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Coinbase should be viewed as a wealth & asset management company at this point. The real profit center of the company is Coinbase Custody, which is all about e

Coinbase should be viewed as a wealth & asset management company at this point. The real profit center of the company is Coinbase Custody, which is all about extremely secure holding of Bitcoins for extremely rich customers. The retail arm of Coinbase is more for free advertising - I think they make money off of it, but not huge amounts. It's much like how Dropbox is really an enterprise backup company where consumer Dropbox gets their foot in the door, GitHub is an enterprise code hosting company where open-source GitHub makes developers familiar with it, and Google is an enterprise advertising company where consumer Google gives them somewhere to advertise on. For that matter, Robinhood is an enterprise data company for hedge funds that sells information about what retail traders are about to buy. There's a fair bit of money in WaAM - my wife used to do it for Wells and had a $6B book (as a fresh college graduate!). Consumers don't have money, that's what makes them consumers. If you're managing money, you ought to do it for rich people that have a lot of it.

seibelj 6y ago
I would say Coinbase is making money hand-over-fist with retail. The basis points they charge are enormous compared to stock exchanges. Crypto is low-volume compared to traditional equity markets but very high-fee.
- jcfrei 6y ago
  Of course they are. Let's assume they are making 0.20% per trade (you can lookup their fee tiers online) - at current volumes that's around $5mio a day in fees. I doubt coinbase even needs the money - the IPO market is just really hot for blockchain related companies at the moment and it would be foolish not to raise some funds.
- nostrademons 6y ago
  My understanding is that retail is moving to DEXes. Uniswap just passed Coinbase in total trading volume. Retail investors are quite reasonably getting tired of getting screwed and opting out entirely.
  - str33t_punk 6y ago
    True retail is mostly on CEX's. Folks on DEX's are mainly power users. Also there are two reasons why DEX's have high volume: - Long tail of assets are only on DEX's. Average retail isn't buying these - DEFI protocols utilize DEXs. I would argue most of the volume isn't people trading, rather automatic trading to support protocols like Yearn.finance
an_opabinia 6y ago
They should be viewed as a story company. They sell the story of being the first and therefore the biggest public company adjacent to something something crypto. They could literally hand out Bitcoin at a humongous loss, and as long as that is spun in a good deck, their IPO will still be enormously successful for the insiders and institutional buyers at the bank price.
ineedasername 6y ago
If you're looking for wealth & asset management, wouldn't you want a more general purpose enterprise like Wells Fargo? If you're wealthy enough to need that sort of management, you're probably going to want a decent level of diversification, which Wells & others can provide, but Coinbase does not. Although I suppose Coinbase could be the platform through which those general purpose companies work for clients that want crypto.
- cwkoss 6y ago
  I don't trust Wells Fargo to handle cryptocurrency securely. Don't they have rampant internal fraud problems already?
  - ineedasername 6y ago
    Wells Fargo's fraud issues have been on their retail branch side. Of course that's should be a warning sign for other parts of their operations too. There's plenty of other options though. As for trusting them, I'm pretty sure they're on the hook for the $$ they owe you even if their wallet gets stolen. If someone hacked their brokerage accounts and stole your 1000 shares of Apple, they'd still owe you 1000 shares. Of course this could also be where Coinbase's niche ends up: providing the backend infrastructure for traditional wealth management companies to handle the crypto plumbing for them. If I were Wells Fargo or similar and wanted to offer crypto services to my wealth management customers, I'd much prefer using Coinbase as a turn-key solution for it than try to roll my own setup. Or simply buy Coinbase itself and have a huge strategic advantage over competitors. Of if I were in a position to make such decisions, I'd be too busy swimming through my piles of money, lighting cigars with $100 bills, and sipping single malts older than my great grandfather to bother posting here from my armchair where I have not a single horse in the game.
    - thebean11 6y ago
      You can't steal shares the way you can cryptocurrency, it's an entirely different thing. A brokerage might be the "custodian" of your shares, but you still have control over them, and there's a massive paper trail to prove that. Borderline impossible to steal. Crypto is a different story.
oarabbus_ 6y ago
>Coinbase should be viewed as a wealth & asset management company at this point. The real profit center of the company is Coinbase Custody, which is all about extremely secure holding of Bitcoins for extremely rich customers. If this is actually the case, I'd much rather use Gemini than Coinbase. Gemini seems much more fiduciary-minded in their verbiage on their site, and the fact they don't throw a bunch of "shitcoins" at your face on every other click. Their fees are lower, too (but higher than Coinbase Pro, which is more for the trading-minded) and they have a daily auctioning system which to my knowledge coinbase has no equivalent. Also, Coinbase is notorious for the servers crashing on every price spike. Gemini, on the other hand, stays out of the headlines regarding uptime, which is what a wealth management company should do. Full disclaimer: I have accounts I use in both Gemini and Coinbase, I don't believe myself to be biased here, and I actively use both services. But if you really want a "wealth and asset management" service, I would personally recommend Gemini as the platform. If you think you have a leg up on the market and would like to trade for profit, go with Coinbase.
- nostrademons 6y ago
  Do you have $100M to invest? The rules are completely different for institutional investors and high-net-worth individuals. Generally if you're looking at "the verbiage on their site" you are not the target market for such services, and the products available to you are completely different from the products available to them. My wife's job is all conducted over the phone; when I was working for a company that sold software to hedge funds, our website was blank (and just gave a phone number to call).
  - oarabbus_ 6y ago
    I'm not entirely sure if I understand what you're saying completely, but if I do, then that's even _more_ to my point I made. If I have $100M to invest, why the hell would I go on Coinbase like a common day trader millenial looking to make $2500, rather than use Gemini Trust to store my millions, where I could save hundreds of thousands or millions of dollars using their auction system? To loosely use an analogy if you will, Robinhood is to Coinbase as Vanguard is to Gemini.
beaner 6y ago
> The real profit center of the company is Coinbase Custody Citation needed. The fees are significantly lower than the brokerage (custody fees go down with larger amounts), which has been the bread & butter that's funded the development of all their other operations. Custody fees are probably not insignificant in absolute terms, but I'm highly doubtful they're greater than brokerage fees.
- conanbatt 6y ago
  A single customer could have 5 billion dollars of bitcoin. Xapo, a competing company in that space, holds 15% of all bitcoins in circulation!
  - beaner 6y ago
    Coinbase actually owns Xapo's custody business, they bought it in August 2019 [0]. An amount like $5b would likely pay less than 10 bips (0.1%) per year in custody fees, or $5m/year. Coinbase Pro's volume has recently been doing up to a few million dollars in revenue per day - and that's not even counting the higher brokerage fees that apply on top of some of that volume. Custody is certainly an important part of the business. But I think brokerage currently accounts for a much larger % of revenue. Custody will become bigger as the price of crypto grows. [0] https://www.coindesk.com/crypto-exchange-coinbase-acquires-xapos-institutional-custody-business https://www.coindesk.com/crypto-exchange-coinbase-acquires-x...
    - conanbatt 6y ago
      Good back of the envelope math. 0.1% of 15% of circulation is around 60 million. Big but not as big as trading. I'm sure there's some vertical integration considerations here: the people that hold this amount of assets also trade, and probably trade at OTC with very special requirements that make them valuable.
olalonde 6y ago
> Coinbase should be viewed as a wealth & asset management company at this point. The real profit center of the company is Coinbase Custody, which is all about extremely secure holding of Bitcoins for extremely rich customers. The retail arm of Coinbase is more for free advertising - I think they make money off of it, but not huge amounts. As a casual observer, I believe you are dead wrong here. My guess is that the retail arm of Coinbase is the real profit center. Will be interesting to find out.

