In 2012, Coinbase consisted of two guys in a San Francisco apartment. Today, it’s a colossus that dominates the crypto retail business in the U.S. while also boasting a thriving exchange for professional traders.
Coinbase has also acquired or invested in dozens of other crypto firms and, thanks to one of those acquisitions, now stores around 5% of all bitcoin in the world. So it’s no wonder that, if you ask average people to name a crypto company, they’ll say Coinbase.
This dominance is why I titled my new book about Coinbase “Kings of Crypto.” Like Apple is to cell phones or Nike is to shoes, Coinbase is to cryptocurrency. The company’s story – full of drama and infighting – is a gripping startup yarn, but also shows how one firm can change an industry. It is thanks, in part, to Coinbase that bitcoin entered the mainstream, and why crypto is becoming such a force in the larger financial world.
Jeff Roberts is a senior writer for Fortune who has covered Bitcoin since 2013. "Kings of Crypto: One Startup’s Quest to Take Cryptocurrency Out of Silicon Valley and Onto Wall Street" will be published by Harvard Business Review Press on Dec. 15 (pre-order here). The title is already available on Amazon Audible.
Coinbase’s ascendance to the pinnacle of the crypto world is no coincidence. Since its modest beginnings, founder Brian Armstrong has focused relentlessly on two things: Making its products easy to use and staying on the right side of regulators. This ensured Coinbase became the first stop for millions of novice bitcoin buyers, while also avoiding the legal scrapes that sidelined competitors.
After being slow to add other cryptocurrencies – a situation that triggered a civil war between former top Coinbase executives Asiff Hirji and Balaji Srinivasan – the company now offers nearly two dozen coins. And when it adds a coin, its influence is such that it still generates a brief price pop known as the “Coinbase effect.” Meanwhile, Coinbase last month rolled out a crypto debit card in the U.S. that lets users earn bitcoin rewards with no fee when paying with a stablecoin – finally providing a practical reason to use one.
Coinbase still has formidable rivals, of course. It also has no shortage of haters. Right from the start, critics mocked Coinbase with taunts of “not your keys, not your coins” – a knock on Coinbase’s practice of holding its customers’ funds, which Bitcoin purists regard as a betrayal of Satoshi’s ideals. Today, certain crypto cliques mock the company as stodgy and corporate compared to more free-wheeling competitors like Kraken and Binance.
For Coinbase, all of this is just noise. The company is valued north of $12 billion and, backed by blue-chip investors, is poised to be the first crypto firm to go public – a process that could bring blockchain tokens to the public securities markets for the first time.
See also: 5% of Coinbase Employees Take Severance Offer Over ‘Apolitical’ Stance
Meanwhile, the company is quietly expanding its ties with the Wall Street banking world. Those ties include a relationship with JPMorgan, which came about after a secret meeting in 2019 between Armstrong and the bank’s powerful CEO, Jamie Dimon, who was once Bitcoin’s most prominent critic.
Three threats
In short, Coinbase is on top. The question is whether it will stay there and, for now, there are three obstacles that could thwart that.
The first is regulation. While Coinbase has done a better job than any other at playing by Washington’s rules, many in the federal government still have an implacable – and often irrational – hostility to crypto. This could lead Coinbase to become embroiled in expensive and distracting investigations, which could hurt its focus and open the door to competitors.
And while the company is learning to play the lobbying game it’s no match for the big banks, which have had their tentacles in lawmakers for decades and could push for rules that rig crypto regulation in favor of financial incumbents. There’s no sign this is happening yet but, as crypto baron Barry Silbert of CoinDesk parent DCG told me, “In the long term, it’s not Coinbase versus Binance. It’s Coinbase versus JPMorgan.” If that’s the case, Coinbase’s current alliance with the big bank could turn to a strategic rivalry where the latter has the edge working the regulators.
The second thing that could dethrone Coinbase is big, well-funded opponents. While industry giant Binance is seen as Coinbase’s main rival, its fast-and-loose style has made it radioactive to regulators and unlikely to last in the long term. Crypo OG Wences Casares told me Binance is likely to go the way of one-time giants Mt. Gox and Poloniex. Instead, the more dangerous competitors for Coinbase are likely to be banks or fintech giants like Square and PayPal, which are moving into the crypto realm with the force of a freight train. Then there is Facebook, which is already standing up a global crypto offering, and Apple, whose huge user base and privacy-conscious values make it a likely candidate to offer crypto wallets of its own. If these tech titans power into crypto, Coinbase could clean up by offering its expertise to them – or it could simply get eaten.
See also: Emily Parker – Coinbase’s ‘Mission’ Violates the Spirit of Bitcoin
Regulation and competition are external threats. The third and possibly biggest threat to Coinbase’s long-term dominance is an internal one: its culture. That culture was on display this summer when Armstrong published a blog post declaring Coinbase to be an apolitical company – a decision that led numerous employees to quit and the media to pillory the CEO as insensitive. While some praised Armstrong for speaking truths other CEOs would not say, more people saw his blog post as reflecting the narrow worldview of crypto believers – a worldview that sees itself as apolitical but is in fact a siloed ideology shared by a handful of wealthy, mostly white men. This ideology is a problem for the crypto industry as a whole, which has done a poor job of welcoming women and people concerned about diversity, but especially for Coinbase.
Great companies create cultures where people of all backgrounds can belong – even those led by ruthless, combative leaders like Steve Jobs or Elon Musk. Armstrong has long displayed the same sort of original thinking as Jobs and Musk, but he has yet to show he can attract the same sort of unswerving loyalty. To do so, and for Coinbase to succeed in the long term, he’ll have to improve the company’s corporate culture.
These three obstacles – regulation, competition and corporate culture – pose serious long-term challenges to Coinbase’s current dominance. But for now at least, no one is poised to take Coinbase’s crypto crown.