Key points
- Coinbase is an ecosystem comprising the largest US centralized cryptocurrency exchange, a crypto wallet, an NFT marketplace, a custodial service for digital assets and other products.
- The company was founded in the United States in 2012. In 2021 Coinbase became the first operator of a cryptocurrency exchange to list its shares on a stock exchange.
- Coinbase does not offer trading services in Russia, Ukraine or Belarus. A limited set of features is available in Kazakhstan.
What services does Coinbase provide?
The core product of Coinbase is a trading platform for buying, selling and otherwise handling cryptoassets. It ranks third by trading volume among crypto exchanges.
For professional traders there is Coinbase Pro with additional features, and for institutional clients a section called Coinbase Prime.
Retail users have access to spot trading in cryptocurrencies, an NFT marketplace, bitcoin-backed lending and a debit card linked to an exchange account. Coinbase Pro clients can trade on margin, place limit and stop orders and connect to the exchange API.
For “whales”, Coinbase offers prime brokerage, deal liquidity, a data marketplace and other services.
As of May 2022, more than 170 cryptoassets were available on Coinbase and 250 on Coinbase Pro. The platform supports accounts in US dollars, British pounds and euros.
What is the “Coinbase Effect”?
The Coinbase Effect is a short-term price move (usually upwards) in a cryptocurrency after its listing on the platform is announced. Several factors are at play.
The exchange keeps a relatively small roster of tradable assets and keeps listing decisions secret until the last moment. Because Coinbase is one of the world’s largest venues for trading digital currencies, a listing there is seen as an endorsement of a project’s quality and the appeal of its token.
Many criticise the “Coinbase Effect” for potentially advantaging insiders. In 2018 the company even faced a class action alleging insider trading during the Bitcoin Cash (BCH) listing. However, the company’s lawyers later said they found no evidence for the claim.
According to Coin Metrics, the “Coinbase Effect” is overrated: sharp price rises are often short-lived and followed by equally sharp pullbacks. Much depends on the prevailing market trend and a coin’s liquidity.
In April 2022 Coinbase changed its listing policy. The platform now publishes an open list of candidates in advance to ensure fairer conditions. Which cryptocurrencies from the list will ultimately be added remains unknown ahead of time.
What other products and companies are part of Coinbase?
Besides the exchange, Coinbase includes several other services:
- Coinbase Wallet. A wallet supporting about 500 cryptocurrencies, available as a browser extension and a mobile app. There is also Dapp Wallet, a dedicated wallet for convenient interaction with decentralised applications.
- Coinbase NFT marketplace. A venue where users can mint, buy and collect digital assets in the form of NFTs. The marketplace is in beta and supports Ethereum’s ERC-721 and ERC-1155 standards.
- Coinbase Commerce payment processing. It enables online shops to accept payments in various cryptocurrencies and convert them into fiat money.
- Coinbase Custody. A custodial storage service for institutional clients regulated by the New York State Department of Financial Services.
- Coinbase Card debit card. Issued on the Visa network, it syncs with an exchange account and lets users pay for goods and services with cryptocurrencies. In June 2021 Coinbase added support for Apple Pay and Google Pay for its card.
- Coinbase Earn — an educational programme where users can receive small amounts of tokens for watching videos about cryptocurrencies and answering questions. At various times participants included Stellar (XLM), Zcash (ZEC), 0x (ZRX) and other projects.
- Coinbase Ventures — the firm’s venture-investment arm. Its portfolio currently includes more than 250 projects in areas such as metaverses, DAOs and Web3.
In which countries does the exchange operate?
Coinbase counts more than 98m verified users across 100 countries worldwide, including in Europe. It does not operate in Russia, Ukraine or Belarus.
In early 2022 the exchange joined sanctions against Russia and announced it had blocked 25,000 addresses that, according to management, “were engaged in illegal activity”.
Users in Kazakhstan can convert and buy digital assets. Coinbase supports card payments from that country. In Armenia, Uzbekistan and Kyrgyzstan, only conversion is available.
Residents of Estonia, Latvia and Lithuania have access to all core features, including trading.
The current list of supported countries is available on Coinbase’s website.
Who founded Coinbase?
Coinbase Global is an American company founded in 2012 by Brian Armstrong and Fred Ehrsam in San Francisco. The firm is now decentralised in structure: it has no headquarters, and all employees work remotely.
Before founding the company, Armstrong was a lead developer at Airbnb, and Ehrsam worked as a trader at Goldman Sachs. Armstrong is now Coinbase’s chief executive, and his business partner chairs the board. Ehrsam also founded Paradigm, which manages the world’s largest venture fund focused on the crypto industry.
Other key Coinbase executives include chief operating officer Emilie Choi, chief technology officer Manish Gupta and chief financial officer Alesia Haas.
How did Coinbase become America’s leading crypto exchange?
In the summer of 2012 the startup team was accepted into the famed Y Combinator incubator, and by autumn Armstrong, Ehrsam and their colleagues had launched a service to buy and sell bitcoins via bank transfers.
Coinbase held its first funding round in 2013. Key backers included Andreessen Horowitz, Ribbit Capital and Union Square Ventures. Within a year the platform had a million users. The total amount raised since 2013 is estimated at more than $500m.
Over time Coinbase struck deals with major payment platforms — Stripe, Braintree and PayPal — which gained the ability to process bitcoin transactions thanks to this partnership.
In spring 2021 Coinbase became the first US public company operating a cryptocurrency exchange to pursue a direct listing on a stock market. Its shares trade on Nasdaq under the ticker COIN.
At the start of trading COIN reached $430, valuing the exchange at more than $100bn. Optimism around crypto markets buoyed the price. Coinbase’s valuation briefly surpassed that of the operators of America’s largest stock exchanges — the New York Stock Exchange and Nasdaq.
Later the COIN price fell, after which the law firm Scott + Scott sued Coinbase for allegedly misleading investors. Coinbase also provided inaccurate information regarding the yen-pegged stablecoin GYEN, prompting a class action.
The 2022 bear market weighed on Coinbase’s metrics. According to its financial report, in the first quarter the exchange posted a net loss of nearly $430m, well above forecasts. In October–December 2021, net profit had been $840m.
In early June 2022 Coinbase shares traded around $70, and market capitalisation exceeded $15.2bn.
How is Coinbase connected to USD Coin (USDC)?
Coinbase and Circle jointly issue the USDC stablecoin, available on various blockchains. The asset ranks second among stablecoins by market value after USDT.
At the end of March 2021 Visa launched a pilot to integrate USDC settlements into its network.
Since 2022 BNY Mellon has been the custodian of USDC reserves. The stablecoin’s issuer conducts regular audits of the funds.
Is Coinbase safe?
US dollar balances of Coinbase users are protected by the Federal Deposit Insurance Corporation (FDIC) up to $250,000.
According to the company, 98% of customer funds are stored in cold wallets that are not connected to the internet. The remaining 2% is covered by a special insurance policy.
In early 2022 Coinbase introduced a new compliance tool, Coinbase Intelligence. The company says it can detect illicit transactions via API using a scoring system, trace fund flows and identify fraudulent activity.
Coinbase also became the first crypto exchange authorised to operate in the United Kingdom.