Federal Reserve Chair Jerome Powell met Coinbase CEO Brian Armstrong on May 11 and crypto backer Christopher Giancarlo the next day, according to an entry in his monthly calendar.
Powell’s schedule showed his in-person meeting with Armstrong, which included former House Speaker Paul Ryan, lasted 30 minutes. The crypto market saw wild trading activity around that time, with bitcoin’s price reaching its highest volatility in a year in May.
Armstrong published a Twitter thread on May 15 about his meetings with politicians and agency heads, saying the “goal was to establish relationships and help answer questions about crypto.” He indicated assistance on providing more regulatory clarity on the space as part of the newly formed Crypto Council for Innovation led by Coinbase, Square, Fidelity Investments, and Paradigm.
Coinbase is the largest US crypto exchange with about 56 million registered users that processes $335 billion in trading volume per quarter. It became the first such exchange to go public in April, trading under the ticker symbol “COIN” on the Nasdaq.
A separate virtual meeting with Giancarlo, who was dubbed “Crypto Dad” while serving as chairman of the Commodity Futures Trading Commission, took place on May 12. His chairmanship overlapped with new markets for bitcoin futures, according to Bloomberg. That meeting, marked as a discussion on the “Digital Dollar Project,” also lasted 30 minutes.
Powell is overseeing the Fed’s exploration of a digital version of the dollar that would be controlled by the central bank. The Fed plans to publish a paper this summer that will lay out the risks and opportunities associated with issuing a central bank digital currency (CBDC).
“We think it is important that any potential CBDC could serve as a complement to, and not a replacement of, cash and current private-sector digital forms of the dollar, such as deposits at commercial banks,” Powell said in a statement in May.
Olaf Carlson-Wee, the founder of a cryptocurrency hedge fund, was the first employee at the biggest US bitcoin exchange, Coinbase.
After graduating from New York’s Vassar College with an undergraduate degree in Sociology, Carlson-Wee decided to send an “annoyingly long” cold email to Coinbase’s founders.
He detailed his hiring experience in a 2016 interview with startup accelerator, Y Combinator.
As one of Coinbase’s earliest users, Carlson-Wee grew determined to work with the company. He sent his roughly 90-page undergraduate thesis on “Bitcoin and the larger implications of open source finance” to the founders, hoping to land an interview.
“I literally cold emailed jobs@coinbase and said, ‘I love bitcoin. Here’s my thesis. I’ll do any job’,” he said.
About five minutes after his email, Carlson-Wee heard back from one of the cofounders, Fred Ehrsam, who asked if they could hop on a Skype call.
They chatted for about 20 minutes, and the crypto enthusiast was asked to come prepared with two presentations at an in-person interview in San Francisco.
“The first should explain something complicated you know very well. The second should outline your vision for Coinbase,” Carlson-Wee said he was told.
He said his first presentation was on the pharmacological induction of lucid dreams and the second was on his high-level strategy for Coinbase with a focus on security.
“My strategy was to clean up PR problems, but focus 100% on security. Bad customer experiences will eventually be forgotten, but a security incident will not be forgotten.”
He was then asked to tackle a “really brutal mathematics problem” while Ehrsam went to talk over the hiring decision with the second cofounder, Brian Armstrong.
Carlson-Wee said he figured out the problem way faster than he would have expected. He was then grilled by Armstrong for another hour with questions like “What do you wanna do with your life?,” “What drives you as a person?,” and “What’s a belief you have that is extremely unpopular?”
Four days later, he was asked to work a two-week paid trial in customer support and eventually landed a formal job offer. “I did customer support by myself until we had 250,000 users. It was a marathon. It was like 12-hour days of fast replying,” he said.
During his three-year stint at Coinbase, Carlson-Wee’s $50,000 starting salary was paid entirely in bitcoin, according to the Wall Street Journal. It is unclear how much bitcoin he currently owns.
He now runs his own crypto hedge fund called Polychain Capital, managing assets worth more than $300 million, that has secured investments from Coinbase’s Ehrsam and venture capitalists like Sequoia Capital and Founders Fund.
