The collapse of FTX, one of the world’s largest cryptocurrency exchanges, raised eyebrows and questions about the digital-asset industry as a whole.
When FTX went into bankruptcy and its founder Sam Bankman-Fried was taken into federal custody, the media and the public demanded answers. Was cryptocurrency safe?
Brian Armstrong, Coinbase’s co-founder and chief executive officer, said he does not believe crypto is at a crisis point. He told Axios in a December interview that the industry is not in deep trouble.
Brian Armstrong
| Coinbase
“It basically has a black eye because it’s attracted its unfair share of scammer[s] and fraudulent people over the years,” Armstrong said. “Some of it was just bad management if you look at something like Mt. Gox, but with FTX it appears to be actual fraud. But that’s not representative of the entire industry, and crypto isn’t going anywhere."
Mt. Gox was a Tokyo-based cryptocurrency exchange that operated between 2010-14 and, at its peak, was responsible for more than 70% of bitcoin transactions. But in 2014, it crashed and declared bankruptcy, spawning lawsuits that lingered for years.
Armstrong said such high-profile disasters are obviously damaging to the crypto market. He told Fortune, also in a December interview, that the FTX matter is obviously criminal, which is not the case with most people involved in the crypto industry.
He said Coinbase was open about its operations and was willing to share information with anyone who doubts its operational integrity.
“You can read our financial statements,” Armstrong said. “They’re audited by a third party, you don’t have to trust us. All the customer funds are segregated. We don’t invest any customer funds without their explicit direction.”
The Coinbase Institute, a crypto think tank, launched in May 2022.
With the goal of advancing the policy debate around cryptocurrency and the future of web3, the mission of the Coinbase Institute is centered around conducting and publishing relevant research, convening collaborative discussions with leaders in the crypto space, forging partnerships with like-minded institutions and think tanks to accelerate research and innovation, and building an in-house team that will accelerate public knowledge and awareness of crypto and web3.
According to a report from Converge, strategic partnerships between crypto companies and retail organizations could help bring awareness of crypto to a broader audience, which in turn could accelerate mainstream blockchain adoption.
During a recent Twitter discussion, Armstrong said regulators must play a crucial role in keeping crypto functioning in such a manner to restore public trust. The FTX crisis should serve as impetus for that.
Armstrong said Know Your Customer (KYC) and Anti-Money Laundering (AML) have largely failed at stopping criminal activity, with the United Nations Office on Drugs and Crime estimating just 0.2% of illicit funds are seized.
He also quotes a 2020 study by Google scholar Ronald Pol titled “Anti-money laundering: The world’s least effective policy experiment? Together, we can fix it,” that estimates that “compliance costs exceed recovered criminal funds more than 100 times over.”
“These programs also harm customer privacy, result in higher fees for customers, are barriers to startups/innovation and hurt financial inclusion,” Armstrong told Coinbase shareholders.
He said the biggest barrier to resolving the commodity versus security issue is politics.
“Some regulators don’t want regulatory clarity for crypto, because they are actually trying to curtail the industry,” Armstrong said. “Harsh rhetoric and regulation by enforcement, without creating clear rules for everyone to follow, has pushed much of the industry outside the U.S., which has resulted in American investors and businesses being harmed.”
Coinbase shared a fall 2022 letter to shareholders with Austin Journal. It struck an optimistic tone, as did its quarterly earnings report.
“We are seeing continued momentum in our product development and partnerships, supported by ongoing crypto innovation and adoption," it said. "While price declines and lower trading volume dominate the headlines, we are encouraged by user sentiment, the scaling of blockchains, our growing partnerships, and institutional adoption that we saw throughout Q3. In Q3, subscription and services revenue grew 43% sequentially to $211 million."
The company announced a strategic partnership with Google Cloud in October that will allow select Google Cloud customers to pay for their services through select cryptocurrencies facilitated by Coinbase Commerce, the firm’s merchant payments solution. Web3 developers will also gain access to Google Cloud’s public blockchain datasets via BigQuery, powered by Coinbase Cloud’s Node service. And Google will use Coinbase Prime for institutional crypto services such as secure custody and reporting.
Coinbase also entered into a partnership with SS&C, a global provider of services and software for the financial services and health-care industries, to offer its clients access to Coinbase Prime. This will permit traders using Eze Investment Suite to manage their crypto trading processes in one place, from pre-trade compliance to custody. Last summer, Coinbase announced a strategic partnership with BlackRock, the world’s largest asset management company, to provide institutional clients of Aladdin®, BlackRock’s end-to-end investment management platform, with direct access to crypto through connectivity with Coinbase Prime.
Coinbase Exchange joined with Signature Bank’s Signet to “empower users to fund and settle their Coinbase accounts in real-time, 24/7/365,” the letter states. “Users can now add USDC to the Web3 ecosystem in under 10 minutes.”
Increased blockchain adoption will encourage more innovation in the crypto space, enabling “developers to create powerful new services and apps,” which will lead to even more adoption, according to crypto writer Will Kendall of CoinMarketCap.
Besides the importance of be educated about crypto, Kendall emphasizes the importance of accessibility of crypto across all ages groups and demographics, describing it as a domino effect, noting, “the more people use crypto, the more money there is in crypto."
In a recent blog post, Binance CEO and Founder CZ said the firm has always been dedicated to serving its clients well and in a very transparent manner.
“Before there were clear guidelines for the industry, we have always held Binance to the highest standard to prioritize our users’ best interests — a goal that we share with regulators around the world,” CZ wrote.
Armstrong remains bullish on the industry.
In a Dec. 19 blogpost, he wrote that with regulatory clarity for centralized actors, a level playing field, and decentralized crypto innovation preserved, crypto can bring enormous benefits to the world.
“Right now there is too much distraction from bad actors causing harm, and we all need to take responsibility for improving this,” Armstrong said. “I’m optimistic that we can make significant progress on the above in 2023 and get crypto legislation passed."