Pando

Coinbase wins the race to launch the first regulated US bitcoin exchange

By Michael Carney , written on January 25, 2015

From The News Desk

When it rains, it pours – bitcoin exchanges, that is. Just 72-hours ago, there were no regulated bitcoin exchanges based in the US. Today, we are hours away from having at least one and there are several other high-profile project in the works.

According to a report by the Wall Street Journal, Coinbase will debut a licensed US exchange Monday. The company has obtained licenses to operated in half of the US states, initially, including the major population, finance, and technology hubs of New York and California. Coinbase's founders expressed their plans to serve the rest of the nation as soon as possible and eventually to expand globally.

“Our goal is to become the world’s largest exchange,” CEO Brian Armstrong says.

Coinbase teased an upcoming major announcement with a new page on its website dubbed “Lunar” and featuring a countdown timer that will reach zero at 6:00am PST on Monday. Appropriately, given the associated name, the page also features an illustrated rocket ship racing towards the moon – where there is a Coinbase logoed flag planted – against an animated starry background.

According to a source close to Coinbase, Lunar and the upcoming exchange are, indeed connected. No word yet on whether the exchange will in fact be named lunar, or if that is intended as a metaphor for the “to the moon” predictions of rising prices that the bitcoin community has grown fond of making. 

There are many details that we still do not know about the Coinbase exchange, but the news is already having a meaningful impact on prices. In the approximately two hours since the WSJ article was published, the Coindesk Bitcoin Price Index – which currently sits at $286 – is up nearly 5 percent. This follows a 24-hour period preceding the news in which the index was up 8 percent, and a week in which prices are up 27 percent after bottoming out on January 14 at $177 – a low precipitated in part by a particularly bad news cycle including the hack of a prominent international bitcoin exchange, BitStamp, and the trial of accused Silk Road mastermind, Ross Ulbricht. Bitcoin remains significantly down from its all-time high of $1,120 reached in November 2013.

It was just last week that Coinbase energized the bitcoin world by announcing a record $75 funding round that included participation from the New York Stock Exchange and several large financial institutions. The obvious question on most people’s minds in the wake of that news was, what would be the fruits of these new relationships. Few if anyone believed we’d have an answer to that question so quickly. 

One person who evidently did see this coming – or had inside information – is Bitcoin entrepreneur Charlie Shrem. Shrem, who pleaded guilty to charges of aiding and abetting an unlicensed money transmission related to his bitcoin startup BitInstant, tweeted several hours before the WSJ article hit:

— Charlie Shrem (@CharlieShrem) January 25, 2015 The interesting thing about this is that, to date, Citibank has been in no way officially affiliated with Coinbase. Whether that will change tomorrow with the launch of Lunar (or whatever the upcoming exchange is ultimately named) remains to be seen. Shrem remains highly connected within the cryptocurrency industry (despite his transgressions) suggesting there may be more to come in this regard.

The next obvious question is, if Shrem had a hint that this announcement was coming, how many others did as well? Could that be responsible, at least in part, for the recent run-up in prices? These types of unknowns are exactly why many people are calling for greater regulation of the bitcoin ecosystem, similar to those that govern other securities and financial markets.

Despite these seemingly painful macro drop in prices, many industry leaders continue to argue that the current price, and short-term fluctuations, have little impact on the overall viability and potential impact of bitcoin and the blockchain technology on which it’s built. That said, many weary bitcoin bulls will surely breath a sigh of relief at the Coinbase news and at the resulting rise in prices. That's because, regardless of whether today's price and volatility will matter in the grand scheme of things with the benefit of hindsight, it certainly matters today in the fight to spread adoption among main street consumers and merchants.

The same can be said about the safety and reliability of the key platforms in this ecosystem. For bitcoin to "cross the chasm" it needs reliable institutions that users of all sizes and levels of sophistication can trust. Coinbase, in partnership with the NYSE and other major financial institutions brings a new level of sophistication and credibility to the market – even if many bitcoin idealists will bristle at the centralization and institutionalization.

Coinbase isn’t the only high-profile and well-funded venture making news in the regulated bitcoin exchange market. The Winklevoss twins, of Facebook idea fame, announced their own plan on Friday to launch a similar platform under the name Gemeni. The Winklevoss are believed to be among the largest private holders of bitcoin wealth and are already more than one year into the process of launching a Bitcoin exchange-traded fund, suggesting their commitment to the sector. SecondMarket too is in the process of  launching a similar institutional-focused marketplace.

As I wrote at the time of the Gemini announcement:

In light of the troubled history of Bitcoin exchanges, including the Mt. Gox bankruptcy and recent BitStamp hack, a fully regulated exchange seems like a good idea. If mainstream consumers and large financial institutions are going to fully embrace crypto-currencies, it won’t be through a fly-by-night exchange in a far off country. (For reference, Mt. Gox and BitStamp were based in Japan and Slovenia, respectively.)
Coinbase has raised a total of $106 million in venture capital funding to date and has built perhaps the strongest brand in terms of both awareness and trust anywhere in the bitcoin ecosystem. Add to this the involvement of world class investors like DFJ Growth, Andreessen Horowitz*, Union Square Ventures, Ribbit Capital, and the NYSE, among others, and the company looks as well positioned as anyone to lead bitcoin out of the shadows and into the mainstream.

We will presumably learn more tomorrow about Coinbase’s latest product innovation and its plans for drive this industry forward. For those who view bitcoin as the “internet for money,” and expect the technology to have a similarly transformative impact, this is a bit day indeed.

[*Disclosure: Andreessen Horowitz partners Marc Andreessen, Jeff Jordan, and Chris Dixon are personal investors in PandoDaily.]