- Cryptocurrency exchange Coinbase Global prudently stashes away large amount of cash to cater for potential cryptocurrency winter and regulatory expenses
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Prudent move by Coinbase Global may lead to a “lazy” balance sheet, but is in line with cryptocurrency industry experience of periods of feast and famine
Veterans of the cryptocurrency industry recognize the value of saving.
While proponents may outwardly sing the praises and transformative value of decentralization and some may even rue fiat currencies as relics of the past those same cryptocurrency firms that have survived thus far, recognize the value of contingency plans, including shoring up fiat.
Which is why Coinbase Global (+1.58%), America’s only listed cryptocurrency exchange, built up a US$4 billion war chest in its first few months as a publicly traded company in preparation for lean times and regulatory battles.
Given how volatile the cryptocurrency industry tends to be, with feast and famine common, Coinbase Global’s decision to pad up its balance sheet with cash instead of Lambos is to be welcome
Operating in the cryptocurrency space, there are known unknowns and even more unknowable unknowns, which is why maintaining outsized cash reserves, even if this could be seen as an inefficient use of capital, is a more prudent insurance policy.
A recent surge in cryptocurrency trading has buoyed Coinbase’s profits, with the exchange earning US$1.61 billion in the second quarter of this year, compared to US$32 million just a year earlier.
And that massive increase in profits for Coinbase, serves as a reminder of just how quickly the fortunes for companies that ply the cryptocurrency space can change.
Coinbase is also becoming increasingly savvy, taking advantage of both an increase in interest in cryptocurrencies against a backdrop of declining interest rates to raise a further US$1.4 billion by selling debt.
With U.S. Securities and Exchange Commission Chairman Gary Gensler stating this month that he intends to regulate cryptocurrency trading and lending platforms to the maximum extent possible, Coinbase is in a unique position to ride that wave of regulation as it has from day one.
Unlike other cryptocurrency exchanges like Binance, which opted to embody the decentralized ethos and go regulation-lite, that helped it in its breakneck growth, Coinbase elected to work with regulators, proactively choosing compliance over growth.
And that approach by Coinbase may have ultimately proved prescient as Binance rushes to become regulatorily compliant in as many jurisdictions as possible.
