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Despite some recent turbulence, Coinbase achieves a major milestone

May 26, 2022, 9:38 AM UTC

One hundred and twenty-one months, three weeks, and five days ago, Airbnb engineer Brian Armstrong applied to startup accelerator Y Combinator with an idea: to try to bring Bitcoin to the masses. 

And that, Armstrong has. 

Today, Coinbase is an undeniable power and pioneer in cryptocurrency. At the end of March, the crypto exchange had 98 million users, or roughly the equivalent of Vietnam’s entire population. There’s the “Coinbase Effect,” in which tokens tend to pop in value when listed on America’s largest crypto exchange relative to being added to others. And, in the latest sign of just how big Coinbase has become and how far crypto has come over the years, Coinbase is now the first crypto business on the Fortune 500—marking the latest first for a company that is on the bleeding edge, as I wrote for the upcoming issue of the magazine

How a company that has been equated to a mullet with “business in the front, crypto in the back” became a part of one of corporate America’s most esteemed clubs is a long story. It begins in 2010 with Armstrong stumbling upon the original Bitcoin white paper by Satoshi Nakamoto while at home for the holidays. And it stretches to the end of 2012 when Armstrong and cofounder Fred Ehrsam made the decision to add a “buy Bitcoin” button to Coinbase’s platform. And it continues over the following years, as Coinbase amassed regulatory approvals to spread its reach nationwide, became the first crypto unicorn in 2017, and listed its shares on Nasdaq in 2021.

Now, Coinbase is at a new juncture. The company has weathered plenty of crypto winters before, but 2022’s seems different. Competition in the U.S. is ramping up. Regulators are circling. And, so far, investors have raised concerns about the business model, sending its shares down 73% since Dec. 31.

Granted, part of that slide stems simply from the fact that seemingly no investor—other than ARK Invest’s Cathie Wood, who snatched up half a million shares of Coinbase’s stock on the heels of its latest earnings report—wants to be in growth-y companies right now. But the Woods of Wall Street are the exception. Coinbase is still rooted in a highly volatile business: trading. And until it can diversify its revenue, the gyrations will inevitably continue.

It’s a conundrum that Coinbase executives are well aware of. The company has pushed to add new revenue sources like staking and custody services for some time. And, with winter setting in, Coinbase is doubling down on those and the moneymaker that is trading. It has also delayed some of its most aggressive growth plans, including one to triple its headcount in 2022.

“Discipline and prioritization have always been important values at Coinbase, and it is no surprise that they are now more than ever,” chief product officer Surojit Chatterjee wrote in a recent tweet.

Coinbase COO Emilie Choi doesn’t see the trading business going anywhere in the long run. Rather, the way Choi views it, trading for Coinbase has the potential to become what advertising is to Meta and Alphabet. The revenues may be volatile on occasion, but the business is the lifeblood of their companies and one that allows other efforts to take shape. And at Coinbase, the company has its eyes set on the blockchain-built version of the internet known as Web3, whether through NFTs, Coinbase Wallet, or otherwise. When it gets there, who knows. But, if it does, Coinbase very well may become a mainstay on the Fortune 500.

Request for comment: Do you work at a crypto startup? We should talk. Venture capitalist firms including Sequoia Capital, which published a slide presentation calling the current downturn a “crucible moment,” have been warning about the current unsettled market. But we have yet to hear much about sweeping layoffs and cost-cutting in cryptoland. There’s obviously been a flood of cash sloshing around the market. I mean, Andreessen Horowitz just closed a $4.5 billion crypto fund—enough for three Buckingham Palaces. (Maybe a16z could get a buy-two-get-one-half-off deal?)

So, is crypto the anomaly here? Or is its reality check just bound to come later? My contact info’s below, but I also have Signal and can share accordingly. 

A programming note: My colleague Marco Quiroz-Gutierrez is going to be taking the reins of The Ledger next week. I’ll be out, in part because of some already scheduled parental leave, but the mess that is the world right now and the COVID wave tearing through my immune system at the moment are certainly factoring in here as well. You’re in great hands with Marco, though. Just keep the story ideas, scoops, and news flowing in the meantime.

