Coinbase CEO on Regulation, ETFs, Adopting Crypto

Summary

Coinbase CEO Brian Armstrong discusses the company's role in the crypto ecosystem, emphasizing its growth beyond a simple exchange to a full-service platform. He highlights the importance of the 'Update the System' event in DC, aiming to educate policymakers on the diverse use cases of crypto. Armstrong also addresses the recent ETF approvals, Coinbase's infrastructure challenges, and the political implications of a growing crypto economy.

Takeaways

• 🗣️ Coinbase is hosting an 'Update the System' event in Washington, inviting policymakers and members of Congress to discuss the emerging use cases of cryptocurrency.
• 💡 Crypto is seen as a new form of sound money, akin to a digital gold standard, especially in times of high inflation and deficit spending.
• 🌐 Crypto's utility extends beyond being a store of value, with applications like digitizing the dollar, enabling fast and cheap global payments, and supporting decentralized social media for artists.
• 📈 The recent Bitcoin ETF approvals have led to a significant influx of capital into the crypto market, with Coinbase serving as the custodian for about 90% of the assets in those ETFs.
• 🚀 Coinbase aims to be more than just a crypto exchange, evolving into a trusted platform for storing, trading, and using crypto, potentially becoming a primary financial account for users.
• 🏦 The company does not intend to pursue a bank license, focusing instead on 100% reserve banking without fractional reserve practices.
• 🤔 Despite the ETF influx, Coinbase has seen increased retail and institutional inflows, indicating that the ETFs have not cannibalized their direct product offerings.
• 🔄 The recent surge in Bitcoin's price and trading activity has highlighted the need for Coinbase to invest further in its infrastructure to handle the growing demand.
• 📊 Ethereum, like Bitcoin, is expected to have its ETF approved, but political and regulatory challenges may cause delays, with the industry potentially resorting to legal action for equal treatment.
• 🌐 Coinbase's role as a custodian is recognized in five of the eight Ethereum ETF applications, reinforcing its position as a trusted platform in the crypto ecosystem.

Q & A

What is the main purpose of the 'Update the System' event hosted by Coinbase?

The main purpose of the 'Update the System' event is to discuss the various emerging use cases of cryptocurrency with policymakers and members of Congress, aiming to raise awareness and understanding of the potential of crypto beyond being just a store of value.

How does Brian Armstrong view the role of crypto as a form of sound money?

Brian Armstrong sees crypto as a new form of sound money, comparing it to a digital gold standard. He believes it serves as a check and balance in the current economic climate, particularly in times of high inflation and deficit spending.

What are some specific use cases of crypto mentioned by Brian Armstrong?

Specific use cases mentioned include digitizing the dollar for fast, cheap, and global payments, enabling artists to sell directly to their fans, and the development of decentralized social media platforms.

How does the presence of Coinbase and other crypto companies in Washington impact the political landscape?

The presence aims to educate policymakers about the growing use and importance of crypto technology, emphasizing that being anti-crypto could be politically detrimental, given the increasing number of Americans using this technology.

What is Coinbase's vision for its future role beyond being a crypto exchange?

Coinbase aims to become the most trusted and easiest-to-use platform for storing, trading, and utilizing crypto. They envision becoming a primary financial account for users in the new crypto economy, akin to a 'crypto bank', without resorting to fractional reserve banking practices.

How has the influx of capital into Bitcoin ETFs affected Coinbase?

Coinbase has benefited positively from the influx of capital into Bitcoin ETFs. They act as the custodian for about 90% of the assets in these ETFs, providing monetization opportunities without cannibalizing their direct retail and institutional product offerings.

What challenges did Coinbase face during the recent surge in crypto activity and trading volumes?

Coinbase experienced outages due to the surge in activity and trading volumes, which exceeded their load testing models. This has highlighted the need for further investment in infrastructure to handle the growing importance of Coinbase as a systemic financial institution.

