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I don't understand why Coinbase is feeling such a crunch. They are just middleman in buying and selling. Their advantage is supposed to be that they make money

I don't understand why Coinbase is feeling such a crunch. They are just middleman in buying and selling. Their advantage is supposed to be that they make money whether crypto goes up or down. How can they screw this up?

miketery 4y ago
They are no longer in a position to charge exuberant fees due to competition. And they depend on new inflows, in a bear market inflows are low - mostly out flows. Pie is shrinking.
fullshark 4y ago
All i can think is they had bad forecasts based off trade volume during COVID when people had a ton of stimulus cash and nothing to do all day. Another possibility is something involving solvency in case a crypto selloff + run happens which seems possible any day now.
arnvald 4y ago
Their expenses are based on predicted growth in the volume of transactions. They're making money no matter if crypto goes up or down, but they stop making money when people stop trading.
- ineedasername 4y ago
  They make money on trading, sure, but it's a % not a flat fee. The same # of trades can occur for the same # of coins but if the market cap of those trades is 50% lower then they're making a lot less money.
skizm 4y ago
They make money when trading volume is up. Trading volume and BTC price are pretty much directly correlated. Trading volume is way down.
SirYandi 4y ago
I imagine they do own significant amount of crypto. Also, less people are buying as the price dips.
boc 4y ago
USDC. They see something really bad on their books that's separate from their core business. Just like how Lehman Brothers was a profitable bank that got shredded by one risky trading strategy. These stablecoins have been devoured one by one, and each time they fall more people start trying to get their money out. USDC will experience a run and it might not be survivable without liquidating user account holdings, which will be a massive extinction event for retail crypto.
- cwkoss 4y ago
  If Coinbase is operating USDC as full reserve, as they have claimed, is there any risk from it? Seems like there would only be risk if they lied about how they are running it.
  - wly_cdgr 4y ago
    Even if that's so, saying it's plausible they lied would be putting it kindly
    - vkou 4y ago
      Unlike the other fly-by-night stablecoin shops, Coinbase's leadership, and their wealth is fully within reach of Uncle Sam's prosecutors. I doubt USDC is undercollateralized. I don't doubt that there are situations where it could depeg, but I don't think anyone ought to be going to jail if it does.
- dadoge 4y ago
  No one is expecting a run on USDC Given that their business is just a “buy sell” platform, they are trimming around to get just that They have lots of other features like “NFTs, lending” etc and other investments in their UX (separating out to currency vs smart contracts vs defi) I’m sure all that A/B testing to get that will be squeezed now too
- wskinner 4y ago
  “These stablecoins” lumps together some very different implementations of “thing that is always worth $1”. USDC: fully collateralized by cash or cash equivalents held in US banks - basically a money market fund Terra: partially collateralized by crypto assets + algorithmic magic Tether: like USDC but not held in US banks, and the actual collateral may be partial or of lower quality Dai: overcollaterelized by crypto assets + algorithmic magic These are really distinct things and your risk model for each of them should be different.
kayamon 4y ago
Your question assumes money custodians behave in an honest fashion. An honest bank or exchange would simply keep your coins stored safely for you. But many places aren't honest, and make their money not from the transaction fees but by lending out the coins you've got stored there to someone else. As long as people don't all ask for their coins back at the same time, this works great for them. Your coins will be entered into some investment scheme, to make them return a percentage rather than just sitting there doing 'nothing'. One does have to be careful however not to lend out those coins to someone who just runs clean off with them, or invest them in some scam that accidentally tanked to zero. Otherwise that money they claim to hold may not exist any more, which causes a problem if the customers ever ask for their money back all at once.
- nr2x 4y ago
  Not your key? Not your coin.
ffggvv 4y ago
youre right they make money off volume, not price. but volume surges when price goes up and dries up when prices go down. (aka crypto winter)
- ineedasername 4y ago
  They make money on price too. They have a % fee, so their dollar-denominated revenue for a given trade with the same # of coins but 50% lower dollar-denominated exchange rate is still 50% lower. They pay people in fiat currency, their expenses are denominated in fiat currency. It doesn't matter if they traded 1M bitcoins daily 6 month ago and still trade 1M daily today, their dollar-denominated fees on that trade has plummeted.
  - ffggvv 4y ago
    happy to be proven wrong but i think most investors say “i have 10k, i want to buy as much bitcoin as that buys me.” rather than “i wanna buy 1 bitcoin, regardless of price”. atleast that’s how i think of things. in terms of dollars invested. not coins desired. same with stocks. i say i wanna 5k in Coke stock, not 121 shares.
    - ineedasername 4y ago
      Yes, you're not completely wrong, but there will be fewer people saying "I have $10k." In the current market conditions. That's only part of the trading though. Volatility isn't measured in that way either, so as volatility goes down-- or stays the same as coin prices go down-- Coinbase still loses money. It's usually measure in the % of the coin traded. So volatility could remain stable at, say, 2% but when the dollar denominated market cap is 50% lower than it was 6 months ago then Coinbase is collecting 50% less in fees. In order for revenue to remain the same, volatility would have to double. People that had $10k invested already and kept it in the market now have much less than $10k. They may still have 10 ETH depending on when they bought in, but when they trade those ETH Coinbase is making 75% lower in fees than if they traded them 12 months ago. Coinbase simply cannot make the same revenue in dollar denominated fees when the dollar denominated value of those trades goes down, and it has gone down a lot.
matheusmoreira 4y ago
Exchanges are fractional reserve banks now. They have cryptocurrency loans, savings accounts, the works. Customer funds are not simply stored at the exchange, much of it is actually tied up in their own investments which can fail, exposing customers to risk.