Coinbase CEO Brian Armstrong said on Wednesday that the company will diversify its revenue stream away from transaction fees over the next five to 10 years.
According to a company filing, 96% of the company’s sales in 2020 came from fees it charged users. He anticipates that will decline to around 50% as new revenue streams like credit cards and staking services grow. Armstrong also said users can expect fee compression over the long term.
“We’ve started to monetize a number of things,” he told CNBC in an interview on Wednesday, detailing a number of examples. “And my guess is that in five or 10 years, you’ll see them being maybe even 50% or more of our revenue.”
Currently, Coinbase is the largest cryptocurrency exchange in the US, and offers a wide variety of products including custodial accounts for institutions, digital wallets for retail investors, as well as its own US dollar stablecoin.
In 2019, the professional platform of Coinbase updated its fee structure by increasing some maker fees as high as 233%, as reported by CoinTelegraph. Coinbase then amassed $1.1 billion in direct revenue following this change in 2020, more than double the $482 million revenue it made in 2019.
Coinbase is going public via direct listing on the Nasdaq on Wednesday, viewed by many cryptocurrency bulls as a milestone for the digital currency ecosystem.
“Coinbase’s listing is for crypto what Google’s IPO was for the internet,” Antoni Trenchev, co-founder and managing partner of Nexo, a regulated financial institution for digital assets with over $12 billion in assets under management, told Insider. “Just over 15 years on, it’s hard to imagine life pre-Google.”
In 2020, Armstrong took home $56 million of stock option awards on top of a $1 million salary and another $1.8 million in reimbursement for legal and security fees, according to registration documents.
Like peers including Elon Musk, the most well-payed CEO in the world in recent years, Armstrong’s pay day isn’t a shoe-in. He’ll need to shepherd the company through a choppy cryptocurrency market, and hit certain milestones along the way. What’s more, his 9.3 million option grant doesn’t even begin vesting until Coinbase’s stock price hits $200 – up from a “fair value” award price of $23.49.
“We believe the performance conditions associated with the 2020 CEO Performance Award are extremely rigorous and appropriately align Mr. Armstrong’s incentives with the interests of our stockholders,” Coinbase said in its filing. His options fully vest at a roughly 1,600% price increase.
Coinbase is set to hit public exchanges within weeks, when outside investors for the first time will value shares of the company. Luckily for Armstrong, the required price increases could be near: Axios reported in February that Coinbase sold several tranches of stock totaling 1.8 million shares, going for as high as $303 each – a nearly 1200% increase from the option strike price.
As traders await first trades, bitcoin has continued to spike higher. The world’s largest cryptocurrency surged as high as $57,000 last month before paring some of gains in recent weeks. A survey by Goldman Sachs found the bank’s clients to be largely optimistic about the currency’s future price, with 22% expecting it to double in the next year.
The company’s filing documents contain a letter from founder and CEO Brian Armstrong. In the letter, Armstrong said the cryptocurrency market had the potential to upend the current financial system, which he described as “rife with high fees, delays, unequal access, and barriers to innovation.”
He also celebrated cryptocurrency gaining more mainstream appeal. “People are using cryptocurrency to earn, spend, save, stake, borrow, lend, vote, and perform many other types of economic activity,” Armstrong wrote. A recent report from Crypto.com estimated more than 100 million people are now using cryptocurrencies.
“Coinbase is building the infrastructure to power the cryptoeconomy, helping bring the benefits of this new technology to the world,” Armstrong said.
Here is the full text of the letter:
Coinbase is a company with an ambitious vision: to create more economic freedom for every person and business. Everyone deserves access to financial services that can help empower them to create a better life for themselves and their families, but today we are a long way from this vision.
The current financial system is rife with high fees, delays, unequal access, and barriers to innovation. In many countries, citizens don’t have access to sound money, a functioning credit system, or even basic property rights. If the world economy ran on a common set of standards, that could not be manipulated by any company or country, the world would be a more fair and free place, and human progress would accelerate.