What are Brian Armstrong's thoughts on the potential approval of Ethereum ETFs?

Brian Armstrong believes that Ethereum ETFs should be approved, as everyone deserves equal treatment under the law. However, he acknowledges that politicization and regulatory disputes might cause delays, necessitating legal action to ensure fair treatment.

How does Coinbase position itself in the growing ecosystem of crypto custodians?

Coinbase aims to be one of the trusted pillars in the crypto ecosystem, providing a diverse range of services including custody, trading, financing, and settlement. They encourage self-custody and the development of a diverse custodian ecosystem.

What is the significance of Coinbase's role as a custodian in Ethereum ETF applications?

Coinbase being named as the custodian in five of the eight Ethereum ETF applications is an endorsement of their platform and highlights their position as a preferred infrastructure provider for the crypto industry.

How does Brian Armstrong connect the issue of inflation to the adoption of crypto?

Brian Armstrong connects inflation to the expansion of the dollar money supply, which he identifies as a major driver of inflation in the US. He sees Bitcoin as an antidote to inflation, offering a check and balance on deficit spending and helping to maintain the dollar's reserve currency status.

What is Coinbase's strategy for contributing to political dialogue and supporting pro-crypto candidates?

Coinbase has been advocating for pro-crypto candidates who recognize the need for balanced regulation that protects consumers while fostering innovation. They have contributed to organizations supporting such candidates and aim to ensure that crypto becomes an increasingly important part of the political dialogue.

Outlines

00:00

🗣️ Coinbase's Washington Summit and Crypto's Use Cases

Coinbase is hosting an event called 'Update the System' in Washington, D.C., inviting policymakers and members of Congress to discuss the emerging use cases of cryptocurrency. The goal is to dispel the myth that crypto has no practical applications, highlighting its role as a new form of sound money, a digital gold standard, and its potential to revolutionize the financial system. The event aims to emphasize the importance of crypto in the current economic climate and to show the significant number of Americans using this technology, suggesting that being anti-crypto is politically unwise.

05:01

🚀 Future of Coinbase Beyond Crypto Exchange

Coinbase aims to evolve beyond being just a cryptocurrency exchange. With the influx of capital following the approval of Bitcoin ETFs, Coinbase has become a custodian for a significant portion of these assets, opening up new monetization opportunities. The company envisions itself as a trusted platform for storing, trading, and using crypto, potentially becoming a primary financial account for users in the new crypto economy. Coinbase is looking to support over 100 different crypto assets and wants to be the easiest and most trusted place to engage with crypto, without pursuing a traditional bank license due to its fractional reserve system.

10:02

💡 Addressing Inflation and the Role of Crypto

The discussion highlights the connection between inflation and the expansion of the US dollar supply, with Bitcoin positioned as an antidote to inflation. As prices rise, more people are recognizing Bitcoin's role in providing a check and balance against deficit spending. Coinbase's involvement in the political dialogue is emphasized, with the company supporting pro-crypto candidates and contributing to organizations for crypto-friendly elections. The aim is to ensure that the financial system is updated to serve the needs of the people, leveraging crypto as a tool for economic freedom and better financial infrastructure globally.

Keywords

💡Cryptocurrency

Cryptocurrency refers to digital or virtual currencies that use cryptography for security and operate on decentralized networks, such as blockchain technology. In the context of the video, cryptocurrencies like Bitcoin are presented as a new form of sound money, akin to a digital gold standard, especially in times of high inflation and deficit spending. The speaker emphasizes the various use cases of cryptocurrencies, including as a store of value, facilitating fast and cheap global payments, and empowering artists and decentralized social media platforms.

💡Coinbase

Coinbase is a digital currency exchange platform that allows users to buy, sell, and store various types of cryptocurrencies securely. In the video, the CEO of Coinbase, Brian Armstrong, discusses the company's role in the crypto ecosystem, its expansion beyond being just a crypto exchange, and its efforts to become a trusted platform for storing, trading, and using cryptocurrencies. Coinbase is also involved in the custody of assets for Bitcoin ETFs, contributing to its growth and significance in the financial industry.

