For all the bitcoin believers who survived the crypto-winter of 2017-2020 with their possessions, the listing of the digital currency exchange service Coinbase should have been a justification.
Not only was the $ 75.9 billion listing on Nasdaq the largest payout in crypto history, many would say that it has unequivocally established digital currencies as a showdown on Wall Street. For crypto amplifiers around the world, it was the day they were finally proven right.
‘It feels like a shift in legitimacy not only for Coinbase but also for the entire industry. “Crypto has the potential to be a major force in the financial world,” noted Coinbase CEO Brian Armstrong.
The group’s valuation came on the heels of an excellent set of earnings in the first quarter. The group showed revenue of $ 1.8 billion for the period, compared to $ 191 million last year. It earned a net income of as much as $ 800 million. The Street said it’s worthy of comparison with the New York Stock Exchange’s ICE exchange, which has a valuation of about $ 67 billion.
A more objective analysis will note that this is not a fair comparison. Yes, ICE generated revenue of $ 1.6 billion in the first quarter of 2020, which put Coinbase well into the same ballpark. But Coinbase is a very different animal than the ICE venture in Wall Street.
Coinbase is very sensitive to super-volatile crypto-valuations. A strong performance in the bull market in the first quarter of 2021, when bitcoin rose above $ 60,000, must be contrasted with the fact that Coinbase posted a net loss of $ 30 million in 2019, a year in which bitcoin averaged about $ 5,000 – $ 6,000.
As it stands now, Coinbase is also regulated and licensed under the legislative framework of the US Money Services Business, not as an exchange or so-called prime brokerage for services such as credit for trading. This gives Coinbase a huge advantage over its more heavily regulated counterparts such as ICE or CME.
If that were to change, there could be major consequences. If it is indeed regulated as a stock exchange, the ability to generate earnings from prime brokerage, non-prescription brokerage and main trading will be severely curtailed. If supervised as a prime broker or a bank, the capital burden will be significantly increased.
Although the IPO may confirm the importance of cryptocurrencies as a speculative asset, it is a striking irony that so-called bitcoin maximalists also view the platform as a hard sell. They believe it has abandoned Crypto’s true principles for the golden goose offered by Wall Street. This is a reasonable argument.
Bitcoin has marketed the promise of ‘reliable’ banking, cheaper payments, privacy and, most notably, the end of the public’s dependence on financial intermediaries. But in both the protest of Wall Street and the adoption of regulations, especially the rules your customers know and against money laundering, Coinbase has not only given up the role of challenging the traditional state-run fiat money system, but also the privacy of crypto-transactions envisaged by inventor Satoshi Nakamoto.
The transformation of the group into just another middleman operator was fascinating to watch. It is unclear whether the 56 million users of the platform understand or even care that they do not have coins but Coinbase IOUs, or that most transactions on the platform are not even settled by a public blockchain.
The IPO comes at a time when Nakamoto’s original challenge vision is being rattled in other ways. Last week, former CIA deputy director Michael Morrell officially endorsed the bitcoin network, arguing: “blockchain analysis is a very effective tool for combating crime and intelligence.” It was also a week when famed libertarian Peter Thiel warned that China, a mass surveillance state with big ambitions for digital currency, was using bitcoin as a financial weapon against the US.
If this indicates anything at all, it is that the state, not crypto, has won the day in terms of control over the financial system. Instead of celebrating the Coinbase listing, those who thought crypto would end the public’s dependence on central banks or financiers should regret it. All indicators imply that crypto acted less like a liberator and more like a honeymoon designed to entice users to greater oversight and not less.