocurrency over UPI (unified payments interface). After the National Payments Corporation of India (NPCI), which supervises UPI, declared it was "not aware of any crypto exchange using UPI," Coinbase halted operations. However, Brian has stated that Coinbase will soon return.

Future of Coinbase


Brian Armstrong, the CEO of Coinbase, has unveiled a five-year roadmap for the firm. Three pillars support this roadmap.

Firstly, using cryptocurrency for investment. Coinbase's main business is cryptocurrency investing. The business intends to introduce additional cryptocurrencies to its platform at a quicker rate than previously.

Second, using cryptocurrency as a financial system. Coinbase will develop new solutions to assist cryptocurrency owners in using their currencies and gaining access to decentralized financial tools.


Third, using cryptocurrency as a platform for apps. Coinbase thinks that cryptocurrency innovation isn't limited to financial applications. Coinbase Ventures will provide funding for startups and also assist consumers in discovering new cryptocurrency apps.

Conclusion


Coinbase's journey reflects the journey of the whole industry. Bitcoin and other major cryptocurrencies are getting closer to mainstream adoption, but not as quickly as crypto aficionados would want.


Coinbase is basically at the mercy of speculators looking for fast money until a legitimate purpose for blockchain technology is implemented, tested, and used. Coinbase is fully aware of this fact and is working hard to develop solutions that will allow it to ride the market for as long as feasible.



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