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“The Coinbase Effect” Too Big to Fail the Market

CryptocurrencyAug 22, 2021 09:00AM ET
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“The Coinbase Effect” Too Big to Fail the Market

  • Coinbase’s Q2 earnings have exceeded market predictions with a total revenue of $2.2 billion.
  • Ethereum has been the most traded platform cryptocurrency, as speculated by investors, given the network’s ongoing upgrade.
  • 10% of the Top 100 hedge funds invest and interact with cryptocurrencies through Coinbase (NASDAQ:COIN).

Forums, bulletin boards, and now exchanges are the means through which both new and experienced investors interact with the crypto universe. While centralization has been disregarded because it strongly contradicts the operational pillars of cryptocurrency, adjacent businesses such as Coinbase and Binance help to solidify blockchain’s status in the new economy. Regulation and stricter crypto exchange rules have shown that the crypto wave has gained mass recognition, now at the nation-state level.

Coinbase Is Beating All Expectations

Following its much publicized initial public offering, Coinbase steamrolled all market expectations, despite hitting a low of $208 in May. The company’s recent Q2 earnings report indicates positive performance metrics, despite the crypto market’s downtrends.

Their earnings report shows COIN stock smashed market estimates, amassing a revenue of $2.2 billion compared to its $1.85 billion estimates. Moreover, their trading volume has increased to $462 billion, up from $335 billion in the previous quarter, and a staggering 4,700% increase in profits of $1.6 billion from previous years. It is especially worth emphasizing the platform’s success despite the poor recent crypto sentiments, while exchanges have posted record outflows since May 2021.

In an open letter to investors, Coinbase addressed the market volatility that influenced their Q2 earnings, after Bitcoin fell from its record high of $64,000 by more than 50%. Furthermore, the speculative nature of the industry makes the yearly forecast hard to predict, especially given that Coinbase reports their earnings in terms of cryptocurrencies, with Dan Dolev expressing that predicting the price is similar to a “coin toss.”

On The Flipside

  • Coinbase removed “backed by U.S. dollar” from their USDC stablecoin after reports of a misleading claim.
  • The platform was accused of working with the FBI and providing records of Colonial Pipeline crypto addresses.
  • Coinbase is dabbling with high-risk and volatile assets, and still operates in a partly unregulated market.
  • Coinbase was accused of locking people out of their accounts for several months.

Coinbase Dabbling With Risky Assets

Driven by market volatility, retail investors recognize the financial advantages and risks associated with cryptocurrencies. Coinbase established itself as a market opinion forger in the fast-paced, innovative cycle, commissioning a stamp of crypto approval for new listings. Moreover, Coinbase’s public exposure enticed new users to jump aboard, increasing from 6.1 million in Q1 to 8.8 million in Q2.

Coinbase’s CFO, Alesia Hass, has acknowledged the platform’s hegemonic reign in the crypto space. While retail users are the ultimate bull run catalysts, hedge funds and retail investors bring less volatility through liquidity influxes. As emphasized by Hass, Coinbase is seemingly favored by institutional investors as they provide crypto investment opportunities for “10% of the top 100 hedge funds.”

Coinbase’s expansion needs to be sustained by increasing marketing and sponsorship deals. Binance, Kraken, and Gemini are seizing more market share as compliance becomes the new norm for exchange. Still, Hass emphasized that marketing measures are required to sustain the firm’s “long-term goal of driving one billion people” to use and transact crypto.

The Crypto Battle Is En Fanfare

Coinbase’s ease of access is the platform’s “foot-in-the-door” strategy, despite them having the highest transaction fees on the market. However, with Venmo making crypto more accessible through their new cash-back crypto function, the debate around shaping user conceptions about cryptocurrencies, especially in the U.S, is growing.

Despite the platform’s theatrical and mediated IPO, Coinbase managed to endure, given the market situation. Still, compared to other bear market epochs, the current one has been shorter, and could have saved the platform’s long-term market status.

Why You Should Care?

Coinbase is a regulatory compliant cryptocurrency platform that could help drive mass adoption and institutional interest. However, higher institutional interest and crypto normalization will deteriorate the foundational pillars of decentralization and censorship-resistant financial transactions.

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“The Coinbase Effect” Too Big to Fail the Market
 

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