seibelj 6y ago

I would say Coinbase is making money hand-over-fist with retail. The basis points they charge are enormous compared to stock exchanges. Crypto is low-volume compared to traditional equity markets but very high-fee.

jcfrei 6y ago
Of course they are. Let's assume they are making 0.20% per trade (you can lookup their fee tiers online) - at current volumes that's around $5mio a day in fees. I doubt coinbase even needs the money - the IPO market is just really hot for blockchain related companies at the moment and it would be foolish not to raise some funds.
nostrademons 6y ago
My understanding is that retail is moving to DEXes. Uniswap just passed Coinbase in total trading volume. Retail investors are quite reasonably getting tired of getting screwed and opting out entirely.
- str33t_punk 6y ago
  True retail is mostly on CEX's. Folks on DEX's are mainly power users. Also there are two reasons why DEX's have high volume: - Long tail of assets are only on DEX's. Average retail isn't buying these - DEFI protocols utilize DEXs. I would argue most of the volume isn't people trading, rather automatic trading to support protocols like Yearn.finance

an_opabinia 6y ago

They should be viewed as a story company. They sell the story of being the first and therefore the biggest public company adjacent to something something crypto. They could literally hand out Bitcoin at a humongous loss, and as long as that is spun in a good deck, their IPO will still be enormously successful for the insiders and institutional buyers at the bank price.

ineedasername 6y ago

If you're looking for wealth & asset management, wouldn't you want a more general purpose enterprise like Wells Fargo? If you're wealthy enough to need that sort of management, you're probably going to want a decent level of diversification, which Wells & others can provide, but Coinbase does not. Although I suppose Coinbase could be the platform through which those general purpose companies work for clients that want crypto.