Declan Harty
@declanharty
Declan.harty@fortune.com

DECENTRALIZED NEWS

Credits 🚀 

“The Merge” is finally happening in August.

Insurance companies are finally wading into the crypto markets.

Blockchain startups like StarkWare and Babel Finance are notching higher valuations, even amid a dramatic vibe shift among venture capitalists.

Adam Neumann’s blockchain-built, carbon-credit startup, Flowcarbon, has raised $70 million from investors including Andreessen Horowitz, General Catalyst, and Samsung Next.

Debits 🐻 

A new Terra blockchain is officially in the works just two weeks after the spectacular implosion of UST and Luna.

Wall Street lobbyists are sounding the alarm on the idea of the Federal Reserve launching a digital dollar.

Christine Lagarde, president of the European Central Bank, thinks crypto “is worth nothing.”

The ECB is also warning that the increasing connection between crypto and traditional finance may risk financial stability.

Binance labeled UST as a “safe” investment in an ad that was posted on Telegram just a few weeks before the algorithmic stablecoin crashed.

FOMO NO MO

Clash of the titans. On Wednesday, FTX squared off with traditional exchange giants like CME Group and Intercontinental Exchange over a proposal to let individual investors buy crypto on margin without the help of Wall Street middlemen. It’s a seemingly obscure plan, but one that, if approved by the Commodity Futures Trading Commission, “could clear a path for FTX to build an empire where individual investors could use leverage to bet on everything from bitcoin to corn futures contracts,” Politico recently reported.

From the article:

The fight is putting a big spotlight on the CFTC, the smaller sister agency of the Securities and Exchange Commission. The CFTC oversees the markets for futures contracts and other financial derivatives that let traders place bets on the prices of bitcoin and commodities like oil. FTX is among the crypto firms who want the CFTC to play a big role in overseeing the industry, as SEC Chair Gary Gensler threatens to crack down on digital asset trading. The company has made it a big priority, hiring several former agency officials, including former CFTC Acting Chair Mark Wetjen, to forge relationships around Washington.

With FTX spending millions on ad blitzes and advocacy efforts, CFTC officials are starting to feel the heat. CFTC Commissioner Caroline Pham, a Republican, in an April Twitter post shared a photo of her with [FTX CEO Sam] Bankman-Fried and Wetjen, complimenting the crypto executive’s hair and thanking the pair for meeting with her. The tweet has since been deleted.

CFTC Chair Rostin Behnam has pushed Congress for more authority to oversee digital asset markets. While industry leaders and key members of congress have been supportive of those entreaties, the fight over FTX’s trading plan is forcing the agency to balance the interests of storied financial institutions and crypto’s upstarts.

BUBBLE-O-METER

$1 Billion+

In the world of political kingmakers, there are plenty of names that come to mind. Soros. Griffin. Koch. Bloomberg. And now? Sam Bankman-Fried. The FTX chief executive has, in reality, been an active political donor for the past several campaign cycles, but, in 2024, SBF could donate as much as $1 billionor more, he said on a recent podcast.

THE LEDGER’S LATEST

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GameStop’s new digital wallet launches amid fierce competition and crashing crypto market by Tristan Bove

JPMorgan says Bitcoin has “significant upside from here” and could rise to $38,000. Real estate not so much by Will Daniel

Reducing crypto’s carbon footprint needs to begin with transparent data, Davos panel says by Dan Reilly

TerraUSD’s collapse will take down every other algorithmic stablecoin, crypto analysts say by Marco Quiroz-Gutierrez

Jack Dorsey accused of “backstabbing” his own Twitter board by helping Elon Musk as shareholders meet by Christiaan Hetzner

(Some of these stories require a subscription to access. Thank you for supporting our journalism.)

IF YOU DON’T KNOW, CRYPTO

Let’s talk hard forks. And no, I don’t mean cutlery (…he wrote, fully recognizing that this joke has surely been made countless times before, but is too good/bad to pass up). From the most basic level possible, a hard fork is a software update to a blockchain’s protocol that leads to the creation of a second blockchain heading in a new direction. 

This is the web version of The Ledger, Fortune’s weekly newsletter covering financial technology and cryptocurrency. Sign up here to receive future editions.