💡ETFs (Exchange-Traded Funds)

ETFs are investment funds that are traded on stock exchanges, similar to stocks. They hold a collection of assets, such as stocks, bonds, or commodities, and are designed to track the performance of a specific index. In the context of the video, Bitcoin ETFs have recently been approved, leading to a significant influx of capital into the crypto market. The discussion also touches on the potential for Ethereum ETFs and the role of Coinbase as a custodian for these funds.

💡Inflation

Inflation refers to the rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling. In the video, the speaker connects inflation to the expansion of the money supply and discusses how cryptocurrencies, particularly Bitcoin, can serve as a hedge against inflation, providing a check and balance on deficit spending.

💡Deficit Spending

Deficit spending occurs when a government's expenditures exceed its revenues, resulting in a budget deficit. This is often financed by borrowing, which can lead to an increase in the money supply and, consequently, inflation. In the video, the speaker argues that cryptocurrencies offer a solution to the issues arising from deficit spending by providing a more stable form of money that is not subject to the same inflationary pressures as traditional currencies.

💡Digital Gold Standard

The term 'digital gold standard' refers to the idea of using a digital asset, such as Bitcoin, as a store of value similar to how gold has traditionally been used. This concept is based on the belief that cryptocurrencies have properties that make them a reliable store of value, such as scarcity, divisibility, and durability. In the video, the speaker positions Bitcoin as a return to a new form of a digital gold standard, emphasizing its potential to serve as a hedge against economic instability.

💡Decentralized Social Media

Decentralized social media refers to platforms that operate on decentralized networks, often using blockchain technology, which allows for greater control over data and content by users rather than centralized authorities. In the video, the speaker mentions decentralized social media as one of the emerging use cases for cryptocurrencies, suggesting that it represents a shift towards more democratic and user-controlled online platforms.

💡Custodian

A custodian, in the context of finance and investments, is a party responsible for the safekeeping of assets on behalf of their owners. In the video, Coinbase is described as a custodian for a significant portion of the assets in Bitcoin ETFs, which means that the company holds and protects these assets, providing a secure environment for investors who want exposure to cryptocurrencies without directly holding the assets themselves.

💡Sound Money

Sound money refers to a type of money that has intrinsic value and is not subject to rapid inflation or devaluation. It is typically associated with money that is backed by tangible assets or has a limited supply, like gold or certain cryptocurrencies. In the video, Bitcoin is described as a form of sound money due to its limited supply and the security provided by its underlying technology, blockchain.

💡Financial System Update

The term 'financial system update' refers to the modernization and improvement of the existing financial infrastructure to address issues such as slow transaction processing times, high fees, and lack of accessibility. In the video, the speaker from Coinbase talks about the need for the financial system to be updated, with cryptocurrencies playing a central role in this update by providing faster, cheaper, and more global payment solutions, as well as new ways for artists and content creators to be compensated.

💡Political Advocacy

Political advocacy involves the act of supporting or promoting a particular policy, cause, or issue in the political sphere. In the context of the video, the speaker discusses Coinbase's efforts to advocate for pro-crypto policies and candidates, emphasizing the importance of having lawmakers who understand and support the innovation and growth of the cryptocurrency industry.

Highlights

Coinbase is hosting an 'Update the System' event to discuss the emerging use cases of cryptocurrency with policymakers and members of Congress.

Crypto is seen as a new form of sound money, akin to a digital gold standard, especially in times of high inflation and deficit spending.

Crypto is not just a store of value; it is digitizing the dollar, making payments fast, cheap, and global, and enabling artists to sell directly to fans through decentralized social media.

Coinbase aims to be the most trusted and easiest place to store, trade, and use crypto, potentially becoming a primary financial account in the new crypto economy.

