Good morning, and welcome to Protocol Fintech. This Thursday: Coinbase’s Armstrong factor, the EU’s plan for crypto oversight, and Paradigm’s very junior hire.
Off the chain
As I write this, reports are coming in that Russia is proceeding with an invasion of Ukraine. Markets are already rattled, and promised sanctions could shake them further. Times like these test startups: The brittler companies will soon shatter, while those built to last will shine. We’ll soon know which is which.
— Owen Thomas (email | twitter)
Coinbase's top risk
Crypto is in a slump. Coinbase’s earnings, due out today, will show how the leading firm is managing through the industry’s latest cycle — and also give shareholders a chance to hear from a leader whose tweeting fingers keep getting him in trouble.
Coinbase has told investors it’s “not a quarter-to-quarter investment,” but Wall Street has a way of making up its own mind about stocks, and lately it’s soured on growth stocks showing any kind of weakness. That makes the questions that CEO Brian Armstrong will likely answer during the call — Is Coinbase attracting more users? Did the Super Bowl ad pay off? Are regulators weighing the company down? — all the more crucial.
Expect lots of chest-thumping about the Crypto Bowl ad. Coinbase’s quirky Super Bowl spot — just a QR code dancing across the screen — generated the most chatter.
- The ad’s short-term success was undeniable. It drew 20 million users to the Coinbase homepage and sent Coinbase’s ranking on the App Store soaring.
- But, kind of like the ad, did those new users just bounce around? Bernstein Research analyst Harshita Rawat said investors will likely focus on Coinbase’s guidance for “monthly transacting users.” Visits are great, but account openings and trades are what matter.
- Then there’s the fact that the Coinbase site was apparently not prepared for the ad’s popularity. “The result of this ‘success’ was their internet crashing — just what you want from a place that wants you to trust them with your coin,” Jef Loeb, creative director at Brainchild Creative, told Protocol.
- Security experts questioned the use of a QR code. Malicious actors could create copies of the ad with a fake code that leads to a phishing site. Coinbase has already faced headaches with user security.
Regulators and rivals are ready to spoil the party. Coinbase’s latest strategy seems to be to play nice with the government.
- Five months ago, Coinbase said it was forced to cancel a planned lending product after the SEC threatened legal action. That turned out to be a smart move. Last week, BlockFi agreed to pay a $100 million penalty for selling a crypto lending product that the SEC said is illegal.
- The company’s participating in two industry tech initiatives, TRUST and Verite, to create standards for know-your-customer compliance. The thinking seems to be to assuage regulators that crypto has things under control. And Coinbase could gain an advantage by positioning itself as the most regulation-friendly exchange.
- Coinbase was far from the only crypto company advertising in the Super Bowl, so it’s likely to face questions about competition. In a note to clients, Rawat called crypto trading “a money machine” that is “attracting every major fintech and many traditional financial services firms.” And competition is “intensifying in almost all areas” of Coinbase’s business.
Coinbase has another risk factor: Brian Armstrong’s Twitter account. He just can’t seem to help himself.
- When the SEC blocked Coinbase’s lending product, Armstrong expressed confusion about how a loan could be a security. An SEC account subtweeted him with a video explainer of bonds.
- Armstrong did an end-zone dance about how Coinbase didn’t use ad agencies for its Super Bowl ad: “No ad agency would have done this ad,” he tweeted. That drew a rebuke from the head of an agency who said her firm came up with the QR code idea. (Coinbase’s CMO ended up correcting her boss: A different agency came up with the ad.)
- Most seriously, Canada’s crackdown on crypto funding to the trucker protests prompted Armstrong to observe that “self-custodial wallets are important.” Armstrong’s tweet, which seemed to suggest ways to circumvent law enforcement, was reportedly flagged by the Ontario Securities Commission.
All of that makes Armstrong’s performance during today’s earnings call all the more crucial. Wall Street is itchy, and it’s already savaged one-time crypto darling Robinhood. There’s no room for gaffes.
