If you follow the finance and the realm of money at all these days, then the notion of someone trying to reinvent finance may pique your interest. That’s exactly the goal of a cryptocurrency exchange called Coinbase. It’s a 225-person startup located in San Francisco whose vision of the (not-too-distant) future for loans, fund transfers, venture capital and the trading of stocks will be done with electronic currency – instead of banks.
As a recent article in Bloomberg BusinessWeek points out, Coinbase is already popular with individual traders, and is now actively seeking “the legitimacy that comes from persuading big companies to use its platform,” while reassuring regulators that bitcoin isn’t simply “a market for hackers and money launderers.”
They’re off to a good start. From an apartment-based startup three years ago, today it operates as an exchange for individual investors as well as a more sophisticated platform for traders called the Global Digit Asset Exchange (GDAX). Today trading volume is driven mostly by hedge funds, but they’re working on luring players like Goldman Sachs to the platform.
Developing ties with banks is a priority for Coinbase, so owners who want to cash out for dollars have an exchange to do so. It apparently has several banks already in partnership with them, as well as a partnership with Fidelity Investments. Coinbase thus far has raised over $200 million from investors, and after recently doubling headcount is on track to double it again in advance of going public in 2018. The company currently holds over $10 billion in assets.
Of greater interest to investors and regulators is the fact that Coinbase – unlike others operating in the bitcoin realm – has never been hacked. As Ari Paul, chief investment officer of a hedge fund called BlockTower Capital Advisors has said, “They’ve been the largest hacking target in the world for a long time, and they’ve proven they can handle it.” At the same time, they’ve been building strong relationships with regulators.
GDAX CEO Adam White notes that “This isn’t a couple dozen kids in a garage kind of hacking away. We recognize we’re protecting people’s money.” Coinbase stores USB drives and paper backups of 98% of customers’ digital currencies in safe deposit boxes. Only 2 percent is kept online, covered by insurance against security beaches.
Notes one Coinbase executive, “We’re going to be successful not because the price [of bitcoin] goes from $10,000 to $100,000, [but] because we have millions of customers who trust us.”
As Coinbase CEO Brian Armstrong notes, as more institutional money flows into the cryptocurrency space, it will help grow the entire industry. Notes one hedge fund manager, “Institutions are just chomping at the bit waiting to come in.”
And if Coinbase and their fellow financiers have their way, the future of money will never be the same.