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Coinbase Wants to Pay Interest on Crypto Coins, Sort Of
Coinbase Wants to Pay Interest on Crypto Coins, Sort Of
By holding particular cryptocurrencies in a Coinbase account, the exchange says you’ll receive set returns independent of the market’s spikes.
This June, as the news bristled with headlines about Facebook’s cryptocurrency-to-be and the price of bitcoin once again soared, the mood in the San Francisco offices of Coinbase was subdued. In 2017, the cryptocurrency exchange was close to the frenetic epicenter of the bitcoin boom. Millions of people used its app to dip their toes into cryptocurrency speculation. Then came the crash. By now, according to Coinbase COO Emilie Choi, the company has weathered a few similar cycles and drawn an important lesson from the highs and lows: Booms don’t last. “It’s a roller-coaster ride here,” she says. “There’s no two ways about it.”
Sure enough, bitcoin plummeted that same afternoon, as cryptocurrency prices are wont to do.
Coinbase has remained one of the biggest exchanges for buying and selling crypto—making it an $8 billion business, at last valuation. Despite increased wariness of overvalued unicorns after recent high-profile flameouts, CEO Brian Armstrong said last month that Coinbase has actually turned a profit three years running. But Coinbase’s fortunes, built around the fees users pay for trading, remain closely tied to rollicking price of bitcoin, and to a lesser extent the nearly two dozen other tokens it supports. Profitable, yes, but precarious.
So today Coinbase will begin offering a service, known as "staking," that it hopes will convince users to stick around even when prices aren’t spiking. Under the new system, if you hold particular cryptocurrencies in your Coinbase account, you’ll receive set returns independent of market fluctuations. Coinbase is starting with a coin called Tezos. The returns—roughly 5 percent to start—come in the form of tokens that Coinbase receives for participating in the network that keeps the Tezos blockchain secure. Similar to how new bitcoin are distributed based on how much computing power is contributed to network, Tezos doles out new coins based on how many coins each participant has “staked.”
Basically, it’s interest. Just don’t call it that. Coinbase prefers the ersatz term “staking rewards.” That distinction is rooted in regulatory questions.
While staking has become a common choice for newer coins, it’s unclear where the process falls under investing rules. Because of those concerns, staking was made available to wealthy investors in March, but held back from ordinary Coinbase users until now. The company says it now feels confident that it has worked out an arrangement that falls within the SEC’s good graces. Coinbase is the first major exchange to open up staking to all US customers.
Rhetorical contortions aside, Coinbase bills staking as a step in the direction of looking more like a bank, with the diverse revenue sources they enjoy. That includes generating fees from serving as a custodian of assets and facilitating lending and consumer payments. “We’re just doing it in our own crypto way,” Choi says.
Beyond the risks of depending on bitcoin prices for revenue, the company faces growing competition. “They’re fighting a two-front battle,” says John Sedunov, a professor of finance at Villanova University. Coinbase has been seen as uniquely approachable in an industry known for shady actors. But others now compete for that mantle. Rival exchanges like Binance have grown in the US, and there are now a raft of startups that specialize in safe offline storagefor your crypto coins. New offerings from the legacy world of finance, like Bakkt, which shares a common owner with the New York Stock Exchange, and Fidelity Digital Assets, are also entering the fray with existing financial relationships and trusted brands. “If I’m thinking about who I trust, do I trust JP Morgan to be the custodian of my cryptocurrency or a website that’s been operating for a few years?” Sedunov asks.
It’s no surprise, he says, to see big exchanges getting into edgier aspects of crypto that legacy businesses won’t yet touch. It’s a familiar playbook. During the so-called “crypto winter,” the long period of low prices after the 2017 bitcoin boom, a common way for exchanges to bolster bottom lines was to add more esoteric coins for trading. Tezos, listed on the exchange this August, is one of Coinbase’s newest additions.
U.S. President Donald Trump’s $4.8 trillion budget proposal for FY 2021, released Monday, seeks to expand the Treasury Department’s cryptocurrency oversight by returning the United States Secret Service, now a division of the Department of Homeland Security, to its jurisdiction. The reshuffling would “create new efficiencies” in the Secret Service’s investigation of criminal acts involving cryptocurrencies and the financial marketplace, the executive report reads. It will also give Treasury more fire power to, as the budget reads, “disrupt terrorist financing, hold rogue states and human rights abusers accountable, and detect and deter financial crimes.” The Secret Service is better known for protecting U.S. presidents and their families, but it is also responsible for investigating a wide range of financial crimes including fraud and counterfeiting, among others. “Technological advancements in recent decades, such as cryptocurrencies and...
The bitcoin price got hammered in 2018 amid the prolonged Crypto Winter, but many investment experts expect the volatility to subside in 2019, as institutional investors start entering the market. Some analysts believe bitcoin will re-emerge — like the proverbial Phoenix rising from the ashes — on back of momentum created by institutional investors, the Australian Financial Review reported. “During the coming year we will see a gradual adoption from institutions,” said Henrik Andersson, chief investment officer of Apollo Capital Fund in Australia. “We have the first US university endowments investing in funds.” JPMorgan: Bitcoin Bears Scared Off Institutions Over the summer, the multi-billion-dollar endowments of Harvard, Yale, and Stanford stunned Wall Street after revealing that they had invested in cryptocurrencies. Because of the herd mentality of institutions, analysts say the move will likely trigger a chain reaction among other institutional inve...
Bitcoin may hit $1 million, here's when: BitBoy Armstrong tweeted that he does believe that the flagship digital currency may reach the $1 million level within 90 days. In fact, he does not think it may happen even within a much longer period of time. The crypto blogger assumed that such a mind-blowing price surge may take place no earlier than 2032 — nine years from now. Several major figures in the crypto space and the financial industry have disagreed with the above-mentioned forecast of Bitcoin hitting $1 million in three months. Prominent scholar and risk manager Nassim Taleb has criticized this bet. Savvy commodity trader Peter Brandt has called this bet none other but "stupid." Kraken chief executive Jesse Powell believes that in terms of USD, Bitcoin is "going to infinity," therefore his prediction of about $1 million may sound reasonable. However, he also stated that if this happens, it is likely to occur over the next 10 years. In December, BitBoy...
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