For all those true bitcoin believers who survived the 2017-2020 crypto winter with their assets intact, the listing of the Coinbase digital currency exchange service must have felt justified.
The $ 75.9 billion listing on Nasdaq not only marked the largest payout in cryptocurrency history, but many would say it has unambiguously identified the digital currency as a force to be reckoned with on Wall Street. For crypto boosters around the world, put more simply, it was the day they were finally proven right.
“It feels like a shift in legitimacy not just for Coinbase but for the entire industry. Crypto has an opportunity to be a major force in the financial world, ”noted Brian Armstrong, CEO of Coinbase.
The group’s valuation came on the heels of a tremendous streak of first-quarter earnings. The group posted sales of $ 1.8 billion for the period, compared to $ 191 million last year. It earned a whopping net income of $ 800 million. That, The Street said, made it worth comparing to ICE, the parent company of the New York Stock Exchange, which has a valuation of about $ 67 billion.
A more objective analysis would note that this is not a fair comparison. Yes, ICE posted sales of $ 1.6 billion in the first quarter of 2020, putting Coinbase well in the same range. But Coinbase is a very different beast from the Wall Street establishment that is ICE.
Coinbase is very sensitive to super volatile crypto valuations. A strong bull-market performance in the first quarter of 2021, when bitcoin soared above $ 60,000, should contrast with Coinbase posting a net annual loss of $ 30 million in 2019, a year in which bitcoin averaged about $ 5,000 – $ 6,000.
As it stands, Coinbase is also regulated and licensed under the US Money Services Business legislative framework, not as an exchange or so-called prime brokerage for services such as trade credit. This gives Coinbase a major advantage over its more heavily regulated counterparts such as ICE or the CME.
If that changes, there could be major consequences. Indeed, if it were regulated as an exchange, its ability to generate income from prime brokerage, over-the-counter brokerage and capital trades would be slashed. If supervised as a prime broker or as a bank, the capital burden would increase significantly.
While the IPO could validate the importance of cryptocurrencies as a speculative asset, it is a remarkable irony that so-called bitcoin maximalists also view the platform as a brutal selloff. They believe it has abandoned the true principles of crypto for the golden goose offered by Wall Street. It’s a fair argument.
Bitcoin entered the market with promises of “reliable” banking, cheaper payments, privacy and – best known of all – the end of the public’s reliance on financial intermediaries. But both in pursuit of Wall Street and in embracing regulations, particularly know-your-customer and anti-money laundering rules, Coinbase has given up not only the role of challenging the traditional state-controlled fiat currency system, but also the privacy of crypto transactions envisaged by the inventor. Satoshi Nakamoto.
The group’s transmutation into just another middleman was fascinating to watch. It’s unclear whether the platform’s 56 million users understand or even care that they don’t have coins but Coinbase IOUs, or if most of the transactions on the platform aren’t even handled through a public blockchain.
The IPO comes at a time when Nakamoto’s original challenger vision is being shaken in other ways. Last week, a former deputy director of the CIA, Michael Morrell, officially endorsed the bitcoin network, arguing that “blockchain analysis is a highly effective crime-fighting and intelligence-gathering tool.” It was also a week where famed libertarian Peter Thiel warned that China, a large-scale surveillance state with big digital currency ambitions, was using bitcoin as a financial weapon against the US.
If this signals anything at all, it is that the state, not crypto, has won the day in terms of controlling the financial system. Rather than celebrating the Coinbase listing, those who thought crypto would lift the public’s dependence on central banks or funders should be complaining about it. All indicators imply that crypto has acted less like a liberator and more like a honeypot designed to lure users into more surveillance, not less.