— Ben Pimentel (email | twitter)
A MESSAGE FROM CLARI
How do you maximize Sales and Marketing performance? Point them at the same targets. Watch the latest episode of Club Revenue on Nasdaq as Bhaskar Roy, Chief Marketing Officer at Workato, reveals his remarkable tactics so that Marketing and Sales can outperform.
On the money
On Protocol: Crypto’s biggest lobbyists are spending at least $100,000 a month to promote crypto-friendly regulation in New York. With over 20 crypto-related bills introduced in Albany this year, the state could shape the broader regulatory landscape.
The International Monetary Fund issued a caution to Nigeria and encouraged it to assess the risks of its CBDC. Nigeria introduced its eNaira last year. The IMF says using it for cross-border payments is risky, citing terrorism financing and money laundering concerns.
The European Union is planning crypto oversight. The EU is seeking to set up a new anti-money laundering authority, and a group of states led by Germany wants to make the inclusion of crypto firms more explicit, with expected operations starting in 2024.
A gunman demanded $230 million in crypto after holding a man hostage at an Amsterdam Apple store. The suspect allegedly threatened to blow himself up if his demands weren’t met, with explosives strapped to his body. He did not specify which crypto token he wanted before he was apprehended.
The Bank of Spain’s governor wants more crypto oversight. Pablo Hernández de Cos articulated a series of risks that the crypto industry poses to financial markets, including social risks and risks to the banking sector.
Overheard
Mexican Sen. Indira Kempis thinks that bitcoin should be legal tender, with Mexico following in El Salvador’s footsteps. “Making bitcoin a legal tender means putting a level playing field for people who are excluded in almost all countries,” she said in an interview.
“Tinder Swindler” Simon Leviev has denied allegations of defrauding women out of nearly $500,000 on the dating app, saying instead that his lavish lifestyle is funded by bitcoin investments. “I’m not a fraud and I’m not a fake. People don't know me so they cannot judge me. I'm the biggest gentleman in the world,” he said in an interview.
While the U.S. Federal Reserve continues to collect feedback on the development of a digital dollar, policymakers are making their opinions known, hinting at a rising interest in a U.S. CBDC. "With technology driving profound change, it is important we prepare for the financial system of the future and not limit our thinking to the financial system of today,” Federal Reserve Gov. Lael Brainard said in a speech.
Moves and hires
FTX hired Lauren Remington Platt as its head of Global Luxury Partnerships. With a background in fashion, Remington Platt will seek partnerships with luxury brands that haven’t yet jumped into the cryptocurrency world, the company said.
Protego Trust named Brian Brooks and Michael Carpenter to its board. The move is poised to deepen the board’s expertise in digital assets, regulatory compliance and bank operations as the digital asset firm transitions into a federally chartered national bank.
Circle named Nikhil Chandhok as its chief product officer. Chandhok formerly led Meta’s product development for AR glasses, and will lead Circle’s global product and growth.
Celsius appointed Rod Bolger to replace Yaron Shalem as chief financial officer. Shalem was arrested in November last year in connection to fraud-related investigations and was immediately suspended. Bolger previously held positions at Bank of America and Citigroup.
Paradigm hired the pseudonymous Transmissions11 as a research developer. Transmissions11 will work with companies to “ship secure, fast, and elegant code” while attending high school in California.
Clearco co-founder Michele Romanow took over as CEO, with co-founder Andrew D’Souza stepping down. D’Souza will assume the role of executive chairman. He remains the largest shareholder of the lending company.
Christine Moy, a senior blockchain executive at JPMorgan, is leaving the firm. Moy was the global head of blockchain product Liink, and is reportedly pursuing a new opportunity.
A MESSAGE FROM CLARI
How do you maximize Sales and Marketing performance? Point them at the same targets. Watch the latest episode of Club Revenue on Nasdaq as Bhaskar Roy, Chief Marketing Officer at Workato, reveals his remarkable tactics so that Marketing and Sales can outperform.
Thanks for reading — see you tomorrow!