When Main Street investors want to buy and sell Bitcoin, they usually go to Coinbase.
The app lets users trade and store digital currencies, including Bitcoin, Ether and Litecoin, simply by linking their bank account or credit or debit card. It's given the average retail investor a chance to become a part of the cryptocurrency action, of which there has been plenty of, particularly in the last few weeks.
Bitcoin was trading at $8,000 just one month ago and has since surged to more than $17,000, according to Coindesk. Other digital currencies such as Ethereum, Litecoin and Ripple have enjoyed similar gains, but Bitcoin's stunning rise has been at the center of the crypto frenzy. Bitcoin's market capitalization now stands at more than $300 billion, dwarfing that of the dozens of other cryptocurrencies out there.
Coinbase has become the leading U.S. platform for buying and selling Bitcoin, with more than 13.3 million users on the app, up from just 5.5 million in January. That's more users than the brokerage giant Charles Schwab (SCHW) , which had 10.6 million active brokerage accounts in October. Coinbase has struggled to keep up with the app's growth, however, with the company recently doubling its staff but still experiencing several recent outages as the Bitcoin frenzy continues. Moreover, on Tuesday, the company announced it was investigating whether employees or contractors may have traded on insider information associated with its new listing of Bitcoin Cash.
The San Francisco-based firm, founded in 2012, has been one of the most visible beneficiaries of the cryptocurrency craze. More than $57 billion of digital currency has traded on the platform in 2017. Earlier this year, Coinbase became the first blockchain-related company to become a "unicorn," having been assigned a $1.6 billion valuation. It's also eyeing an initial public offering in the future.
With plans to open an office in New York City, Coinbase has signaled that it's also looking to court Wall Street investors. TheStreet spoke with Coinbase vice president Adam White, who also heads the company's professional trading platform, known as GDAX, to talk about how it's dealing with Bitcoin mania. Below is a condensed version of the conversation, which has been lightly edited for length and clarity.
TheStreet: So much attention has been given to Bitcoin, particularly over the past few months or so as the price has skyrocketed. How have you dealt with the huge surge in activity on Coinbase?
White: We have teams here working around the clock to ensure that our platform stays up and available. What's so unique about this space is that it trades 24 hours a day, seven days a week, 365 days of the year. It's not like equity derivative markets or foreign exchange derivative markets, which are kind of 24/7, 5 days a week. This is the only market that to my knowledge trades every single minute of the day.
That means we have to be really responsive and capable in our development of this platform. That being said, there's been times when we went offline and we need to do better than that. We're hiring very aggressively and pausing new feature development until we can have very stable performance on our platform, so that our customers can access funds and trade even in periods of heightened activity.
Last week, we were happy to see that GDAX for one day was the most liquid exchange in the world. It's a testament to the fact that we've really invested in the stability of our platform and are committed to expanding to new areas for our digital currency to trade. It's not the finish line -- these are very early days of this asset class to begin to trade.
TheStreet: To that end, how have things changed at Coinbase in the last year? And what does 2018 look like for Coinbase?
White: We think digital currency is having its 'Netscape Navigator' moment. As people are finding a portal into this new technology, Coinbase is acting as the Netscape Navigator. What that means is that we're investing in our app. We've barely scratched the surface of mainstream adoption of this technology.
We're scaling our company aggressively and opening an office in New York City focused around GDAX. We're also growing our Coinbase team out in NYC as well. We've realized that our customer demand is far exceeding our internal resources to meet those expectations.
TheStreet: You've been coming out to New York City to meet with financial institutions about Bitcoin and cryptocurrency. What has changed and what do you make of claims that NYC might become the 'crypto capital?'
White: I feel like I'm an honorary New York City resident by now, since I've visited so much. [NYC is] where I think some of the most incredible growth can happen in the crypto space over the years. Many in the institutional space were wary of open blockchain and instead embraced Digital Asset Holdings or closed blockchains. We had many competitors who pivoted and changed their company's name to embrace blockchain. [Coinbase CEO Brian Armstrong] showed great foresight and said no, it's open blockchain like Bitcoin and Ether that are going to change the way currency moves.
Part of that has meant that we've seen institutions pick their heads up and say this open blockchain has a lot of value. They're looking at it like an asset class. Because Bitcoin has no correlation to other assets and it has a superior Sharpe Ratio, in many ways it's not like a commodity or security. It really marches to the beat of its own drum. So institutional investors are watching a very liquid market emerge and they're saying they can make markets in that asset class just like any other market.
TheStreet: Do you think the creation of Bitcoin futures exchanges has given it and other cryptocurrencies some legitimacy? How are you working with regulators?
White: I think the futures are absolutely a maturation of this asset class. We're finding these crypto derivatives are making the currency even more available to institutional investors. What you have right now is this kind of fragmented, incongruent regulatory approach that does [raise some] cautions. As they come up to speed, we're working with them. We're seeing the Commodity Futures Trading Commission show some great leadership, and that's how institutions come in and trade the spot markets.
TheStreet: Facebook Messenger head David Marcus just joined Coinbase's board. How will his experience in payments technology be put into play at the company?
White: David brings a wealth of experience and knowledge to our board which is fantastic. He's been on the ground level of helping a company scale at rapid periods of growth. That's something we're learning from him directly. By launching products like Toshi [a chat-based browser for Ethereum apps], we're drawing on his experience at Messenger as well.
TheStreet: What do you say to critics who argue that Bitcoin is a huge bubble right now?
White: We're certainly going through a period of hyper growth. The price is just a reflection of supply and demand, but it's the demand that fluctuates. We're seeing incredible demand which is driving the price up. We're likely at some point of rapid growth and there will be some kind of recovery -- to what percent, that may vary.
We've had a whole new wave of interest and with that capital brings new developers, applications and improved infrastructure. Little by little, we're seeing this nascent technology continue to grow and become a larger and more important piece of what we think will be Finance 2.0 -- this open financial institution.
TheStreet: How can investors safely buy or trust in Bitcoin when there's so much volatility?
White: It's important for for investors to have a long term vision. What I recommend to my friends is not to time the market, don't try to day trade. Use the dollar cost average approach, and take a small part of your paycheck and invest it in digital currency.
Every person should own a little bit of digital currency. People mistakenly think that [they] can't own Bitcoin, [since] it's $20,000 a piece. You can buy $10 worth of bitcoin. We encourage you to experiment, to try sending it to a friend, or to go on Overstock.com (OSTK) and buy a pair of socks and experience the checkout experience, instead of using a credit card. All of a sudden, this tech that was once abstract and scary starts to become more real.