Coinbase’s $500M Crypto Investment is a ‘Game’ to Attract Users, Sources Say

Market players say Coinbase is “putting their money where their mouth is” with this investment and in turn, attracting investors to their exchange.

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Source: Nasdaq

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key takeaways

  • “By converting an additional $500 million to crypto, what they’re doing is sending a message to the market. This message should be taken seriously because Coinbase is in a privileged position,” said Hans Hauge, head of quant strategy at Ikigai Asset Management
  • “It’s game of getting people engaged on their platform,” said Greg Foss, executive director for strategic initiatives at Validus Power Corp.

Coinbase, one of the largest cryptocurrency exchange platforms in the world, announced plans yesterday to change its investment policy and some sources said this initiative is sending a strong message to the market that crypto is here to stay, while others said that the company’s investment is a “game” to attract more users. 

Specifically, Coinbase announced it will buy $500 million in cash and cash equivalents to crypto in addition to allocating 10% of its quarterly net income into a diverse portfolio of crypto assets, the company’s Chief Financial Officer Alesia Haas said in a post

That same day, Coinbase CEO Brian Armstrong tweeted, “I expect this percentage to keep growing over time as the cryptoeconomy matures.”

Friday, Armstrong tweeted, “What’s cool is that our investment allocation will be driven by our customers: matching our custodial crypto balances.”

While some might consider the moves as a corporate strategy showing the strength of the overall crypto currency market, others consider it a marketing ploy. “It’s a game of getting people engaged on their platform,” said Greg Foss, executive director for strategic initiatives at Validus Power Corp. 

With the announcement yesterday, Coinbase will become the first publicly traded company to hold Ethereum, proof-of-stake assets, DeFi tokens and many other crypto assets supported by its platform. These crypto assets will be in addition to bitcoin on the company’s balance sheet, Haas wrote. 

Rapid expansion

The cryptocurrency ecosystem is expanding rapidly as the space continuously evolves. Coinbase’s latest plan to create a crypto portfolio, sends a message that this market is one that players should take seriously, said Hans Hauge, head of quant strategy at Ikigai Asset Management. 

However, it’s important to understand that companies like Coinbase already have a long position in the market to whatever scale they need to keep the business going, Hauge said. “By converting an additional $500 million to crypto, what they’re doing is sending a message to the market. This message should be taken seriously because Coinbase is in a privileged position,” he added. 

Both Hauge and Foss said Coinbase is “putting their money where their mouth is” with this investment and in turn, attracting investors to their exchange. 

“It’s making money for their shareholders by putting more speculative tokens on there,” Foss said. “If they have it on their balance sheet it’s a commitment from them,” Foss added. 

While Coinbase started the company in 2012 by only allowing buying and selling of bitcoin, they eventually grew and added ethereum, litecoin and a host of other cryptos, Hauge noted. 

“The thing that people don’t understand is that the whole space is growing. It’s not bitcoin versus this or that, it’s an entire ecosystem unfolding. The logical continuation is that companies will hold other cryptos on their balance sheets eventually,” Hauge added. “What I’m saying is it’s not a knock on bitcoin that Coinbase isn’t towing the BTC maximalist party line. In all likelihood BTC will be their largest holding, but they have their fingers on the pulse of the industry and it makes sense for them to place long-term investments where they see opportunity.”

Coinbase building bigger 

Earlier this week Coinbase announced it is launching a partnership with Mitsubishi UFJ Financial Group (MUFG) to help bring its platform to Japan, Blockworks previously reported. The company did not disclose an exact date of the launch in Japan. But Japanese customers in the country can currently buy bitcoin, ethereum and litecoin through Coinbase’s platform, according to its website. 

Earlier this month, Coinbase reported higher-than-expected second quarter earnings, bolstered by trading volumes and an increase in users. Profit for the second quarter was $1.6 billion, compared with $32 million in 2020, Blockworks reported. 

For the first time in its history, Coinbase reported a higher trading volume of ethereum than bitcoin with 26% of trades being in ETH. Twenty-four percent of trades were in bitcoin, the exchange reported.

The company’s $COIN share was up $9.17, or 3.69%, to $257.41 per share as of 2:20 pm Eastern Time on Friday. 

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