After trial with PC manufacturer Dell, the biggest cryptocurrency company in the world heads to Britain, buoyed by ‘forward-looking’ regulators
Coinbase, the American firm which has been called “the AOL of Bitcoin”, is to launch its services in the UK for the first time.
From Wednesday, British customers will be able to load up the company’s bitcoin wallets with pound sterling in addition to US dollars. Coinbase will also let financial traders speculate on the the price of bitcoin against pounds and euros on its exchange.
The move brings Coinbase into the competitive British market, which co-founder Fred Ehrsam argues is buoyed by the forward-looking attitude of UK regulators towards Bitcoin, as well as other financial technology innovations. “The payments regulators and the Treasury are taking a very balanced view of bitcoin. They’re really taking their time to understand the core technology prior to regulating.”
Coinbase stands out in the loose, anarchic world of bitcoin. It is one of a small group of companies attempting to sanitise the currency, ridding it of many of the negative connotations that have sprung up since it first exploded into the public eye in early 2013.
Over its short history, bitcoin has been heavily linked to the narcotics trade, first through the Silk Road black market, and later through spin-offs after the site’s operator, Russ Ulbricht, was arrested in October 2013; it has also become heavily associated with theft through hacks and scams.
But while the cryptocurrency, with its pseudonymous aspects and anti-state roots, is popular amongst the darker side of the finance world, there are many players who want to bring it into the light. Coinbase is the biggest.
Founded in June 2012 (when the price of bitcoin was just $6, compared to $225 today), the company has won the support not just of the bitcoin establishment, but also of the wider tech industry. In January 2015, it successfully raised $75m in its third fundraising round, valuing it at $400m, the biggest of any bitcoin firm. But more than the money, it is the investors backing Coinbase that give it the credibility to try and take bitcoin mainstream.
Backing Coinbase in the series C funding round were a number of large US banks, Japanese phone company DoCoMo and the New York Stock Exchange. Now, the company offers services throughout the bitcoin economy. It handles payment services for merchants who want to accept the currency, stores bitcoin for consumers who want to spend it easilyand, following NYSE’s investment, runs a foreign exchange for traders who want to buy and sell bitcoin in bulk.
The Coinbase exchange launched in January, and according to Ehrsam, “quickly rose to be the most liquid bitcoin exchange in the US … globally it’s neck and neck to be the most liquid bitcoin exchange in the world”, outside China, that trades in US dollars.
With the expansion of the exchange service to Britain, Ehrsam predicts the customer base will be “a healthy combination of regular everyday people, [high-net-worth individuals] and then a few hedge fund guys, a few institutional guys. Over time, that shifts more and more towards larger institutional players.”
The company’s merchant services were trialled in the UK by Dell, which became the biggest company to accept bitcoin for sales in Britain in February. British businesses can sign up for a merchant account, accept bitcoin in exchange for goods and services, and choose to immediately convert the currency into pounds, paid into their bank account.
In the US, Coinbase handled bitcoin payments for more than 10 companies with more than $1bn in revenue by the end of 2014; at the start of the year, it had none, co-founder Brian Armstrong told the Guardian in December.
“I can throw out other numbers which are interesting too: our consumer wallet growth is 10x in the last year, and despite the price going up or down our core metrics around user sign-ups, deposits of bitcoin, and so on, continue to grow at a good rate. Maybe more interesting is merchant activity … that graph looks great.”
It is this ability to extend a previously niche product into the mainstream that has earned the company the tag of “AOL for Bitcoin”. Just as the proto-ISP brought millions online, Coinbase could bring millions outside the conventional financial ecosystem. But unlike many startup founders, Ehrsam downplays the dominance of the Coinbase in its sector.
“It’s very analogous to email, where you might have a lot of people using Gmail: ultimately, the switching cost is next to zero, because we’re completely interoperable with the rest of the bitcoin network. At the end of the day, that means that people can walk,” he argues.
But underpinning the whole expansion is a more fundamental question: is Coinbase too late? 18 months ago, one bitcoin was worth $1200; now it’s less than a fifth of that, and the price has been essentially static since the beginning of 2015. Is bitcoin in its dying days?
“It is a funny thing living in the bitcoin world every day,” Ehrsam says. “We’ve been through this cyclical process at least three times, where you see what appears to be a plateau. Then there’s a ramp up, and a ‘bust’, but it still ends up at a higher plateau.
“And it brings new people in building new things.”