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Coinbase Is the Next Facebook

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  • Coinbase stock is poised to soar when it debuts, because the company is built to be a bank—and banks make money.
  • Coinbase will face lots of potential hurdles, but it also has influential backers who will ensure it remains focused, and grows bigger than just Bitcoin.

As Coinbase prepares to go public in the coming weeks, early reports suggest the company will be worth around $104 billion. That figure has led Bloomberg and Axios, among others, to note that the cryptocurrency giant’s public listing will be the most valuable of any U.S. tech company since Facebook.

At first blush, the comparison between the two companies is far-fetched. Facebook is a household name around the world and has over twobillion monthly active users, while Coinbase still occupies a relative niche, slinging Bitcoin for a core client base of crypto hobbyists. The company has signed up over 40 million customers but, as its public listing paperwork revealed, only 2.8 million use it in any given month.

Those who buy shares in a public offering, however, are not betting on the present. They’re betting on the future.

In the case of Coinbase, buying in at a $100 billion valuation is a wager that the company will grow into a colossus that will one day pull in the profits to justify its eye-popping price tag. And right now such a wager—though risky—is not so far-fetched.

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Just as Facebook went from a silly platform for college kids (anyone remember “pokes”?) to a mainstay of our online lives, Coinbase is poised to be much bigger than just Bitcoin.

In time, the company is likely to become the backbone of a new financial world. That world will be built on a new technology stack of blockchains and digital tokens, and Coinbase’s mastery of this tech means it is poised to disrupt banks and stock exchanges. Indeed, a hint of its ambitions can be found in its recent paperwork, which alludes to plans for a digital currency of its own.

If all that’s too abstract for you, consider the financial figures Coinbase just posted. For starters, the company is profitable: It made $322 million last year and, based on the recent Bitcoin bull run, is likely to exceed that in the first quarter of 2021 alone. That’s remarkable given that 85% of companies that go public these days are losing money, and that other one-time stars of the unicorn set are losing it hand over fist. (Looking at you, Uber and Airbnb). And unlike the other buzzy public listings of recent years, Coinbase is built to be a bank. And banks make money.

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Then there is the Andreessen Horowitz factor. The venture capital firm, and its eponymous partner Marc Andreessen, is one of Coinbase’s biggest backers, and has a track record of selecting startups that have the potential to ride networks and create a virtual monopoly in an emerging field of tech. Fifteen years ago, one of those bets was Facebook. Today, it is Coinbase, which not only has an enormous first-move advantage, but has also been on an enormous M&A spree that is letting it acquire potential competitors before they become threats. That strategy, of course, is the very one Facebook has long pursued—gobbling up the likes of WhatsApp and Instagram and other would-be challengers to its empire.

Andreessen Horowitz’s similar stamp on Facebook and Coinbase don’t just extend to business strategy. Andreessen himself has long been a mentor to Mark Zuckerberg and, in the last two years especially, has exercised an outsized influence on Coinbase’s CEO, Brian Armstrong, as well. Today, the firm and its founder have also put all their chips in on crypto, and it’s a safe bet they will be a hidden hand guiding Coinbase for years to come.

All of this doesn’t mean, of course, that Coinbase is on a glide-path to enjoying Facebook-style domination.

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The company is overly reliant on trading commissions for its revenue—commissions that will come under pressure as other companies like Robinhood and Square fully lean into crypto too—and has struggled to develop other popular products or income streams. Meanwhile, unlike Facebook, Coinbase will have to navigate cyclical shocks. Unlike social networks, which people use constantly, the emerging crypto industry has been marked by crazy booms (like the current one that took Bitcoin to $50,000) and long stretches of “crypto winter” where prices and trading activity fall off a cliff. While Coinbase has a cash hoard that will see it through the next winter, the downturn—and the scrutiny that goes with being a public company—will increase the pressure for Armstrong to show his company is more than a one-trick trading pony.

Despite these red flags, the clamor to snap up Coinbase shares on the private market suggest the smart money (and some stupid money) believes the company is built to last. When its shares hit the public markets in the next few weeks, it will likely a pop that’s accompanied other recent public listing—and likely an even bigger one since, like Tesla, it will have the support of an army of fan-boys and crypto true believers.

Just like Facebook a decade ago, victory is Coinbase’s to lose.

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This is the inaugural edition of Roberts on Crypto, a weekend column written by Decrypt Editor-in-Chief Daniel Roberts or Decrypt Executive Editor Jeff John Roberts. Sign up for the Decrypt email newsletter to receive it in your inbox in the future.

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Crypto Exchange

Genesis tests end-of-day pricing for institutional crypto futures product

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Cryptocurrency brokerage firm Genesis Global Capital has announced the completion of a first-of-a-kind trade that will pave the way for new institutional crypto futures products.

Genesis has executed the first-ever over-the-counter (OTC) block trade of a Basis Trade at Index Close (BTIC) transaction using Bitcoin futures contracts issued b Chicago Mercantile Exchange (CME). The trade was made in collaboration with derivatives market maker Akuna Capital according to a Sept. 26 announcement.

