Coinbase (NASDAQ: COIN) went public last month, opening at $380 on its direct listing and hitting a peak just under $430 that same day. Already, shares are trading down around 50% from that level, and may continue to go down further as the market finds it’s the most appropriate level.
While the launch came with much fanfare around Coinbase and the promise of a regulated, compliant central exchange, some notable names in the digital currency sector are flagging serious problems with the company and their offer.
Over on YouTube, Patrick Shyu, aka TechLead Guy, has set out in detail why he thinks Coinbase is a doomed business model, and why the naivety of founder and CEO Brian Armstrong is going to see the company tank in value.
Coinbase recently had an earnings call which Shyu said revealed a lot about the direction of travel for the company. The executive team paints the narrative of a global digital currency economy and Coinbase becoming a global company, with 25% of earnings coming from global services.
However, there are already problems on the horizon, with China having banned cryptocurrency altogether, and no single country in Asia yet open to the idea of trading digital currencies through an exchange like Coinbase.
The team said there is no single country outside the U.S. they are bullish on—but Shyu said that could be because they have no strong leads? The most significant threat here is that Coinbase remains a U.S. company and doesn’t ever reach its global expansion goals. This would seriously undermine their objectives of reaching international markets, fundamentally obstructing the team’s current business model.
According to Shyu, the future of currency is more likely to be one digital coin per country, issued by the state. He argues that economies such as China are not likely to be prepared to operate with U.S. based coins which would provide full transparency into economic data among users in China—this would be a serious national security concern, and further increases the likelihood of siloed currencies on a state-by-state basis.
Coinbase argues that digital currency is like the Internet—but for Coinbase, Shyu argues this will not materialize. Pointing to the example of Facebook’s stablecoin project Diem, he said regulation will prevent Coinbase from achieving the global footing its executive team currently foresees.
In the case of Diem, global ambitions were curtailed pretty rapidly, with China issuing an outright ban on the idea, and the company forced to relocate away from Switzerland to the USA. In practice, Diem is now expected to be a U.S.-only operation, which Shyu sees as indicative of the future for Coinbase.
Further, Coinbase said it won’t compete on fees, but rather its competitive advantage comes from being the most trusted platform—“It’s only safe to use crypto if you use Coinbase.” Shyu argues this seems like an unhealthy position for the wider industry.
For Coinbase, the risk from fee competition is also considerable—he points to Robinhood and their rapid market share based purely on price competition, which forced other broker companies to drop their fees in order to preserve their market share.
Ultimately, Shyu says money is not like social networks, and governments around the world will not stand by while some Silicon Valley company monopolizes their currency and financial data—and this will ultimately lead to the failure of Coinbase as an entity.
However, he identified one way Coinbase could survive—by helping the U.S. government as a contractor to build out its digital currency. He argued Coinbase is well positioned for this, already working heavily with governments and regulations, with the ability to fill in the technological gaps faced by government in developing this type of solution.
The future is CBDCs, and for its own survival, it’s up to Coinbase to step up and deliver on this for the U.S. government, rather than trying to compete in an outdated Web 2.0 vision of the future.
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