Leading US crypto exchange Coinbase has seen its stock rapidly decline nearly 31% this year as the crypto market continues to correct after an insane bull run. While many investors attribute the Coinbase decline with overall market sentiment, others argue Coinbase is loosing relevance to decentralized exchanges because of their limited altcoin market pairs.
At one time, a Coinbase listing announcement could pump the price of a cryptocurrency by double digit percentages or more. However, as the market matures and assets become more readily available to customers in the United States, the “Coinbase” effect has been steadily wearing off.
Other exchanges that operate in the US, such as Kraken and Bittrex, have beaten Coinbase to the punch many times when it comes to listing popular altcoins. Polkadot is a good example of this trend as Kraken offered DOT staking rewards at 12% per year, well before Coinbase was able to simply enable trading for the asset.
Coinbase claims it has been slow to list coins not because of altcoin quality standards but instead for legal reasons. Earlier this year, CEO Brian Armstrong explained this stance to investors:
“Outside of our listing standards (for safety/legality), we don’t offer an opinion on the value of each asset. We are asset agnostic, because we believe in free markets and that consumers should have choice in the cryptoeconomy. This is how we’ll have the most innovation.”
Armstrong has also emphasized that the goal of Coinbase is to list every asset they can, where it is legal to do so. Part of the issue stems from unclear guidance by the SEC and potential regulatory issues surrounding the ICO craze in 2017. Coinbase takes these regulations seriously and doesn’t want to risk getting in trouble with lawmakers.
Keeping to their word, Coinbase has enabled support for a wide range of new digital assets and trading pairs in 2021. In June, the company added cross-platform protocol BarnBridge (BOND), decentralized streaming network Livepeer (LPT), blockchain development network Quant (QNT), sports fan engagement platform Chiliz (CHZ), and Bitcoin bridge Keep Network (KEEP).
Just one month later, the leading US cryptocurrency exchange announced that trading will be enabled for web-2.0-to-3.0 bridge Mask Network (MASK), decentralized forum board Rally (RLY) and decentralized finance (DeFi) asset Clover Finance (CLV).
Meanwhile, other exchanges in the US are beginning to catch up to Coinbase by ways of traditional finance. Kraken, for example, became the first licensed bank in Wyoming to provide fiduciary service for digital assets, giving their brand recognition a huge boost.
Kraken exchange also offers margin trading to its US customers which is a feature that Coinbase had to nix a couple years back after facing liquidity issues. Coinbase also made the move recently to raise the fee on lower volume traders to an astounding 0.50% per transaction, making short term trading much less attractive on their Pro platform.
Decentralized exchanges like UniSwap are also taking a large chunk of market share from Coinbase in terms of volume, and are able to do so with much less support staff and operating expenses. These added costs often get offloaded to the customers which explains their insane fees.
Coinbase has often been a place for “beginners” to get started in crypto. Their minimalist approach to user interface works well for the novice investor, but as ones experience grows in the crypto space so does frustration with excessive fees and limited product selection.
Looking ahead in the short term, there are a number of digital assets up for Coinbase consideration that have not yet made their debut. Some of which have been readily available in the US for quite some time on Bittrex, including DigiByte (DBG), Horizen (ZEN) and Siacoin (SC).
The Coinbase VISA card has potential to hype their brand in the short term but it wont take long for other exchanges to hop on the bandwagon and then it will become a race to the bottom on fees and incentives.
Back when Coinbase Pro was called GDAX, there was 0% maker fee, which made the platform extremely attractive to high frequency traders. They also used to offer 0% fee on withdraws to external wallets but all that has since changed and it appears Coinbase is making up for lost revenue now that they are publicly traded.
If Coinbase want’s to remain relevant among hardcore enthusiasts in the future and beyond, they will need to take a cue from their competitors. First mover advantage won’t be enough to save them once investors discover other fiat on-ramps and less red tape when trading their favorite digital assets.
Speed up the listing process, keep fees reasonable, offer leverage and better charts on the pro platform and Coinbase should have no problem staying competitive.