This is the first time a BTIC has been used for cryptocurrencies as it is more commonly used in equities markets. This form of trading allows investors to buy and sell futures contracts with prices based on the end-of-day close of the index.

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CME Group Global Head of Equity Index and Alternative Investment Products, Tim McCourt, said that the product was the next step in offering greater exposure to CME’s Bitcoin derivatives and Ethereum futures, with the Ether contracts having launched in February. He elaborated on the advantages of this new trading vehicle, explaining:

“BTIC enables market participants to more efficiently trade the basis while providing a regulated marketplace for real-time price discovery and enhanced trading precision for institutional participants who want to optimize holdings between the futures and spot markets.”

Genesis provides liquidity to CME Group for its BTC and ETH futures and options products.

In May, the CME launched micro Bitcoin futures which are contracts worth 0.1 BTC. The offering was designed to allow institutional traders to hedge their risks to crypto assets.

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By the end of June, the product had surpassed a million traded contracts suggesting that there is a high demand for smaller positions in crypto among institutional investors still testing the waters. This latest product is another example of diversifying the options for well-heeled investors to gain exposure to crypto markets.

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Crypto Exchange

Huobi outlines plan for Chinese investors after halting crypto trading

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The uncertainties sparked by China’s blanket ban on crypto trading have taken a downturn as homegrown crypto exchanges such as Huobi take proactive measures to protect and return existing investments residing on the mainland. 

Speaking to Cointelegraph in this regard, Du Jun, co-founder of Huobi Group, said that the crypto exchange wants to ensure the safety of the users’ assets as part of its social responsibility:

“Customers will be able to transfer their assets to other exchanges or wallets over the next few months. Specific measures and operating rules will be outlined in future announcements.”

Citing a possibility of a communication gap with Chinese investors amid the ban, the crypto exchange is also working on other ways to protect customer assets until the users can move them to offshore exchanges or wallets.

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Chinese investors amounted to more than 30% in terms of trading volumes prior to the crypto ban, but as Jun suggests, Huobi has seen increased adoption in the Southeast Asian and European markets. However, the exchange expects that “any short-term impact on Huobi revenues will be mitigated as our global business continues to grow.”

While observing the ban on crypto trades and mining as imposed by the People’s Bank of China and other Chinese regulatory authorities, Jun plans to double down on Huobi’s compliance efforts and continue to build compliant operations on a global scale.

Crypto exchanges in mainland China, including Huobi, began stopping new customer registrations soon after a new crypto ban became effective on Friday. Huobi later announced that all Chinese accounts from the mainland will have been closed down by 24:00 UTC+8 on Dec. 31, 2021. 

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Historically, China has been responsible for the lion’s share of Bitcoin (BTC) mining. Given the lack of support from the ruling government, Chinese miners have continued to move off-shore into crypto-friendly jurisdictions.

According to a recent Cointelegraph report, the latest ban marks the Chinese regulators’ 19th attempt to curb Bitcoin and cryptocurrencies in the past 12 years. While the decision to ban crypto trades in China caused a few unwary investors to momentarily panic-sell, Bitcoin’s price continues to show bullish signals, given the proactive support from crypto exchanges and users across the globe.

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Binance

Binance Suspends Spot Trading and Fiat Channels in Singapore

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Binance.com, the global cryptocurrency exchange platfrom announced the suspension of spot trading, fiat purchase channels, liquid swap, and fiat deposit functions. The suspension would come into effect from 26th October. The exchange also requested Singapore users to withdraw their tokens and cease their trades by the effective date. The exchange in its official press release said,

“As the market leader, Binance constantly evaluates its product and service offerings. We will be restricting Singapore users in respect of the Regulated Payments Services in-line with our commitment to compliance. Users in Singapore are advised to cease all related trades, withdraw fiat assets and redeem tokens by Wednesday, 2021-10-26 04:00 AM UTC (12:00 PM UTC+8) to avoid potential trading disputes.”

Binance’s trouble in Singapore began after the Securities Commission in the country put Binance.com under Investor Alert List. In the wake of the first regulatory action, Binance ceased certain product offerings in the country before suspending key crypto trading features altogether. It is also important to note that Binance’s Sister company in Singapore has applied for a regulatory license and has been granted an exception until a decision is made on its filing despite the global platform facing regulatory scrutiny.

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Binance Continue to Face Regulatory Setbacks

Singapore was considered to be the next home for Binance after facing regulatory scrutiny from nearly a dozen countries. However, the recent series of events suggest Singapore regulators are also going after the global exchange despite harbouring its sister company. The world’s leading exchange’s regulatory troubles seem to meet no end as more countries continue to enforce action against it.

The crypto exchange has taken several decisions to mend its ways with regulators over the past couple of months, right from suspending derivative offerings in several countries to on-boarding regulatory experts. However, that hasn’t changed much, now the crypto exchange plans to establish a centralized headquarters and also looking for a change of CEOs if that can help.

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