miketery 4y ago

They are no longer in a position to charge exuberant fees due to competition. And they depend on new inflows, in a bear market inflows are low - mostly out flows. Pie is shrinking.

fullshark 4y ago

All i can think is they had bad forecasts based off trade volume during COVID when people had a ton of stimulus cash and nothing to do all day. Another possibility is something involving solvency in case a crypto selloff + run happens which seems possible any day now.

arnvald 4y ago

Their expenses are based on predicted growth in the volume of transactions. They're making money no matter if crypto goes up or down, but they stop making money when people stop trading.

ineedasername 4y ago
They make money on trading, sure, but it's a % not a flat fee. The same # of trades can occur for the same # of coins but if the market cap of those trades is 50% lower then they're making a lot less money.

skizm 4y ago

They make money when trading volume is up. Trading volume and BTC price are pretty much directly correlated. Trading volume is way down.

SirYandi 4y ago

I imagine they do own significant amount of crypto. Also, less people are buying as the price dips.

boc 4y ago

USDC. They see something really bad on their books that's separate from their core business. Just like how Lehman Brothers was a profitable bank that got shredded by one risky trading strategy. These stablecoins have been devoured one by one, and each time they fall more people start trying to get their money out. USDC will experience a run and it might not be survivable without liquidating user account holdings, which will be a massive extinction event for retail crypto.

cwkoss 4y ago
If Coinbase is operating USDC as full reserve, as they have claimed, is there any risk from it? Seems like there would only be risk if they lied about how they are running it.
- wly_cdgr 4y ago
  Even if that's so, saying it's plausible they lied would be putting it kindly
  - vkou 4y ago
    Unlike the other fly-by-night stablecoin shops, Coinbase's leadership, and their wealth is fully within reach of Uncle Sam's prosecutors. I doubt USDC is undercollateralized. I don't doubt that there are situations where it could depeg, but I don't think anyone ought to be going to jail if it does.
dadoge 4y ago
No one is expecting a run on USDC Given that their business is just a “buy sell” platform, they are trimming around to get just that They have lots of other features like “NFTs, lending” etc and other investments in their UX (separating out to currency vs smart contracts vs defi) I’m sure all that A/B testing to get that will be squeezed now too
wskinner 4y ago
“These stablecoins” lumps together some very different implementations of “thing that is always worth $1”. USDC: fully collateralized by cash or cash equivalents held in US banks - basically a money market fund Terra: partially collateralized by crypto assets + algorithmic magic Tether: like USDC but not held in US banks, and the actual collateral may be partial or of lower quality Dai: overcollaterelized by crypto assets + algorithmic magic These are really distinct things and your risk model for each of them should be different.

kayamon 4y ago

Your question assumes money custodians behave in an honest fashion. An honest bank or exchange would simply keep your coins stored safely for you. But many places aren't honest, and make their money not from the transaction fees but by lending out the coins you've got stored there to someone else. As long as people don't all ask for their coins back at the same time, this works great for them. Your coins will be entered into some investment scheme, to make them return a percentage rather than just sitting there doing 'nothing'. One does have to be careful however not to lend out those coins to someone who just runs clean off with them, or invest them in some scam that accidentally tanked to zero. Otherwise that money they claim to hold may not exist any more, which causes a problem if the customers ever ask for their money back all at once.

nr2x 4y ago
Not your key? Not your coin.

ffggvv 4y ago

youre right they make money off volume, not price. but volume surges when price goes up and dries up when prices go down. (aka crypto winter)

ineedasername 4y ago
They make money on price too. They have a % fee, so their dollar-denominated revenue for a given trade with the same # of coins but 50% lower dollar-denominated exchange rate is still 50% lower. They pay people in fiat currency, their expenses are denominated in fiat currency. It doesn't matter if they traded 1M bitcoins daily 6 month ago and still trade 1M daily today, their dollar-denominated fees on that trade has plummeted.
- ffggvv 4y ago
  happy to be proven wrong but i think most investors say “i have 10k, i want to buy as much bitcoin as that buys me.” rather than “i wanna buy 1 bitcoin, regardless of price”. atleast that’s how i think of things. in terms of dollars invested. not coins desired. same with stocks. i say i wanna 5k in Coke stock, not 121 shares.
  - ineedasername 4y ago
    Yes, you're not completely wrong, but there will be fewer people saying "I have $10k." In the current market conditions. That's only part of the trading though. Volatility isn't measured in that way either, so as volatility goes down-- or stays the same as coin prices go down-- Coinbase still loses money. It's usually measure in the % of the coin traded. So volatility could remain stable at, say, 2% but when the dollar denominated market cap is 50% lower than it was 6 months ago then Coinbase is collecting 50% less in fees. In order for revenue to remain the same, volatility would have to double. People that had $10k invested already and kept it in the market now have much less than $10k. They may still have 10 ETH depending on when they bought in, but when they trade those ETH Coinbase is making 75% lower in fees than if they traded them 12 months ago. Coinbase simply cannot make the same revenue in dollar denominated fees when the dollar denominated value of those trades goes down, and it has gone down a lot.

matheusmoreira 4y ago

Exchanges are fractional reserve banks now. They have cryptocurrency loans, savings accounts, the works. Customer funds are not simply stored at the exchange, much of it is actually tied up in their own investments which can fail, exposing customers to risk.