cwkoss 6y ago
I don't trust Wells Fargo to handle cryptocurrency securely. Don't they have rampant internal fraud problems already?
- ineedasername 6y ago
  Wells Fargo's fraud issues have been on their retail branch side. Of course that's should be a warning sign for other parts of their operations too. There's plenty of other options though. As for trusting them, I'm pretty sure they're on the hook for the $$ they owe you even if their wallet gets stolen. If someone hacked their brokerage accounts and stole your 1000 shares of Apple, they'd still owe you 1000 shares. Of course this could also be where Coinbase's niche ends up: providing the backend infrastructure for traditional wealth management companies to handle the crypto plumbing for them. If I were Wells Fargo or similar and wanted to offer crypto services to my wealth management customers, I'd much prefer using Coinbase as a turn-key solution for it than try to roll my own setup. Or simply buy Coinbase itself and have a huge strategic advantage over competitors. Of if I were in a position to make such decisions, I'd be too busy swimming through my piles of money, lighting cigars with $100 bills, and sipping single malts older than my great grandfather to bother posting here from my armchair where I have not a single horse in the game.
  - thebean11 6y ago
    You can't steal shares the way you can cryptocurrency, it's an entirely different thing. A brokerage might be the "custodian" of your shares, but you still have control over them, and there's a massive paper trail to prove that. Borderline impossible to steal. Crypto is a different story.

oarabbus_ 6y ago

>Coinbase should be viewed as a wealth & asset management company at this point. The real profit center of the company is Coinbase Custody, which is all about extremely secure holding of Bitcoins for extremely rich customers. If this is actually the case, I'd much rather use Gemini than Coinbase. Gemini seems much more fiduciary-minded in their verbiage on their site, and the fact they don't throw a bunch of "shitcoins" at your face on every other click. Their fees are lower, too (but higher than Coinbase Pro, which is more for the trading-minded) and they have a daily auctioning system which to my knowledge coinbase has no equivalent. Also, Coinbase is notorious for the servers crashing on every price spike. Gemini, on the other hand, stays out of the headlines regarding uptime, which is what a wealth management company should do. Full disclaimer: I have accounts I use in both Gemini and Coinbase, I don't believe myself to be biased here, and I actively use both services. But if you really want a "wealth and asset management" service, I would personally recommend Gemini as the platform. If you think you have a leg up on the market and would like to trade for profit, go with Coinbase.

nostrademons 6y ago
Do you have $100M to invest? The rules are completely different for institutional investors and high-net-worth individuals. Generally if you're looking at "the verbiage on their site" you are not the target market for such services, and the products available to you are completely different from the products available to them. My wife's job is all conducted over the phone; when I was working for a company that sold software to hedge funds, our website was blank (and just gave a phone number to call).
- oarabbus_ 6y ago
  I'm not entirely sure if I understand what you're saying completely, but if I do, then that's even _more_ to my point I made. If I have $100M to invest, why the hell would I go on Coinbase like a common day trader millenial looking to make $2500, rather than use Gemini Trust to store my millions, where I could save hundreds of thousands or millions of dollars using their auction system? To loosely use an analogy if you will, Robinhood is to Coinbase as Vanguard is to Gemini.

beaner 6y ago

> The real profit center of the company is Coinbase Custody Citation needed. The fees are significantly lower than the brokerage (custody fees go down with larger amounts), which has been the bread & butter that's funded the development of all their other operations. Custody fees are probably not insignificant in absolute terms, but I'm highly doubtful they're greater than brokerage fees.

conanbatt 6y ago
A single customer could have 5 billion dollars of bitcoin. Xapo, a competing company in that space, holds 15% of all bitcoins in circulation!
- beaner 6y ago
  Coinbase actually owns Xapo's custody business, they bought it in August 2019 [0]. An amount like $5b would likely pay less than 10 bips (0.1%) per year in custody fees, or $5m/year. Coinbase Pro's volume has recently been doing up to a few million dollars in revenue per day - and that's not even counting the higher brokerage fees that apply on top of some of that volume. Custody is certainly an important part of the business. But I think brokerage currently accounts for a much larger % of revenue. Custody will become bigger as the price of crypto grows. [0] https://www.coindesk.com/crypto-exchange-coinbase-acquires-xapos-institutional-custody-business https://www.coindesk.com/crypto-exchange-coinbase-acquires-x...
  - conanbatt 6y ago
    Good back of the envelope math. 0.1% of 15% of circulation is around 60 million. Big but not as big as trading. I'm sure there's some vertical integration considerations here: the people that hold this amount of assets also trade, and probably trade at OTC with very special requirements that make them valuable.

olalonde 6y ago

> Coinbase should be viewed as a wealth & asset management company at this point. The real profit center of the company is Coinbase Custody, which is all about extremely secure holding of Bitcoins for extremely rich customers. The retail arm of Coinbase is more for free advertising - I think they make money off of it, but not huge amounts. As a casual observer, I believe you are dead wrong here. My guess is that the retail arm of Coinbase is the real profit center. Will be interesting to find out.