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Will 56 Million Coinbase users boost the $2.07 Trillion crypto market cap?
This article dives into the adoption of crypto, its tremendous growth speed of users, relationship with social media mechanisms, regulations, and the future of finance.
During this current month of April, Google finance added a category dedicated to digital currencies as one of its placements, specifically Bitcoin, Ethereum, Litecoin, and Bitcoin Cash. Recently, Visa has partnered with the exchange Crypto.com to provide crypto credit cards.
These are clear indications of the rise in the adoption of Crypto. But how can decentralized assets become so popular amongst small investors and big financial players worldwide?
This piece seeks to illustrate the forces in motion in the vast market of Crypto assets: the upsurge of information demand regarding Crypto, the role of Mass Media and Social Media in enhancing this demand, and lastly, a look at potential upcoming regulations and the future of finance (DeFi).
Let’s dive right in
Bitcoin was born in 2009 as a reaction to the 2008 financial collapse. Satoshi Nakamoto, a mysterious unknown person or group, wrote the Whitepaper “Bitcoin: A Peer-to-Peer Electronic Cash System” and mined the first-ever block Bitcoins, known as the Genesis Block. Nakamoto proposed an electronic payment system based on cryptographic proof instead of trust, allowing two parties to transact directly, eliminating the need for a trusted third party.
Bitcoin & Altcoins
Bitcoin and Ethereum are the hottest names in the crypto space right now. According to Investopedia, Altcoins refers to any coins other than Bitcoin, which was the first cryptocurrency ever launched on an open blockchain protocol. If we visualize the blockchain as the universe, every blockchain protocol is a planet on its own. Bitcoin serves the purpose of peer-to-peer transactions and store of value.
On the other hand, Ethereum is a technology that is not exclusive to payments or storing value, but it harbors digital money, payments, and applications (smart contracts). Investopedia states that Altcoins have evolved to include different kinds such as mining-based cryptocurrencies, stablecoins, security tokens, and utility tokens.
Bitcoin & Ethereum roller-coaster rides
The chart below, made by Statista, displays Bitcoin´s price from October 13 to April 2021, illustrating the surge in mainstream adoption of the number one cryptocurrency, shifting from a marginalized asset accused of serving criminals to becoming a highly sought-after digital asset for retail and institutional investors alike.
Source: Statista
Ethereum
Source: Statista
As of this writing, Ethereum has a market cap of $253,252,543,769. Anticipating its “Serenity” upgrade improves the speed, efficiency, and scalability of the network, making it cheaper to send Ethereum tokens, and interact with smart contracts.
But what is causing this vast increase?
Source: Clovr
Media Coverage
According to a study by blockchain-oriented firm Clovr, after analyzing 7,527 online news articles from 48 mainstream, the graph above showcases how Media coverage of Crypto spikes when the market drops off U.S.-based and international media outlets covering cryptocurrency from Jan.1, 2013, to July 31, 2018.
The fluctuation of currency prices for cryptocurrencies relies on people’s perceptions and opinions, not institutional money regulation, which means that people´s behavior and mentality directly impact speculative prices. In contrast, Media Coverage impacts people’s perceptions.
Mainstream Media Coverage of Cryptocurrencies commonly displays headlines about huge fraud cases, money laundering, and all sorts of crimes. The perceived image of lawlessness associated with Bitcoin and the Dark Web has stuck, and it is often depicted as a means that allows criminals to launder money.
But the negative sentiment regarding crypto is shifting towards a more positive tone as criminal narratives are gradually demystified and more institutional investors adopt them. For example, The United Nations has determined that the amount of laundered money globally ascends to 2%-5% of the global GDP. Most of it happens with FIAT money, not Bitcoinor cryptocurrencies.
More recently, a paper commissioned by the newly formed lobbying group Crypto Council for Innovation (whose founding members include Coinbase, Fidelity Digital Assets, and Square) supports this conclusion. The overall media’s appetite for Crypto news keeps growing as financial institutions and technology companies make cryptocurrencies more commonplace.