When I first read the Bitcoin whitepaper back in 2010, I realized this computer science breakthrough might be the key to unlock this vision of the future. Every payment could be as fast, cheap, and global as sending an email. Cryptocurrency could provide the core tenets of economic freedom to anyone: property rights, sound money, free trade, and the ability to work how and where they want. Economic freedom is a necessary, if not sufficient, condition for human progress. Societies with greater economic freedom have higher life expectancy and GDP growth, less war and corruption, better treatment of the environment, and higher income of the poorest 10% of people in society. Higher economic freedom correlates with the kind of societies that we all aspire to create. Our job at Coinbase is to help make this future a reality.
What started with Bitcoin has spawned an entire industry with countless different blockchains and tokens. We now have stablecoins, privacy coins, security tokens, reward tokens, governance tokens, and smart contracts. We’re seeing the digitization of all types of value in a new economy that we call the cryptoeconomy.
Trading and speculation were the first major use cases to take off in cryptocurrency, just like people rushed to buy domain names in the early days of the internet. But we’re now seeing cryptocurrency evolve into something much more important. People are using cryptocurrency to earn, spend, save, stake, borrow, lend, vote, and perform many other types of economic activity. Companies are being funded, getting early customers, and will eventually go public, all on the blockchain. The cryptoeconomy is just getting started. It is not intended to replace the traditional economy, but instead be a complement to it, much like email was to paper mail. The cryptoeconomy offers a more global, free, and fair alternative to traditional economies that is native to the internet.
A Safe, Trusted, and Easy-to-Use Platform
Coinbase is building the infrastructure to power the cryptoeconomy, helping bring the benefits of this new technology to the world. Today, you could think of our products as a safe and easy-to-use platform to buy, sell, store, save, spend, and use cryptocurrency. But for many of our customers, they simply think of us as their primary financial account in the cryptoeconomy. Coinbase is building a portfolio of different products and services that connect to this primary financial account, and we’re enabling third party products and services to be connected as well. We seek to make all of our products and services the most trusted and easiest to use in the industry.
Trust is critical when it comes to storing money. From the early days, we decided to focus on compliance, reaching out to regulators proactively to be an educational resource, and pursuing Licenses even before they were needed. We invested heavily in cybersecurity, built novel key storage mechanisms, and obtained a cybercrime insurance policy. We even developed ways for customers to custody their own cryptocurrency safely, so they didn’t need to trust us at all. Most importantly, we built a culture that doesn’t take shortcuts or try to make a quick buck.
Ease of use is our other major area of focus. Cryptocurrency is still much too difficult to use for the average person. In the same way that people can access the internet without understanding how TCP/IP works, or turn on a Light switch without understanding how electricity works, they need to be able to use cryptocurrency without understanding the underlying complexity. We accomplish this by continually finding ways to simplify our products and pushing for new standards in the industry that improve usability.
Trust and ease of use will be as relevant in ten years as they are today, and our work here will never be done. We may not always move the fastest, or offer the Lowest prices, but if we accomplish our goal of being the most trusted and easiest to use, customers will continue to choose our products and services now and in the future.
Building for the Long Term
It is the very early days of this industry, and Coinbase has always taken a Long-term view. We are squarely focused on delivering the best crypto experience to our customers. Today, we are investing in growth because we believe that scale is critical to achieving the potential of our business model.
You can expect volatility in our financials, given the price cycles of the cryptocurrency industry. This doesn’t faze us, because we’ve always taken a long-term perspective on crypto adoption. We may earn a profit when revenues are high, and we may Lose money when revenues are Low, but our goal is to roughly operate the company at break even, smoothed out over time, for the time being. We are Looking for Long-term investors who believe in our mission and will hold through price cycles.
Our goal is to build a portfolio of products and services with efficient capital allocation and to demonstrate repeatable innovation. We have done this before, taking the profits from our early products and services and reinvesting them into new products and services that we believe help accelerate our vision of the future. We will continue to make investments in new products and services when we see a sufficient probability of gaining market Leadership. Some of these investments will pay off, others will not. We will measure our products and services and the effectiveness of our investments analytically, and shut down products and services that do not provide expected returns. We will Learn from our successes and mistakes, and use those learnings to inform our decision making in the future. We hope this perspective will make us more profitable in the Long run as we see the full scale of this industry unfold.