Coinbase does not plan to pursue a bank license due to issues with fractional reserve banking, instead focusing on storing 100% of customer assets.

Coinbase is systemically important for powering the new economy and will continue to invest in infrastructure to handle increased traffic and adoption.

Bitcoin's role as an antidote to inflation is becoming part of the political dialogue, with Coinbase helping to support pro-crypto candidates.

Coinbase is the custodian for about 90% of the assets in Bitcoin ETFs, providing monetization opportunities without cannibalizing direct product opportunities.

The influx of capital into the crypto market due to ETF approvals has been positive for Coinbase, with increased retail and institutional inflows.

Coinbase supports over 100 different crypto assets and aims to be a comprehensive platform for trading and using crypto in various applications worldwide.

The Ethereum ETF approval process may face politicization and regulatory challenges, but it should be treated equally under the law.

Coinbase is named as the custodian in five of the eight Ethereum ETF applications, reinforcing its position as a trusted platform.

The crypto ecosystem should have a diversity of custodians, with Coinbase aiming to be one of the trusted pillars for building various financial services.

Coinbase offers a range of services beyond custody, including trading, financing, settlement, and products like staking and Coinbase cards for spending crypto.

The importance of crypto in the financial system is recognized by a majority of Americans, with 87% stating the current system doesn't work for them.

Coinbase's role in Washington is to advocate for a balanced regulatory approach that protects consumers while fostering innovation in the crypto space.

The rise of crypto is seen as a way to update the financial system, bringing economic freedom and good financial infrastructure globally through smartphone access.