Higher demand in understanding the crypto space
There is an increasing demand in understanding the crypto space at the institutional and retail level of investment, showing a symbiosis between the demand for information on crypto and the number of people engaging in the industry. The more institutional and retail investors come aboard, the larger the need to understand this space, and COHERRA is aware of this fact.
There is a rapid rise in fund structures being established under regulated entities that exclusively invest in crypto. This exposure of crypto to investors ( retail and institutional alike) creates a demand for understanding the crypto space on behalf of the asset managers. COHERRA aggregates financial media and distributes it with precision to keep its customers engaged by offering investors the opportunity to visually explore funds’ performance and learn about them through personalized and relevant videos.
According to insights provided by Forbes, more than half of senior executives share videos with colleagues at least weekly and receive work-related videos as often. Today, the cryptocurrency market cap is $2 trillion, and video has become the primary learning tool to learn from markets, with billions of daily hits on YouTube proving this.
Moreover, conforming to studies in Interaction of media, cognition, and learning, video enhances understanding of complex concepts and supports the acquisition of new ones among learners with limited prior knowledge.
Source: Paper by Michael Morell
Social Media
According to a Pew Research Center survey, overall, 72% of U.S. adults say social media companies have too much power and influence in politics today. The rise of Social Media has boosted crypto adoption in various ways, such as enhancing the celebrity of tech-personalities who embrace cryptocurrencies and challenging central banks.
One of the most popular tech celebrities to embrace Bitcoin is Elon Musk, most recently known for hyping the price of Bitcoin and the Altcoin DOGE. In June 2019, Facebook CEO Mark Zuckerberg announced Libra, a new cryptocurrency that will allow people to send money all over the world at very low fees. Libra is a cryptocurrency because there is no central bank backing it, but it is far from the core idea of decentralization.
In contrast to bitcoin, Libra is a permissioned blockchain, meaning that only trusted entities can keep track of the ledger, and it will be under the control of Facebook. This company has amassed 2.80 billion users.
Facebook underwent massive scrutiny by regulators worldwide, and Libra has not been launched yet. Nonetheless, it inspired central banks to look into digital currencies and develop their CDBCs (Central Digital Bank Currencies). The creation of CBDCs showcases once more the powerful influence that Social Media has on macroeconomic events.
In February this year, ‘Buy crypto’ and similar Google searches hit record high. Based on an article by Cointelegraph, Google search trends are sometimes correlated with movements in the overall cryptocurrency market.
Source: Cointelegraph
The same article also points to the clear rise of crypto on Social Media. For example, on Twitter, aggregate tweet volumes concerning cryptocurrency reached 3.3 million in January, and the aggregate tweet volume was 181% higher than a year earlier.
Source: Cointelegraph
“A rising tide raises all boats” John F. Kennedy.
The rise of Coinbase
Digital blockchain networks and the surge in crypto users appear to be following Metcalfe’s Law, which identifies that the value of a network is proportional to the square of the number of its nodes or end-users.
The total value of crypto assets on Coinbase accounts for 11.3% of the entire crypto market capitalization. Last week, Coinbase Global Inc., the largest U.S. cryptocurrency exchange, started trading its shares on the Nasdaq following a direct listing.
Coinbase started in June 2012 with Brian Armstrong, a former Airbnb engineer, and today the crypto exchange has 56 million registered users and processes a trading volume of $335 billion per quarter.
Among its users, it counts 7,000 institutional customers, including hedge funds, financial institutions, and corporations. Between them, these institutional customers hold $44.8 billion worth of assets on the platform.
Source: Coinbase share of crypto market capitalization since 2018 (backlinko chart)
Main assets on Coinbase
Based upon Coinbase data, Bitcoin and Ethereum represent 83% of all assets on the Coinbase platform, and other supported crypto assets account for a 13% share while Fiat only represents 4%.
