Fintech

How the crypto industry will ride the Coinbase wave

Investors expect today's Coinbase listing to legitimize the industry and help kickstart crypto tech that sticks.

Bitcoin

Many believe Coinbase's listing is the event that will bring sustained attention and capital to crypto companies.

Image: Viktor Forgacs

Coinbase's direct listing today isn't just a major financial event for the company. It's also expected to light a fire under the already-growing crypto industry.

There have been several crypto winters and technological false starts — along with plenty of volatility and controversy for currencies such as Bitcoin — that have prompted skepticism about the industry. But many believe Coinbase's listing is the event that will bring sustained attention and capital to companies and protocols building on blockchain technology.

"Everyone focuses on Bitcoin and the speculation part of it, but we've always looked at this as blockchain as the next generation and evolution of the internet." said Barry Schuler, partner at DFJ Growth, which first invested in Coinbase in 2014. "It's going to enable a lot of very important and disruptive technologies."

In addition to ramping up general interest in crypto products, Coinbase's listing will bring more venture investors into the industry, which will help existing crypto companies and result in more crypto companies being built, Schuler said.

"More VCs will come in funding companies doing interesting things once they see how well the returns were [on Coinbase]," Schuler said. "They'll say, 'We want the next big one.' That will bring more capital for developers into the industry."

The public listing is the culmination of recent growth in crypto adoption, says Michael Gronager, CEO at crypto data and analysis startup Chainalysis. Since 2016 and especially since the current crypto bull market started in 2017, mainstream adoption of crypto has been growing, particularly among large institutions, he said. While the overall crypto industry has grown over that time, Coinbase in particular saw trading volume spike 142% in 2020 compared to 2019, according to the company.

"You saw mixed interest from established financial institutions [before], but all this changed roughly a year ago." Gronager said. "Crypto went from being this 'maybe' thing to 'we better figure out how to work with crypto longer term.'"

Even if its listing is the success it's expected to be, Coinbase could just be the first inning for crypto, investors believe. Buying Bitcoin on Coinbase is to crypto what AOL email or instant messaging were to the early internet, Schuler said. "Buying digital currencies are like the first killer app," he said. "The first killer app of the internet was mundane email or instant messaging. They would keep coming back."

In addition to trading, Coinbase provides services specific to crypto that are harder to find elsewhere. That's why using a "crypto-native" app is different from buying crypto on Robinhood, PayPal or Cash App, said Tom Loverro, general partner at IVP, which invested in Coinbase in 2017. And those specific features could go on to be the building blocks on which whole new sectors are built.

The best analogy is ecommerce, Loverro said. "When Amazon came out, competitors like Sears and Kmart said, 'Ecommerce means adding a website. We've done sears.com so we're done, we have the internet handled now,'" he said. "But they couldn't take advantage of the features specific to the internet that made Amazon the first internet native retailer."

Those specific Coinbase services beyond buying and selling crypto — such as staking tokens or voting on protocols — are some of the things that make crypto unique, Loverro said, and what we may look back on as giving rise to a whole new sector.

Getting legit

For the broader crypto industry as it exists today, Coinbase will be a first stake in the ground, providing mainstream legitimacy and broader support for other crypto outfits, some investors say.

Much of the interest and growth so far has been in products that support investing in crypto, or relatedly, holding, tracking or managing bitcoin. Crypto companies that have raised sizable venture rounds include tax management startup TaxBit, blockchain data and analysis firm Chainalysis and crypto custody companies Fireblocks and Anchorage.

Beyond these investing-specific products, investors point to fledgeling products enabled by smart contracts using blockchain that could enable escrow, loans, royalties payments, derivatives, insurance or savings, without using traditional financial intermediaries. Decentralized finance, or DeFi, has accelerated in use recently. The market has grown in value to $56 billion, up from $16 billion at the start of 2021, according to DeFi Pulse.

Still, most DeFi products are currently still hard to access for mainstream users. "Some of the user interfaces are difficult and at times perplexing," Loverro said. "That's exactly why a company like Coinbase exists — to take the complexity and bury it."

NFTs, the blockchain ownership of digital goods, are the current example of the mainstream potential of crypto, despite a host of issues that still haven't been worked out. "NFTs are demonstrating digital asset ownership," Loverro said. "This is one of the original things people said blockchain could be used for. A piece of art or song that lives on the blockchain can be transacted on the blockchain and be able to build logic and contracts that automatically disburse royalties on a piece of art."

Still, before crypto comes into mainstream consumer use, the underlying crypto infrastructure needs to be built out. "In the early days, we tend to look at picks-and-shovels plays — what are the tools to make it easy and accessible to use?" Schuler said.

This includes technology to make crypto less of an energy drain, and to massively increase the volume and speed of transactions, he said. Right now, we're still at the AOL stage of the blockchain, just as when online video used to mean stuttering and postage stamp-sized videos streamed over modems, he said.

This isn't to say there aren't still questions about crypto around security and regulation. While Coinbase has addressed some issues of "know your customer" and anti-money laundering checks that regulators require trading, a number of issues still need to be addressed, Gronager said.

Crypto exchanges in the U.S. are doing a "phenomenal job" working with regulators and law enforcement, but "we're not there yet" in terms of regulation for crypto, said Gronager. "We definitely need more regulatory clarity," he said.

But for today, many of those concerns are taking a back seat. Today, for most people watching the crypto space, we're entering a new era — one being shaped by Coinbase, but with plenty of room left for all.

