Coinbase is pulling back from Wall Street, returning to its roots
If Wall Street really wants crypto it will help itself.
Coinbase's plan over the last couple of years has been to become the cryptocurrency company, doing everything crypto in all ways and from every angle.
But the bearish markets of 2018 may have put a damper on certain elements of the idea. Not necessarily because it's hurting for money – it's having no trouble finding investors – but because the current flaccidity of the crypto markets might be deterring the traditional finance clients Coinbase needs to build out its planned institutional arm.
The result, The Block reports, is that Coinbase is pulling away from Wall Street and reorienting itself around crypto-native funds like Polychain and Pantera Capital.
Back to basics
To date, one of the takeaways for observers watching Coinbase try to bridge the gap between cryptocurrency and traditional finance is that it seems to be a very difficult and very expensive exercise.
Adam White, Coinbase's fifth employee, vice president and general manager, left the company shortly after being charged with growing Coinbase's institutional division. Sources at the time cited his frustration with a lack of roadmap clarity and limited resources.
Meanwhile, Wall Street heavyweight Jonathan Kellner was previously set to join Coinbase to lead institutional sales and support, but didn't end up going through with it. The role was effectively filled by Coinbase's Dan Romero instead. Previously, Romero was the vice president and general manager of Coinbase's consumer-focused side of things.
"It was the right decision for us to focus on this area of the market," Romero said to The Block, referring to the crypto-native side of things rather than the Wall Street. "Crypto is an incredibly fast-moving industry and market conditions can change pretty quickly. We are refocusing on the crypto fund area of the ecosystem."
It's worth noting that some of the crypto funds it's focusing on have also been investing in Coinbase itself.
It may have been a prudent choice, said sources speaking to The Block. The main part of the issue, they say, might be that traditional financial firms have expensive tastes in custody solutions and other elements, expect a lot of hand-holding and require a broader range of services including derivatives, hedging tools and margin. Crypto-native funds, by contrast, tend to speak the same language as Coinbase and be much less demanding.
It probably doesn't help that Wall Street incumbents have also started going into cryptocurrency themselves, and might have a better chance of meeting the demands of their compatriots.
Nasdaq has plans for bitcoin futures, while Fidelity recently came out as an under-the-radar crypto company. Elsewhere, Intercontinental Exchange's Bakkt platform wants to be part of the long term future of cryptocurrency. Plus, both Goldman Sachs and Morgan Stanley have indicated that they will be throwing their hats into the cryptocurrency ring too. Even Larry "bitcoin is a money laundering index" Fink of Blackrock has said that the firm has no objection to getting involved in cryptocurrencies if there is client demand for it.
Essentially, the world of traditional finance will start doing cryptocurrency when the time is right, at which point it will start doing it for itself. Coinbase tried to slide in there earlier, but might have just found an empty field without the demand to support its big expenditures.
"For a person like Jonathan Kellner, it would be a lot of work to look for that needle in the haystack firm which is willing to start investing in crypto at this stage," said Greenwich Associates analyst Richard Johnson to The Block.
For now, it seems Crypto Avenue and Wall Street will be staying somewhat on their own sides of the fence. Which side does more of the disrupting, and which side gets more disrupted, remains to be seen.
Disclosure: At the time of writing the author holds ETH