Source: Coinbase Sec Filings (backlinko chart)
Total revenue of Coinbase
Conforming to Reuters, in the first three months of 2021, Coinbase has already created gains of $1.8 billion, surpassing last year’s annual total. As shown below, transaction fees represent the vast majority (85.94%) of Coinbase revenue, and in 2020 it generated $1.28 billion in revenue. That represents a 139.82% increase over the previous year.
Source: Reuters (backlinko chart)
Coinbase retail trading volume
Based on a data metrics study by Earnest Research, the average Coinbase deposit size stood at $529 in February 2021. Coinbase processed $32 billion worth of trades from retail customers in the final three months of 2020. That accounts for a 35.95% share of the total trading volume on the platform, with the remaining activity coming from institutional investors.
Source: Coinbase SEC Filings (backlinko chart)
Coinbase institutional trading volume
Institutional traders on Coinbase accounted for a trading volume of $57 billion in Q4 2020, which represents a 64.05% share of total trades.
Source: Coinbase SEC Filings(backlinko chart)
Coinbase and its Nasdaq debut
According to New York Times, Coinbase began trading On Wednesday afternoon at $381 a share, a 52 percent increase over a $250 reference price set by Nasdaq on Tuesday.
It ended the day at $328.28, valuing the company at $85.7 billion, counting all of its outstanding shares — more than ten times its last valuation as a private company.
Source: New York Times
The team behind Coinbase is making history with its IPO as the first cryptocurrency exchange to debut on the Nasdaq, and its debut performance clearly shows that investors are hungry for digital assets. The price of Coinbase is likely to inform the value of numerous other cryptocurrency companies, proving John F. Kennedy’s famous expression that a rising tide raises all boats. But as this rising tide goes more mainstream, more competitors emerge, such as Binance.
Competitors to Coinbase
Binance is Coinbase´s largest competitor as the world’s largest exchange of crypto by volume, according to Coingecko.Binance was founded in 2017 and today consists of teams spread across 12 different locations, including California, Paris, Singapore, and London. As stated by Finance Magnates, last year, in December 2020, the company reported a $3.88 billion average trading volume up by 36% compared to the previous year.
Another milestone reported by Binance last year was the all-time high of $15 billion spot trading volume within 24 hours. Binance created its token (BNB), and investors in the token are essentially betting on its supply and demand, which translates to a bet on the success of the overall Binance ecosystem.
Source: Coingecko
The Binance Smart Chain
Binance successfully competes with Coinbase and has also taken a business move to compete with the Ethereum blockchain. The Binance Smart Chain (BSC) is a less decentralized public blockchain, and it has cheaper transaction fees than Ethereum (around 35 times cheaper). Conforming to DappRadar’s 2021 Q1 overview report, BSC had overtaken Ethereum, challenging popular DeFi projects on Ethereum, including Uniswap and Compound.
Source: DappRadar
New people entering the crypto space
According to a recent report by Binance Research, over 100 million people are now crypto users. By combining the number of active users in some of the most popular exchanges (Coinbase, Binance, Kraken, and Gemini), we reach almost 50 million.
New people equals new investors, hungry for news, information, and education regarding the crypto space to make better-informed decisions. Based on numbers provided by CoinMarketCap, the total crypto market volume over the last twenty-four hours is $187.85B. The total volume in DeFi is currently $17.52B, 9.33% of the total crypto market 24-hour volume, and the volume of all stable coins is now $150.36B, which is 80.04% of the total crypto market 24-hour volume. The Social Media network Reddit boasts an estimate of at least 12 million users actively engagingin Reddit Communities dedicated to Crypto. This estimate grows as crypto adoption increases, and it is worth highlighting since there are currently more than 2.2 million subreddits.
More specifically, Bitcoin´s subreddit alone has 2.700.000 members, while Ethereum´s has 1.200.000, DOGE boasts 1.500.000 users, and Cardano has 345.000. Currently, at 47.87 million mobile US users, Reddit is ahead of popular messaging apps like Snapchat and WhatsApp, with an audience particularly passionate about consumer technology when compared to other Social Media platforms.
