May 14, 2021
Image: Pavlo Gonchar/SOPA Images/LightRocket via Getty Images/Protocol
Hello and welcome to Protocol | Fintech! This Friday: Coinbase's earnings, credit cards without credit scores and Elon's green turn.
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Coinbase released its first-quarter earnings Thursday, which, as expected, showed big jumps in revenue and profits from the fourth quarter of 2020.
The bullish numbers struck a sharp contrast with what happened in cryptocurrency markets. Selling prompted first by Tesla CEO Elon Musk's U-turn on bitcoin and then a report that the Department of Justice and IRS were investigating Binance, a major crypto exchange, pummeled major coins. Bitcoin, XRP, Ether and other digital currencies shed $365 billion in value.
Coinbase's numbers showed what can happen when price moves are favorable, drawing investors and speculators into the crypto field. Trading volume soared along with the price of bitcoin and other cryptocurrencies. Coinbase had 56 million customers, of which 6.1 million were actively buying or selling in a given month.
It wasn't just bitcoin. Ether trading increased as a percentage of total trading volume, with institutional interest growing. Coinbase's new Ethereum 2.0 product and the growth of decentralized finance products based on Ethereum also helped, Coinbase said.
Still, Coinbase acknowledges that it had benefited from the recent all-time highs in crypto prices, a market condition which already seems like it could crumble:
Coinbase says it aims to operate the company at "roughly break even," with results that are "smoothed out over time." New products that don't depend on trading are crucial for that.
Still, Coinbase sees challenges in the market, including increased competition. Some of this is Coinbase's fault for not keeping up with crypto trends.
Coinbase still has work to do to match investors' lofty expectations. The company's value has fallen by more than half from its peak on the day it listed its shares in April. That's another thing it has in common with crypto prices.
— Tomio Geron
Financial fraud isn't waning, and as it increases, security tools designed to protect the data in use need to get stronger to combat more complex fraud. Confidential computing is going to play a big role in the future of financial services.
The Senate voted this week to repeal the True Lender rule. The rule enables payday lenders and others to avoid state caps on interest rates.
What fintech trend are you most excited about?
The growing number of fintech companies interested in the credit scores of their customers has been extremely exciting. A credit score is tied to so many huge milestones in life, yet the path to a good score can be difficult. So it's nice to see so many fintech companies step up to find creative ways to enable score improvement.
What fintech trend is most troubling for you?
While I want more fintech companies to create lending models, it definitely concerns me when companies think they can create a lending arbitrage without first attempting to create "positive selection" within their customer base. In lending, it's hard to find a good shortcut that hasn't already been explored. It's better to build situations into business models that help companies better understand their customers than to rely on a "miracle" data source that attempts to learn everything about a customer's ability to repay.
What problem in fintech would you like to see someone solve?
I'd love to see more companies get into "buy now, pay later" that focus on finding verticals, such as higher education, offering textbooks, supplies, etc.
That's the percentage of assets backing Tether stablecoins held in pure cash. When Tether first launched, it said it was backed one-to-one with cash, but a recent disclosure showed a mix of cash equivalents, secured loans and even bitcoin.
Thanks for reading — see you Tuesday.