As the largest crypto exchange that is publicly traded in the United States, Coinbase has become a household name. Nonetheless, as the crypto markets become more difficult, the company appears to be stumbling, leaving it exposed to competitors.
Since the beginning of the year, Coinbase’s stock price has decreased by roughly 80 per cent, and the company recently made news for laying off one-fifth of its workforce.
The corporation produced a loss of $430 million in the first quarter of 2022, which fell short of Wall Street analysts’ projections.
Its trading volumes and several monthly transacting customers were both down compared to Q4 of the previous year, which is poor news for a corporation that relies significantly on transaction fees to generate income.
Last month’s move to retract employment offers to individuals who had previously accepted them demonstrates that the exchange regained its footing more quickly than even Coinbase could have anticipated.
Its rivals, on the other hand, have been patiently awaiting the opportunity to enter the U.S. market.
Now, sensing Coinbase’s moment of weakness, the two largest cryptocurrency exchanges in the world by volume (Coinbase is third globally) — Binance and FTX — hope to grasp their chance in the United States.
The three crypto titans have created customer bases that are distinct from one another and are competing for market share.
Institutions account for the majority of Coinbase’s trading volume, according to the company’s most recent quarterly filing. Institutional investors account for around 95% of Coinbase’s transaction revenue.
The majority of FTX’s activity is comprised of derivatives, which is a natural fit for the exchange given the background of its creator and CEO, Sam Bankman-Fried, who formerly worked for a quantitative hedge fund.
Coinbase entered the futures market for the first time last month, while FTX established an institutional trading platform in March.
SBF, as he is known in the cryptocurrency community, has been pulling out all the stops to broaden FTX’s appeal to the average retail investor, including introducing zero-fee U.S. stock trading in May, to make it a one-stop shop for its customers’ needs.
In any case, if Coinbase’s current level of success is attributable in large part to U.S. retail investors, its decline presents an excellent opportunity for global exchanges to poach its users and increase their own revenues.
It makes sense, then, that Binance aims to attract more retail investors, but the largest global exchange is still a bit of a dark horse in the race for the U.S. market as it competes with FTX for customers.
It’s Binance. As of July 12, spot trading volumes in the US division were less than $300 million.
That is a drop in the bucket compared to its global business, which saw volumes of $10 billion during the same period — approximately seven times greater than FTX and Coinbase.
Currently, 70% of Binance’s trading volume.
The US, the American branch of the global exchange, is supported by institutional clients, according to CEO Brian Shroder in an interview with TechCrunch.
Despite this, retail investors generate more revenue overall, due in part to Binance’s steep discounts. The US offers to its highest-volume clients, he continued.
Binance’s strategy for attracting U.S. retail investors is also markedly distinct from that of FTX, with the exchange focusing on its crypto expertise.
“Some exchanges want to return to stock trading and focus on that market. This approach is neither incorrect nor correct. We are a web3-only business.
We are progressing forward, not backward. This week, Changpeng Zhao, founder of Binance, stated in an interview with Decrypt that the company intends to develop additional web3 applications.
When marketing in the United States, the exchange also employs a less flashy approach.
While competitors such as Coinbase, FTX, and Crypto.com spent millions of dollars on Super Bowl advertisements during the crypto bull run, Binance.US remained relatively quiet.
Under Shroder’s leadership, Binance.US appears to be reversing its reputation, which was once marred by frequent management changes and ongoing regulatory battles and gaining ground in the battle to win over the U.S. retail investor.
From the customer’s perspective, the company’s strategy is undeniably attractive: undercutting competitors by offering lower fees.
Compared to FTX.US, which charges up to 0.20 per cent for spot trades, Coinbase’s fees are notoriously high at up to 3.99 per cent for certain spot trades.
Binance.US, meanwhile, reaffirmed its commitment to keeping costs low for its customers last month when it launched fee-free bitcoin spot trading for all users, claiming to be the first U.S. crypto exchange to do so.
It is important to note, however, that exchanges still make money from the spread on trades even if they do not charge upfront fees.
In addition, it introduced a staking product last month that it claims offers some of the highest APY rates among its competitors, and it plans to add fee-free trading for additional currencies in the future.
“On the cost side, there is no doubt that we are the lowest-priced provider in this industry,” Shroder said.
When asked how Binance.US can offer above-market yields on its staking product, Shroder responded, “My guess is that when you look at the other firms with much lower APYs, it’s because they’re taking that for themselves, and we’re passing it along to the customer.”
Naturally, investors gravitate toward lower fees and higher returns, giving Binance a potential advantage over Coinbase in that it can sacrifice profits in the U.S. to attract users so long as it generates profits elsewhere.
The same is true for FTX, which is only able to offer no-fee equity trading because it generates revenue from other business operations.
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Customers have demonstrated enthusiasm for Binance.US, whereas investors have occasionally exhibited reluctance.
Nonetheless, in April of this year, the business was able to secure its first external funding from investors in the form of a $200 million round that valued it at $4.5 billion.
Shroder told TechCrunch that he expects the IPO to occur within the next two to three years and that the capital raise marked a crucial first step on the company’s path there.
With the new funds and an extension of the round, which Shroder says will be forthcoming, the company appears to be in a strong position to weather a turbulent market.
TechCrunch reported a month ago that the company is actively recruiting for more than 80 new positions to add to its current workforce of 400.