Source: Altcoin Daily
Reddit is so influential in the crypto market that an academic study shows that not only are the Reddit-derived features correlated with price changes, but they contain information that improves market predictions.
Source: Comscore
Wall Street´s growing acceptance of crypto
In 2018 The Intercontinental Exchange (ICE), owner of the New York Stock Exchange (NYSE), listedphysically settled Bitcoin futures contracts and started a new company whose mission is to make Bitcoin a common financial asset.
During November 2020, the Asset Manager Grayscale topped 500 k BTC in the number of units held, making GBTC the single most popular financialized version of Bitcoin.
Recently, strong financial players such as Morgan Stanley, Goldman Sachs, and Black Rock are driving an institutional surge in digital assets, announcing they will offer Bitcoin funds to their institutional clients.
Morgan Stanley went ahead of Goldman Sachs and the rest of the banks when in early March 2021, it became the first U.S. big bank to offer its wealthy clients access to Bitcoin funds.
As stated in their memo of March 2021, Goldman Sachs will offer Bitcoin to Wealth Management Clients by partnering with the Firmwide Digital Assets Group. Black Rock is also adopting crypto as the biggest asset manager globally, with a wallet of $ 7.81 trillion under management.
On its SEC listing Blackrock specifies to only invest in bitcoin futures in which the funds are cash-settled bitcoin futures traded on commodity exchanges registered with the CFTC.
The launch of bitcoin futures is another step toward establishing digital currency as a legitimate asset class. In 2017 Bitcoin debuted on the world´s largest futures exchange in the CME bitcoin futures contract launch. The two kinds of futures contract, CBOE, and CME differ from how much bitcoin value they represent.
The CBOE contract represents one bitcoin, while a CME contract represents five bitcoins. As of this writing, Nasdaq and Cantor Fitzgerald are also planning their Bitcoin derivatives contracts. During November 2020, the Asset Manager Grayscale topped 500 k BTC in the number of units held, making GBTC the single most popular financialized version of Bitcoin.
More players join the ride
Moving away from the big banks and into the retailer market, Tesla jumped on the crypto wagon with a purchase of $ 1.5 billion in Bitcoin, as stated in a filing with the SEC (Securities and Exchange Commission).
Tesla is the first big automaker to receive Bitcoin as payment for its cars. This move happened after Elon Musk hyped the purchase of Bitcoin in January 2021 by adding the hashtag #bitcoin to his Twitter bio, causing a surge of 20% on the digital asset.
Well-established payment companies such as VISA and Mastercard are also plowing to crypto. VISA has launched a Bitcoin and crypto APIs pilot program, developed to help their customers purchase, custody, and trade digital assets. Recently, VISA has also
announced it would allow Payment Settlements Using Cryptocurrency.
On the other hand, Mastercard has announced that it will begin to facilitate crypto transactions for its clients in 2021. PayPal also jumps in and launches Crypto-Checkout Service, sending yet another clear signal of mainstream crypto adoption.
MicroStrategy, a business intelligence software company, has filed to the SEC the expenditure of approximately $2.186 billion to acquire 90,859 Bitcoin. The value of these Bitcoin now tops $4.4 billion, which means CEO Michael Saylor and his company have doubled their investment in less than a year.
Mainstream crypto adoption calls for regulation
Regulations for crypto are right around the corner. As Cardano´s CEO Charles Hoskinson explains, there are bad actors in the crypto ecosystem, and the need for regulations is not unprovoked. Lawmakers in the U.S. and The European Union are considering legislation to address cryptocurrencies. According to a Nasdaq article, currently, in the U.S., a bipartisan group reportedly supports a proposed bill from Republican Senator Rob Portman to prevent U.S. citizens from evading taxes on their crypto earnings. Tackling tax evasion on crypto earnings would help fill the tax gap, which has grown from roughly $400 billion in 2013 to a reported $1 trillion this year.
