What happens if Facebook buys Coinbase?
The rumoured Facebook acquisition of Coinbase is probably never going to happen.
The Silicon Valley "kill zone" refers to the shadows of tech giants like Alphabet (Google), Facebook, Microsoft and Amazon. Startups that venture into the shadows risk getting squashed, bought out or copied out of existence. With these giants stomping around, it's increasingly rare for new startups to live long enough to challenge any of them.
Because it's hard for startups to avoid the shadows of the giants, evolution has started favouring those which build to get bought out. Rather than trying to create a lasting company, the goal is to find that killer app idea, build and scale fast, then sell for seven to ten digit sums – or eleven if you're really good.
But cryptocurrency and blockchain grew in a strange place, somewhere in the same valley as the tech giants, but only skirting their shadows and evolving too quickly to get a firm grasp on.
By their own admissions, most giants have mostly been slightly weirded out by the largely inedible new species sharing the valley. Alphabet was one of the largest early investors in blockchain companies, but the constant ups and downs of bitcoin and quickly changing nature of the space made it hard to tell what was actually a good investment, and reduced it to what was more or less just a scattershot investment strategy.
It was one of the earlier giants to get into the space, but Google co-founder Sergey Brin recently noted that the company still failed to be at the cutting edge of blockchain.
And Facebook has had its hands full lately, with all the Cambridge Analytica business, just trying to get to grips with its own outsized reach on user data and dealing with growing concerns about its reputability. It may have initially seen cryptocurrency as one headache it did not need, and a further threat to its efforts to regain user trust. But since then it's stepped back, taken a deep breath and put together a cryptocurrency A-Team to "explore how to best leverage Blockchain across Facebook, starting from scratch."
This has, in part, given rise to rumours of Facebook wanting to acquire Coinbase, one of the larger new crypto specimens in the valley.
David Marcus, the head of Facebook's crypto A-Team, is also on the board of directors at Coinbase.
And price-wise, Coinbase might be more affordable than one would expect for an epicentre of the USA cryptocurrency scene. It values itself at about $8 billion, while outside investors reportedly put it in the $4.5 to $6 billion range.
For perspective, Facebook splurged $19 billion on WhatsApp. On the surface, Coinbase might be well within its budget.
What happens if Facebook buys Coinbase?
"A partnership between Facebook and Coinbase could turn the crypto industry around and return bitcoin to its former price," said Dima Zaitsev, head of international PR and business analytics at ICOBox, an ICO facilitation company. "As I see it, Coinbase stands to benefit the most from this deal. Just imagine: the exchange could add another two billion Facebook users to its current 20 million clients."
For the markets on the whole, the thought of a partnership with Coinbase, to bring in Facebook users, might be bullish news.
"Many experts have already reacted favorably to this news," Zaitzev said. "I agree that this is a promising turn of events, and would like to stress that a giant like Facebook acquiring Coinbase and entering the crypto market would not only increase the value and utility of the social network itself, but would have a positive impact on the entire crypto industry."
There's also the question of whether Facebook plans to introduce its own cryptocurrency for money transfers. It has recently been pushing money transfers through the Messenger app and Marcus, the head of Facebook's blockchain team and board member of Coinbase, also used to head up Messenger.
"Any cryptocurrency introduced by the company [Facebook] would potentially have huge popularity and reach, which in time might even rival the worldwide reach of the US dollar," Zaitzev observes.
It might not be much of an exaggeration. With about 1.5 billion daily users and 2 billion monthly users, a Facebook currency that becomes widely used on the platform could quite easily become a global standard of sorts.
"If the deal goes through, Facebook could become a leading player on the cryptocurrency market, automatically relegating even countries with the most progressive crypto economies to the status of runners-up," Zaitzev says.
Will Facebook buy Coinbase?
Not anytime in the near future, and probably not ever.
The main reason is that Coinbase just won't go for it. Its plans are to do the acquiring, not get acquired. It's explicitly said as much, describing the current cryptocurrency space as akin to the cambrian startup explosion of the early 2000s, during which Google cleaned up by keen-eyed acquisitions.
Much like Facebook is focusing on controlling every corner of digital communication and social media, spending billions to buy out competition like WhatsApp and Instagram, and imitating-to-death Snapchat and others that spurn it, Coinbase is working to deliberately build out complete control of everything crypto.
You don't have to look too closely to see this in action. The strategy so far has been to build or acquire crypto services to cater to every possible customer type, as well as things for people and companies to do with their crypto.
Coinbase came to life as an easy bitcoin wallet and exchange platform for the everyday user, and then added GDAX for traders.
Now, in just the last few months, it's used its warchest from the 2017 crypto boom to do much more. Seven of its nine acquisitions have been in 2018, while most of its new services and investments have also come in 2018. In the last few months alone it has:
- Rebranded GDAX as Coinbase Pro, while simultaneously acquiring the Paradex decentralised exchange to offer a decentralised counterpart to its centralised service.
- Added an over the counter block trading desk for high net worth individuals and institutional customers.
- Created CoinbaseCustody, a secure storage service for large volumes of digital assets.
- Bought Earn.com for $120 million, partly for the talent and partly to pick up one of the very few crypto companies that already has a viable and profitable product.
- Formed a venture capital division which put millions into crypto lending and development platform Compound within 12 hours of its creation.
- Acquired other wealth management firms, fundraising companies and a range of tools.
All the while Coinbase has shown signs of being ready to move into the diverse areas where cryptocurrency might take off, such as cross-border payments and tokenised securities, currently held back mostly by regulatory delays which neither it nor Facebook is in a position to accelerate.
Coinbase is spreading its tentacles extremely quickly and changing day by day, and there's no real reason to accept a buyout offer when it could justifiably be valued at much more a week from now. Just as importantly, it's simply not a good time for the kind of disruption a buyout would entail.
More to the point, it's hard to see why Coinbase would accept a buyout. All signs suggest that it doesn't particularly need the money, and if it does there's a lot of untapped fundraising potential from selling equity, which has so far been quite tightly controlled and mostly added to the pot in its acquisitions and given to employees, rather than sold. It's also safe to assume that Coinbase CEO Brian Armstrong is one of the crypto true believers – no one starts a bitcoin company in the year 2012 unless they really believe in the technology – and that he has every reason to believe it still has a lot more room to grow.
A buyout is probably off the table, and a formal partnership might not make a lot of sense either.
Facebook can offer a lot of users, but they're already for sale. That's just Facebook's normal monetisation model. Similarly, Coinbase can offer crypto-related merchant services, Messenger money transfers and similar, but that's just what it does, too.
There are naturally no guarantees, but it's probably safe to assume that the rumours of a Facebook-Coinbase partnership or buyout will never eventuate.
Disclosure: At the time of writing the author holds ETH, IOTA, ICX, VET, XLM, BTC, NANO
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