After two (and soon three) “generational” market crashes, Joe Sixpack may have lost interest in the stock market (or at least in single names, the transfer of bagholder rights from institutions to retail investors via ETFs is doing just fine), but when it comes to chasing torrid, upward price momentum, US retail investors are doing their best frenzied Chinese housewife impression now that they have discovered the next big bubble thing, and it’s called bitcoin. And nowhere is America’s sudden infatuation with cryptocurrencies such as bitcoin, ethereum, litecoin and all other “coins” which can make (or break) a hedge fund’s annual return in days if not hours, more obvious than on Coinbase, the US bitcoin exchange, which has just hit a remarkable 10 million registered users, all of whom are there for just one thing: to trade, but mostly buy, crypto currencies.
The San Francisco startup has seen tremendous growth in 2017, adding thousands of users per day and handling increasing levels of trading volume. Last month, CEO Brian Armstrong announced that the company had raised $100 million during its latest funding round, giving the company a valuation of $1 billion, making it first “bitcoin unicorn” according to Cryptocoinsnews. A few weeks later, following the latest burst higher in bitcoin, Coinbase has surpassed 10 million registered users. In the last three weeks of August, the bitcoin exchange added an astonishing 800,000 users as the bitcoin price briefly rose above $5,000. According to data from the Coinbase website, the exchange and wallet service has also recently surpassed $20 billion in total volume.
While many bitcoin veterans have panned Coinbase for its simplistic approach to trading (no limit orders, no shorting, etc) and exorbitant fees, some actually enjoy the minimialist, if expensive, experience: one user on reddit, btcltc77, referred to the exchanges as the “McDonald’s of Bitcoin banking.”
Coinbase is still the most mainstream way of buying Bitcoin. It’s the McDonald’s of Bitcoin banking.
That, and the implied safety net from its increasingly bigger venture backing, appears to be working and has made Coinbase the go-to site for millions of armchair cryptocurrency investors.
To be sure, Coinbase has not been without its challenges as it marched toward this impressive goal. Throughout the year, it has been embroiled in an ongoing legal dispute with the IRS over whether it should have to release personal client information to the agency.
It has also struggled to scale its business operations as fast as it has gained users, resulting in multiple outages throughout the year during periods of extreme market volatility, with many clients noting that one can determine if bitcoin is crashing without knowing the price, simply because the exchange is offline.
Moreover, the Consumer Financial Protection Bureau (CFPB) has been flooded with 4,700% more complaints about Coinbase so far in 2017 than it did in all of 2016 (which is understandable in light of the surge in users). More than a third of the grievances have come from users who said they were unable to access their money when promised. Many also complained about other transaction or service problems. Accusations of fraud represented less than 15% of the complaints.
Coinbase, which was founded in 2012, said in June that it’s working to improve customer support. The exchange has grappled with a slew of performance issues, including outages, slow load times and a flash crash in ether, the second most valuable virtual coin.
“Over the past few months, we’ve seen an unprecedented increase in the number of customers signing up to use Coinbase,” wrote the company’s co-founder and CEO, Brian Armstrong, in a June 6 blog post. “As a result, our systems have been pushed to the limit. This has caused many customers to have a negative experience.”
The company has pledged to devote Q3 (not to mention spending some of that brand new $100 million) to focusing on operational excellence, scaling, and an improved customer experience. It probably won’t rush though: since it has a near monopoly on the retail crypto market in the US, as long as bitcoin keeps rising new clients will keep pouring in, no matter how much they complain about the underlying infrastructure.