This bill marks the first step in opening up the dialogue between regulators and market participants to reach the clarity needed for the industry to flourish. The Securities and Exchange Commission and the Commodity Futures Trading Commission will establish a working group focused on digital assets.
The prospects for a positive outlook in cryptocurrency regulations in the U.S are good after the appointment of Gary Gensler as SEC Chair. Gensler is a former investment banker and academic who has taught courses on blockchain at the Massachusetts Institute of Technology (MIT) and understands the industry’s positive potential and the need for more clarity to facilitate its development.
In Europe, on September 24th, 2020, the EU Commission published a proposal for the regulation of crypto assets: the “Markets in Crypto-Assets Regulation” (MiCA). By implementing clear-cut rules and long-term legal certainty, the EU could attract crypto talent, companies, and investments from all over the world.
On the other hand, there is concern that parts of the regulation might impose constraints on businesses and end various innovative crypto use cases in the EU. As of this writing, the EU is preparing to launch a Blockchain Regulatory Sandbox by 2022 that will lay the foundations for a more comprehensive crypto regulation by 2024 in a push to expand the adoption of digital payments while aiming for immediate transaction times.
Asia and crypto innovation
Based on a Geographic Analysis in Cryptocurrency Adoption, Usage and Regulation, we can observe that Asian markets and innovations are more focused on blockchain technology and crypto-asset utilization than their counterparts in the West. According to Chain Analysis, Asian exchanges are trading at a frequency of almost four times higher than North American exchanges.
One of the reasons behind Asia´s faster adoption of blockchain technology and crypto might be that the population is more comfortable conducting nearly all aspects of everyday life on their phones in this region than those living in the Western World.
Thus, creating the opportunity for a faster, more widespread adoption of cryptocurrencies and other crypto asset utilization since the culture has already adopted the digital technology that it offers. This contrasts with the Western World, where cash is still the preferred method for in-person transactions for Americans and most European countries.
Source: Statista
Asia profiles itself as the center stage for crypto innovation. For example, based on a Nasdaq article, in South Korea, over 30% of convenience stores accept crypto already, and 31% of all global cryptocurrency transactions from mid-2019 to mid-2020 occurred in East Asia, totaling $107 billion — 77% more than Europe.
DeFi: the future of crypto and finance?
The DeFi market has hit the $20 billion total value locked (TVL), according to DeFi Pulse, and this is only expected to increase throughout the coming years. DeFi (Decentralized Finance) is based on blockchain technology.
It enables a peer-to-peer financial network where financial services such as trading, lending, investment, wealth management, payment, and insurance are decentralized through trustless and transparent protocols that run without intermediaries.
Source:Alphapoint.com (Overview of the DeFi landscape)
With DeFi, users can bank themselves without having to ask for permission or undergo lengthy KYC processes. Most DeFi projects run on the Ethereum network, and Ethereum differentiates itself from Bitcoin because it has multiple purposes.
So far, DeFi applications have taken different shapes, including innovative cryptocurrency trading algorithms, derivatives trading, margin trading, money transfers, and most importantly, lending markets.
Conclusion
Crypto is exponentially growing as an asset class, and Crypto asset trading volume is on the rise as well. As the adoption of crypto becomes more commonplace, and exchanges like Coinbase and Binance soar in explosive amounts of new users, the need for understanding digital assets will also increase, leaving plenty of room for education in this field.
This kind of education and information is relevant for both retail and institutional investors. On the other hand, the value of Bitcoin and Ethereum is only expected to accelerate as more institutions and merchants inevitably adopt them. For example, some experts in the field, such as the Winklevoss twins behind Gemini, claim that Bitcoin will soar 500 k and surpass gold as a store of value.
Decentralization and blockchain technology are challenging big banks, businesses, and regulators alike. Ultimately, the convergence of all these events sends a clear signal: the days of simply going to the bank for regular people and the days of only managing traditional funds for asset managers are soon coming to an end. Crypto and powerful financial products brought by DeFi are here to stay and fit right into our pockets.
