The dust has finally settled on Coinbase’s long-awaited direct listing. After a day of drama that saw its share price veer wildly from $310 to $429 at its peak, crypto’s top exchange ended up valued at a little under $86 billion.
Not bad — Coinbase is not even 10 years old.
In fact, at the end of trade on Wednesday, the crypto-native stock was worth over 10 times its last valuation as a private company in 2018.
But how did Brian Armstrong and Fred Ehrsam’s brainchild become the hottest ticket in crypto in less than a decade?
Well, they bought a little help.
Since its launch, Coinbase has acquired 15 companies, hoovering up expertise, technology, and talent to get where it is today.
Here are some of the most notable purchases in Coinbase’s history.
Kippt was an important acquisition for Coinbase: it was its first one way back in 2014.
Coinbase purchased the two-person content storage and bookmarking startup for an undisclosed sum in what was the first of many talent grabs over the next few years.
Coinbase and Kippt had collaborated previously. Kippt’s designer Karri Saarinen worked on Coinbase’s branding and Jori Lallo helped launch its Bitcoin-centric app platform.
The purchase of New York-based Tagomi in May 2020 was timed perfectly to coincide with the explosion in institutional interest in crypto.
Launched in late 2018, Tagomi is a trading platform geared specifically toward “institutional investors with deep pockets.” It is designed to facilitate large, whale-sized transactions seamlessly and in one place.
The acquisition will be key in helping Coinbase to continue to expand its traditionally retail-focused customer base to serve top clients (funds and wealthy individuals).
A price for the deal wasn’t disclosed but sources claimed it was worth $100-150 million.
Another recent purchase. Coinbase’s acquisition of the trade execution startup in January came as it sought to offer institutional investors an improved suite of brokerage tools.
Tools previously developed by Routefire allowed traders to automatically search multiple sources of liquidity to find the best rates on prices and fees. Now, Coinbase owns those tools.
Italian blockchain intelligence startup Neutrino became part of the Coinbase stable in February 2019. Neutrino maps blockchain networks and crypto token transactions, pulling in information and insight.
Coinbase hoped it would help to “prevent theft of funds from peoples’ accounts, investigate ransomware attacks, and identify bad actors.” But the deal drew heavy criticism.
Three Neutrino execs were outed as former members of Hacking Team — the IT company that sold internet surveillance products and services to oppressive governments with poor human rights records like Saudi Arabia and Venezuela.
Coinbase later pushed out those execs and apologized for the lapse in judgement.
June 2018 saw Coinbase make a play for the burgeoning coin-offerings market with its acquisition of securities dealer Keystone Capital.
Coinbase wanted registered broker-dealer Keystone for its investment adviser licences, which would allow it to market its services to more (you guessed it) institutional businesses.
The deal also opened up the possibility that Coinbase could expand into products tied to stocks or other securities.
Coinbase bought Earn.com and its team — including co-founder and chief exec Balaji Srinivasan — for a rumoured $120 million in April 2018. Srinivasan was subsequently installed as Coinbase’s CTO (although he did last just one year).
Earn.com was originally founded in 2013 as a Bitcoin mining operation called “21 Inc”. But after times got hard, it pivoted to a service that pays users for answering emails and completing tasks.
The acquisition was another talent-focused deal and landing Andreessen Horowitz board member Srinivasan was something of a coup. Until that point, Coinbase had struggled to appoint top talent.
Coinbase went on to shut Earn.com down about a year after the acquisition, changing the name to Coinbase Earn, which rewards users with tokens for watching videos and reading educational materials.
In 2018, Coinbase bought the virtual coin trading platform to shake its reputation as one of the more conservative exchanges,
At the time of the acquisition, the firm offered only a comparatively small number of tokens for trading. However, Paradex’s tech — once tweaked — would allow it to offer customers the opportunity to trade hundreds of tokens.
Today, Coinbase offers 49 tradable cryptocurrencies, a fact often highlighted by critics who fondly remember the company’s Bitcoin-only roots.
Coinbase is hungry — so is it Amazon?
These are only half of Coinbase’s acquisitions. On average, the company has bought around two startups per year over the past seven.
Compare that to internet megalord Amazon. The ecommerce giant acquired or merged with about 20 different companies between 1998 and 2005 (its first seven years), and roughly 50 since 2014.
Amazon has clearly worked to diversify revenue streams. Amazon hosts clouds with AWS, powers streams with Twitch, and capitalizes on retail groceries after acquiring Whole Foods for $13.4 billion in 2017.
Rather than diversify, Coinbase has mostly focused on — for want of a better term — synergy. Aside from the public-facing crypto exchange, Coinbase offers custody and trading services for loaded clients, and it makes sense to improve them by acquiring talent and tech in those areas.
So, while on the surface Coinbase might seem on track to become crypto’s Amazon — destined to swallow competition until Armstrong is the richest on the planet — the comparison isn’t completely airtight.
“One thing people tend to forget when comparing crypto with the internet boom, is that the internet drove disruption in a field that was completely unregulated,” said Amber Ghaddar, co-founder of capital market protocol AllianceBlock.
To Ghaddar, the likes of Amazon wouldn’t have been able to grow and consolidate multiple lines of businesses if they were subject to the same kinds of regulations the crypto industry deals with today.
Coinbase’s market share in doubt as trading fees trend to zero
In any case, if Coinbase were to truly follow in Amazon’s footsteps, Armstrong would continue to buy dozens of crypto and blockchain startups in a near-linear trajectory.
But now that Coinbase is public, the company’s acquisition practices are inevitably tied to its share price, which some say could mimic crypto’s volatility.
Ghaddar told Protos she considers the sustainability of the current euphoria surrounding Coinbase’s valuation questionable and “driven in part by helicopter money.” This makes it unlikely the company will experience a similar path to Amazon.
Instead, Ghaddar says it’s likely competitors such as Binance, Kraken, Gemini, and Bitfinex will seek to drive their fees down to secure higher market share.
This would put Coinbase at further risk of losing its own market share — which is not Amazon’s experience over the past two decades.
In fact, the overt reliance of crypto exchanges on trading fees is a problem the industry is yet to fully grasp. Ghaddar warned the tactic of eroding trading fees as a means of increasing market share is a “genuine long-term risk for crypto.”
“As cryptocurrencies become more integrated with traditional financial markets, where trading fees are between 0.01% and nil in equities, we will see profit dwindle,” said Ghaddar.