Industry News
Three reasons why Coinbase going public is meh for Bitcoin
By Josef Tětek, SatoshiLabs
We’ve been bombarded for weeks now by analyses, opinion pieces and hot takes on Coinbase going public. Some praise the move, saying “we are all Coinbase now”, while others rightly point out the spotty relationship the exchange has had with Bitcoin.
While the company is undoubtedly one of the largest and most significant in the space, it can hardly be said to be a proponent of Bitcoin’s values. Let’s take a look at three reasons that Coinbase’s listing is barely being celebrated by members of the core community.
1. Coinbase holds surprisingly little bitcoin, doesn’t work as a bitcoin proxy stock
According to the public SEC filing, Coinbase holds only 4,487 bitcoin. While this may seem like a lot to a modest hodler, for a company with an $85 billion valuation it’s peanuts. The bitcoin on Coinbase’s balance sheet represents only 0.33% of its valuation. Tesla, a company totally unrelated to the cryptocurrency sector, holds 48,000 bitcoin (0.4% of the company’s valuation), and Microstrategy holds 91,579 bitcoin which constitutes a staggering 82% of Microstrategy’s valuation.
So in contrast with some takes, Coinbase doesn’t really work as a Bitcoin proxy stock, and if investors are looking for that sort of thing, then Microstrategy would be the right place to look. What’s more, Microstrategy’s Michael Saylor does a much better job than Brian Armstrong in explaining why Bitcoin matters, just check out the excellent Saylor series on Robert Breedlove’s show, or one of Saylor’s many other appearances.
2. Coinbase is proactive in KYC & blockchain analysis
Sure, government bodies impose regulatory requirements on exchanges and other service providers, and there’s often nothing they can do about it if they want to stay in business. But there’s a difference between being compliant and being complicit.
In 2019, Coinbase hired former members of Hacking Team, the infamous Italian company known for selling incursion and spyware tech to authoritarian regimes. And in 2020, Coinbase sold blockchain analysis software to the government, with Armstrong giving the explanation that the exchange needed to “recoup costs”.
Entities holding large amounts of sensitive customer data are subject to breaches, leaks and hacks. In the past couple of weeks alone, Facebook, LinkedIn, and Clubhouse lost hundreds of millions of customers’ data to such attacks.
It’s no stretch to say that Coinbase user data is much more sensitive than any data found on social sites, as the customer data on cryptocurrency exchanges can point attackers to very lucrative targets. Coinbase being the largest American exchange with proactive KYC policies positions it as a ticking time bomb when it comes to data leaks.
Trezor’s team is always working on improving user privacy to offset the very real threat leaked data poses. Usability, security and privacy are all crucial when dealing with Bitcoin. That’s why Trezor Suite comes with the ability to connect via Tor, and soon anyone will be able to connect their full node and CoinJoin their coins, straight from the Suite interface. To be complicit in KYC as a Bitcoin company is to actively undermine the industry.
3. Centralized exchanges are security holes
“Not your keys, not your coins” isn’t just an empty phrase. The only way you can ever truly own your coins is by holding the corresponding private keys. When you store coins on an exchange, you only own a promise, an IOU. Such promises are swiftly broken if the exchange is hacked or decides there’s a problem with you withdrawing the coins to an address you control.
Newcomers often think their coins are safe with “professional custodians” like Coinbase; perhaps this perception will be reinforced now that everybody and their dog has heard about the exchange across the mainstream media. The perception that it’s OK to keep your coins on an exchange has been strengthening recently, as exchanges introduce staking services for various altcoins, meaning users are thus rewarded for the irresponsible behavior of giving up custody of their coins.
The only place your coins are safe and fully under your control is in your hardware wallet. Trusting coins to a custodian is antithetical to Bitcoin’s design as a tool of financial self-sovereignty.
Of course we all understand people need to stack sats on a regular basis (and sometimes even sell sats, god forbid). But this should be done in a responsible manner, with users receiving their coins straight into their wallet, in the shortest time frame possible. That’s exactly why Invity.io, another subsidiary of SatoshiLabs, was set up! It lets users buy bitcoin and have it sent directly to a secure address, all from within Trezor Suite. You don’t need to surrender your coins to an exchange in order to be able to invest or trade, so why take the risk?
It’s nice that the mainstream media are once again fired up about Bitcoin and the Coinbase listing is attracting attention to the industry but let’s not forget that Coinbase doesn’t really value Bitcoin very highly, nor does it do much to help Bitcoin adoption. For anyone who values security and privacy, Coinbase is overvalued. Users have many other options if they’re looking to stack sats or trade and investors would most likely be better off investing in Bitcoin directly rather than a stock with such a tenuous connection to Bitcoin.