Transcripts

want to start here actually not with the

volumes but I want to give you the

chance here because I know you're flying

down to DC and hosting a lot of Congress

over at a summit that coinbase is really

spearheading H including Cynthia lumus

and Patrick McKenry how do you see your

presence in Washington today and why is

it so important for you and Mark andreon

to be

there yeah well you're right we are

hosting an event tomorrow uh called an

update the system event and we're

inviting a bunch of policy makers

members of Congress and the goal is to

talk about all the different use cases

of crypto that are emerging I think

there's kind of this Trope that's out

there which is that you know crypto

doesn't have any use case and it really

couldn't be farther from the truth I

mean crypto first of all it's a new form

of sound money right it's a return to

almost like a new gold standard that's

digital in this time of high inflation

and deficit spending I think people are

really interested in that and it's a

nice check and balance um that'll help

America uh with any of the issues there

it's also digitizing the dollar it's

making payments fast cheap and Global

it's you know allowing artists to sell

directly to their fans decentralized

social media there's all kinds of things

that are emerging around use cases in

crypto and so we want policy makers to

come together to talk about that to get

the word out and also to sh see the the

number of Americans that are actually

using this technology now so that a very

message can be a very important message

can be delivered that you know being

anti- crypto is political suicide in

this political environment now you're

talking so much about other use cases

for crypto outside of even just being a

store of value here as many people see

it as they're entering this asset class

sum for the first time with the Advent

of the spot Bitcoin ETFs it begs the

question how do you see the future of

coinbase there are a lot of questions

about the future of crypto exchanges in

the world where Bitcoin ETFs have gotten

so much share do you see coinbase going

far and above Beyond being simply a

crypto Exchange

yeah so with the you know the ETFs that

got approved we've seen a huge influx of

capital into the system about 12 billion

dollar of inflow have happened and you

know some when that happens sometimes

people ask us well what does that mean

for coinbase well you know it's actually

incredibly positive for coinbase um

we're storing we're the custodian for

about 90% of the Assets in those Bitcoin

ETFs and so we have monetization

opportunities there as a custodian but

we it didn't cannibalize any of the

opportunity in our direct products too

our retail app our institutional product

we actually saw increased inflows there

while the while we saw1 billion of

inflow into the ETFs so the atfs were

incredibly positive for the industry

they were a regulatory approval they

unlocked New Pools of capital and

coinbase is going to be not just a place

where you store crypto it's a place

where you can actually trade crypto you

can use it increasingly in many

different applications all over the

world and and it's not just Bitcoin

either you know we support

um over a 100 different crypto assets so

we want coinbase to be the most trusted

and easiest to use place to to store

crypto to trade it and to actually use

it and we can actually become people's

primary Financial account in some cases

in this new crypto economy kind of like

a crypto

Bank yeah one might say that I don't

think we're ever going to go get

actually a bank license because Banks

get licenses to do fractional reserve of

the assets um I don't really think

that's the right path I think it's

caused all kinds of ISS issues with bank

failures and and that kind of thing we

don't want to do fractional Reserve we

want to store 100% of customers assets

or if they prefer they don't even have

to store it with us they can do self-

custody and you know if they choose to

opt in their funds into some product to

um earn rewards or something like that

they can choose to do that we're not

going to do it on their behalf um in the

way that Banks do with fractional

reserves so it's a new paradigm I think

that um there's a new generation of

people who are looking at they want to

see crypto update the financial system

because you know 87% of Americans when

you survey them they say the current

Financial system doesn't work for them

fractional Reserve is just one piece of

that but if you look at you know credit

card fees and overdraft fees and why

does it you know take two or three

business days to send an a transfer and

so our financial system really needs to

get updated and that's what we think is

that crypto is this most important

technology to update the financial

system globally bring economic freedom

and Good Financial infrastructure to

people all over the world if they just

have a smartphone with an internet

connection uh before we update the

system we have to talk about some of the

things you've seen on coinbase in recent

weeks as well as other exchanges kind of

hiccups along the way as we've seen this

new activity really bring Bitcoin to new

highs and then back off those highs

Brian what have you learned from the

outages in recent weeks over a coinbase

when we we have seen those elevated

volumes in activity and trading after

we've seen such inflows into the

ETFs yeah well we've seen a real surge

of activity on our platform and last

year we spent a lot of time uh doing

load testing and making sure we could

handle a 10x surge of traffic you know

what's incredible is that as Bitcoin

touched and surpassed the previous

all-time highs in the the span of about

an hour we saw more than a 10x surge of

traffic come in and so it exceeded even

our models of um the amount of interest

that could come in in a short period of

time so I think what's happening is that

coinbase is becoming a you know

systemically important financial

institution for the world to power this

new part of the economy and we're going

to have to continue to invest in our

infrastructure um at an even greater

level than we have in the past so you

know look it's good it's a signal of

adoption of crypto and how important

it's becoming in the economy but that

just makes our job even more important

and we got to make sure we're we're

