The Merkle

Coinbase Earned 43% of Its Annual Revenue in December

Word of mouth sent cryptocurrency investment to an all-time high at the end of last year, and Coinbase capitalized on it big time. As one of the easier sites on which to start buying crypto, it should come as no surprise that Coinbase was the platform of choice for thousands of new investors. Coinbase experienced a surge of investors like never before last winter, taking in 43% of its annual revenue in December alone. What’s the story behind this rise, and how will Coinbase remain competitive with Robinhood and other platforms?

Why Coinbase?

Coinbase has remained one of the more popular platforms for buying digital assets such as Bitcoin, Ethereum and Litecoin. This platform makes it easy for users to purchase cryptocurrency using a bank account or credit card with its simple mobile app or website. Though connected with GDAX, a real-time exchange with lower fees, Coinbase has arguably the best interface for beginners among all platforms. Indeed, 4.3 million people joined Coinbase in the month of December alone.

Home for the Holidays

Bitcoin has become a household name for crypto in general. Over the Thanksgiving and Christmas holidays, interest in cryptocurrency ramped up as many people told their friends and family members about it over dinners and the Super Bowl. The industry’s market cap hit all-time highs in May 2017, but the massive surge came in late November, and it peaked at just over US$700 billion in January 2018. By December, Coinbase was adding hundreds of thousands of new members daily without a problem, and its user numbers even surpassed those of traditional stock brokerage Schwab.

Speculating on Bitcoin’s Price

In December 2017, the price of Bitcoin almost certainly played a role in the number of new investors rushing into the space, as well as in Coinbase’s success. While the blockchain technology behind Bitcoin and Ethereum are fascinating, the high returns and dreams of fast money got many people’s attention. Bitcoin rose from about US$1,000 at the start of 2017 all the way to US$20,000 by the end of the year. Ethereum and Ripple also made incredible gains during the same period, and interest in Ripple also impacted Bitcoin’s rising value. Many new investors speculated that Ripple was going to be the next Bitcoin, and they had to first buy Bitcoin in order to exchange it for Ripple on another exchange. It’s likely that many of these investors started on Coinbase.

Distrust of Wall Street

As Bitcoin and Ethereum enter the mainstream, more people are shifting their investments away from traditional stocks and into cryptocurrencies. Young investors, particularly millennials, say they are more likely to buy crypto than stocks. The collapse of the financial industry during the Great Recession lingers on in the minds of many investors under 40. Distrust of both the banking industry and the stock market make this generation skeptical and nihilistic, allowing them to simultaneously play recklessly with crypto investments while turning away from traditional investments.

Enter Robinhood

Coinbase went down during several trading spikes last spring, but it clearly prepared itself to handle December’s high volume. The site ran smoothly during December’s user influx, and the company has worked to resolve service issues openly as it has increased its network.

Right now, the crypto market is recovering from a major correction during which Bitcoin hit a low of US$6,000 in February. As the market regains its footing, Coinbase is seeing major competition from Robinhood, which offers no-fee 24-hour trading on Bitcoin and other cryptocurrencies. One key difference for those looking to “un-bank” themselves is that Robinhood does not allow you to move your coins off its platform to a wallet of your choosing. Private keys are essential when it comes to safeguarding cryptocurrency investments from hackers. Having control of them means you not only own your money, but control your money. As such, Robinhood is not an “un-banking” tool in the same sense as Coinbase, but it may still serve as a good platform for short-term trading and investing. Coinbase may also face competition from new decentralized exchanges like Waves, as they are a less likely target than centralized exchanges for hackers stealing investors’ money.

Rising to the Challenge

Coinbase is working to stay competitive, adding Segwit to the platform as many of its users have requested, making it cheaper to trade Bitcoin. There are also rumors that Coinbase will add other cryptocurrencies such as ERC-20 tokens, though nothing has been announced. Coinbase has influence: a tweet from CEO Brian Armstrong caused Ripple’s price to drop by as much as 20%. With an intuitive interface for mobile and online investment, along with a proven record of adaptability, Coinbase is likely to retain its favorable market position.