Enterprise

SaaS valuations cratered in early 2022. But these startups thrived.

VCs were still bullish on supply chain, recruiting and data startups despite the economic environment that chopped the valuations of newly public companies and late-stage enterprise startups.

While private equity has been investing in enterprise tech for decades, the confluence of several trends in the sector is making it more competitive than ever before.
Image: Getty Images; Protocol

Despite a volatile tech stock market so far this year that has included delayed IPOs, lowered valuations and declining investor sentiment, a few enterprise tech categories managed to keep getting funding. Data platforms, supply chain management tech, workplace software and cybersecurity startups all dominated the funding cycle over the past quarter.

When it comes to enterprise SaaS, the number of mega-deals — VC funding rounds over $100 million — spiked last year, according to data from Pitchbook. Partially driven by the onset of a pandemic that accelerated the need for everything from contact centers to supply chains to move into the cloud, the number of large VC deals tripled between 2020 and 2021. That growth has extended into this year, where the number of mega-deals has already outpaced all of 2020.

Keep Reading Show less
Aisha Counts

Aisha Counts (@aishacounts) is a reporter at Protocol covering enterprise software. Formerly, she was a management consultant for EY. She's based in Los Angeles and can be reached at acounts@protocol.com.

Sponsored Content

Foursquare data story: leveraging location data for site selection

We take a closer look at points of interest and foot traffic patterns to demonstrate how location data can be leveraged to inform better site selecti­on strategies.

Imagine: You’re the leader of a real estate team at a restaurant brand looking to open a new location in Manhattan. You have two options you’re evaluating: one site in SoHo, and another site in the Flatiron neighborhood. Which do you choose?

Keep Reading Show less
Fintech

Plaid is striking back after Stripe entered its core business

Onboarding customers through identity verification and ACH transfers is a hot sector in fintech, and the two fast-growing fintechs are set to battle it out.

Plaid is looking to help banks and fintech companies with anything related to the onboarding of a customer onto a financial product, said Plaid CTO Jean-Denis Greze.

Photo: Plaid

Plaid is moving into identity verification in a crucial expansion beyond its roots connecting banks and fintechs — a move that could put it in more direct competition with Stripe, another company known for its financial software tools.

In conjunction with its Plaid Forum customer conference this week, the company is also announcing two products focused on ACH transfers as it moves into payments.

Keep Reading Show less
Tomio Geron

Tomio Geron ( @tomiogeron) is a San Francisco-based reporter covering fintech. He was previously a reporter and editor at The Wall Street Journal, covering venture capital and startups. Before that, he worked as a staff writer at Forbes, covering social media and venture capital, and also edited the Midas List of top tech investors. He has also worked at newspapers covering crime, courts, health and other topics. He can be reached at tgeron@protocol.com or tgeron@protonmail.com.

Workplace

Getting reproductive benefits at work could be a privacy nightmare

A growing number of tech companies are extending abortion-related travel benefits. Given privacy and legal fears, will employees be too scared to use them?

How employers can implement and discuss reproductive benefits in a way that puts employees at ease.

Photo: Sigrid Gombert via Getty Images

It’s about to be a lot harder to get an abortion in the United States. For many, it’s already hard. The result is that employers, including large companies, are being called upon to fill the abortion care gap. The likelihood of a Roe v. Wade reversal was the push some needed to extend benefits, with Microsoft and Tesla announcing abortion-related travel reimbursements in recent weeks. But the privacy and legal risks facing people in need of abortions loom large. If people have reason to fear texting friends for abortion resources, will they really want to confide in their company?

An employee doesn’t have “much to worry about” when it comes to health privacy, said employee benefits consultant Jessica Du Bois. “The HR director or whoever's in charge of the benefits program is not going to be sharing that information.” Employers have a duty to protect employee health data under HIPAA and a variety of state laws. Companies with self-funded health plans — in other words, most large companies — can see every prescription and service an employee receives. But the data is deidentified.

Keep Reading Show less
Lizzy Lawrence

Lizzy Lawrence ( @LizzyLaw_) is a reporter at Protocol, covering tools and productivity in the workplace. She's a recent graduate of the University of Michigan, where she studied sociology and international studies. She served as editor in chief of The Michigan Daily, her school's independent newspaper. She's based in D.C., and can be reached at llawrence@protocol.com.

Enterprise

VMware CEO Raghu Raghuram: Edge is growing faster than cloud

The now-standalone company is staking its immediate future on the multicloud era of IT and hybrid work, while anticipating increased demand for edge-computing software.

VMware CEO Raghu Raghuram spoke with Protocol about the company's future.

Photo: VMware

Nearly a year into his tenure as CEO, Raghu Raghuram believes VMware is well-positioned for the third phase of its evolution, but acknowledges its product transformation still needs some work.

The company, which pioneered the hypervisor and expanded to virtualized networking and storage with its vSphere operating environment, now is helping customers navigate a distributed, multicloud world and hybrid work with newfound freedom as an independent company after being spun off from Dell Technologies last November.

Keep Reading Show less
Donna Goodison

Donna Goodison (@dgoodison) is Protocol's senior reporter focusing on enterprise infrastructure technology, from the 'Big 3' cloud computing providers to data centers. She previously covered the public cloud at CRN after 15 years as a business reporter for the Boston Herald. Based in Massachusetts, she also has worked as a Boston Globe freelancer, business reporter at the Boston Business Journal and real estate reporter at Banker & Tradesman after toiling at weekly newspapers.

Latest Stories
Bulletins