serving our partners and our our

customers with good infrastructure I

think it begs the question as well you

know last about a week or so ago we saw

record uh prices here for Bitcoin itself

which of course attracted a lot of

interest into other crypto assets I want

to ask you about ethereum here for a

minute because we've already gotten past

those spot Bitcoin ETF approvals

ethereum has always been a very popular

crypto asset but when you think about

the tone in Washington and what we've

seen after that Bitcoin ETF approval do

you think it's going to be as easy the

second time around I shouldn't say easy

because it did take years to get here

but as smooth or as likely uh for

investors to see that e ethereum ETF be

approved uh just as

swiftly

yeah I mean I think the ETFs the

ethereum ETFs very clearly should be

approved and you everybody deserves

equal treatment under the law

unfortunately um some of this crypto

stuff has gotten a little bit

politicized at our federal agencies and

there's unfortunately this kind of turf

war between the cftc and the SEC about

you know is it a commodity is it a

security Etc and I think the facts are

pretty clear that ethereum is a

commodity but that's not going to stop

folks from trying to throw a wrench into

things and so

you know if if it does get delayed

unfairly um I think the industry will

have to follow a similar path to what

happened with Bitcoin which is they'll

essentially go to the courts and you

know the courts will compel uh The

Regulators to follow the follow the

rules follow the law right um and give

equal treatment under the law so it it

may take additional effort but I think

um it they really should be approved

right away and and I was really pleased

to see that coinbase was actually named

as the custodian in five of the eight

ethereum ETF applications so it

continues to be endorsement of us as a

platform that um people want to build on

top of that was what I was going to ask

you what is coinbase's role as more

crypto assets see an ETF wrapper come to

the surface here of course you have a

large custody business here you are kind

of running the show here when it comes

to most of the spot Bitcoin ETFs but do

you think that this is also a business

where more people will seek to diversify

their custodians will that have a big

impact on your

business well we want there to be a

diversity of custodians in crypto and of

course people should be able to store

crypto themselves too that's one of the

unique things in crypto you can kind of

be your own custodian so there should be

a diversity in the ecosystem I think

coinbase is really just trying to be one

of those trusted pillars that folks can

build on and it's great like the ETFs

they can build on top of us as a

custodian they also need trading

Services often uh financing you know

settlement other other sorts of services

that we provide but there I think

there's even if we get you know an ETF

for Bitcoin ethereum salana kind of go

on down the list um and eventually by

the way we should have index funds you

know hopefully there someday there can

be a coinbase 500 kind of like the S&P

500 with the top 500 coins by by market

cap um all kinds of things could get

built in the future but these aren't

just passive Investments that people

want to do crypto increasingly has more

and more utility people are paying for

things you know now with usdc you can

actually send it instantly anywhere in

the world for free um on a on ethereum

layer to solution called Bas so we can

revolutionize payments um you know what

I talked about earlier with artists

getting paid and decentralized social

media it's kind of the future of how the

internet is going to get built and how a

lot of applications are monetized so

people are going to come to coinbase

when they want to hold crypto directly

when they want to actually use crypto

when they want to get access to staking

and other products uh coinbase cards so

they can spend their crypto at any

Merchant where Visa is accepted I think

these are very additive we can be an

infrastructure provider to traditional

financial services and we can be the

retail app the institutional app for

people who want to directly use crypto

now Brian as you head to Washington now

for the summit tomorrow I also want to

kind of point out here that you've had a

large voice here in advocating for pro

crypto candidates where does the rubber

hit the road is it really making a

difference at the end of the day when

America is also facing a whole host of

other challenges like

inflation well it's funny actually

inflation ties really neatly into crypto

I mean the expansion of the dollar money

supply is probably the biggest driver of

inflation in the US and a lot of average

people you know they may not think about

quantitative easing or fiscal deficits

but they do notice that the prices or

things have gone up at the gas station

or the grocery store and so inflation is

a big tent pole issue I think

increasingly people are starting to

realize that Bitcoin is the antidote to

inflation it is a very important check

in balance on deficit spending and I

think for the US uh to remain um a

global superpower a financial Hub

technology Hub and for the dollar to

keep its Reserve currency status which

you know I very much want as an American

we need a check and balance because of

course you know in the early 1970s the

dollar was fully decoupled at that time

from hardback Commodities like gold and

since then it's followed a similar

pattern to other nations around the

world so anyway I think I think Bitcoin

is increasingly becoming a part of the

political dialogue and coinbase has

tried to help out here um help these 52

million Americans who've used crypto by

the way you know that's 5x the number

that own an electric vehicle 3x that you

know have a union card so it's it's a

massive constituency and I don't think a

lot of people in DC realize that we've

contributed to organizations like stand

withth

crypto.com in the super Tuesday

elections so we really need to get Pro

crypto Pro inovation candidates elected

that recognize the need for regulation

that balances protecting consumers we

have to leave it there we're hitting up

against a break but we hope to have you

back soon and good luck with that

conference over there tomorrow we'll

want to hear all about it later that's

coinbase CEO Brian Armstrong