Like the biggest A publicly traded cryptocurrency exchange in the United States, Coinbase has become something of a household name. But as things get tougher in the crypto markets, the company appears to be rummaging through its bag, leaving it vulnerable to competition.
Coinbase’s share price has dropped nearly 80% since the beginning of the year, and recently hit the headlines for laying off a fifth of its staff. The company posted a loss of $430 million in the first quarter of 2022, falling short of Wall Street analysts’ expectations. Trading volumes and the number of users making monthly transactions are down compared to the fourth quarter of last year — bad news for a company that relies heavily on transaction fees for revenue.
The exchange got back on its feet faster than even Coinbase itself probably could have imagined, as evidenced by decision to withdraw job offers last month from candidates who have already accepted them. Its competitors, however, were waiting for their moment to get closer to the US market. Now, sensing a moment of weakness in Coinbase, the two largest crypto exchanges in the world by volume (Coinbase ranks third in the world) – Binance and FTX – are looking to seize their opportunity in the US.
All three crypto giants have different established customer bases and are trying to steal market share from each other. According to the latest quarterly report, retail investors make up about 95% of Coinbase’s transaction revenue. FTX, by contrast, already has a strong institutional trading business built on the experience of its founder and CEO Sam Bankman-Fried, who worked at a quantitative hedge fund.
SBF, as it is known in the crypto world, is doing its best to attract retail clients. including the introduction of zero-fee US stock trading in Mayto try and turn FTX into a one-stop-shop for the needs of retail investors. After all, if Coinbase has risen to No. 3, backed almost entirely by U.S. retail investors, its fall provides a valuable opportunity for global, institutional-focused exchanges to poach their users and increase their own trading volumes.
So it makes sense that Binance is aiming to attract more retail investors, but the world’s largest exchange is still a dark horse in the race for the US market as it battles FTX for customers. Its division, Binance.US, has seen spot trading volumes below $300 million as of July 12. This is a drop in the bucket compared to his global business, which has totaled $10 billion in volume over the same period, about seven times higher than the volumes on both FTX and Coinbase.
Today, 70% of trading volume on Binance.US, the US arm of the global exchange, is from institutional clients, CEO Brian Schroeder told TechCrunch. However, retail investors generally generate more revenue, in part because of the large discounts Binance.US offers to its largest customers, he added.
Binance is also taking a markedly different approach to attracting U.S. retail investors from FTX, focusing on its core competencies in crypto.
“Some exchanges want to get back into stock trading and target this market. Again, this is neither wrong nor right. We are purely a web3 company. We won’t be back; we are moving forward. We want to build more web3 tools,” Changpeng Zhao, founder of Binance. said Decrypt in an interview this week.
The exchange is also taking a less flashy stance when marketing in the US. While other competitors including Coinbase, FTX and Crypto.com were spending millions of dollars on Super Bowl ads during the crypto bull run, Binance.US remained relatively quiet.
Under Schroeder’s leadership, Binance.US appears to be turning its reputation, once tarnished by rapid leadership changes and ongoing regulatory battles, forward in the fight to win over the US retail investor. From the client’s point of view, his strategy is undeniably attractive – undermining competitors by offering lower commissions.
Coinbase fees are notoriously high at up to 3.99% for certain spot trades compared to FTX.US which charges up to 0.20%. Meanwhile, Binance.US reaffirmed its commitment to lower costs for its customers last month by launching free Bitcoin spot trading for all users, saying it is the first U.S. cryptocurrency exchange to do so, although it is worth noting that the exchanges are still making money. money on the spread on trades, even if they don’t charge an upfront fee. It also launched a staking product last month that it claims delivers some of the highest APY rates of any competitor, and said it plans to add free trading in other currencies in the future.
“In terms of costs, we are undoubtedly the cheapest supplier in this area,” said Schroeder.
Asked how Binance.US can deliver above market returns from their staking product, Schroeder replied: “My guess is that if you look at other firms that have much lower APYs, they just take it themselves and we we pass it on to the customer.
Naturally, investors gravitate toward lower fees and higher returns, which gives the big-pocketed Binance a potential advantage over Coinbase as it can afford to sacrifice US profits to attract users while it makes them elsewhere. The same goes for FTX, which may offer commission-free stock trading just because it makes money in other areas of its business.
Clients are enthusiastic about Binance.US, although at times investors seem more hesitant. However, in April of this year, the company succeeded in attracting its first external funding from investors in a $200 million round, valuing it at $4.5 billion. The fundraising was an important first step towards an IPO, an important milestone that Schroeder told TechCrunch he sees what is happening in the next two or three years.
Armed with new money and an extension of the round, which, according to Schroeder, will soon beThe company appears to be well positioned to weather the volatile market. It is actively hiring over 80 new positions to add to its current employee base of around 400 people. TechCrunch reported last month.
“What I experienced in Uber, I am experiencing again”
Despite Binance’s recent efforts in the US market, its tangled history with local regulators makes it easy to underestimate it. Company currently under investigation U.S. Commodity and Futures Trading Commission for allegations of market manipulation. The US Department of Justice and the IRS are also reportedly looking into whether the exchange has been involved in money laundering and tax evasion.
For context, Binance.US was launched in 2019 as a separate entity that licenses its branding and core technology from Binance itself. Zhao is said to have spun off a division to appeal to US regulators who have refused to give the green light to the global exchange.
Today, Zhao still wields significant influence over the U.S. exchange as a major shareholder, though he told Decrypt this week that Binance is “no longer top-down driven by him.” The New York Times reported last August that Zhao owns 90% of Binance.US stock.
According to the Times, Zhao’s ownership stake became a sticking point for outside investors when former Binance.US CEO Brian Brooks attempted to raise the company for a venture round as a step towards a possible IPO. Brooks left the company just three months after taking the top job, perhaps in part because the deal fell through.
Brooks is not the only top Binance.US executive to leave unexpectedly. Founding CEO Catherine Coley left the company so quietly last May that numerous unconfirmed rumors began circulating about her whereabouts. Last October, with Schroeder taking over as the next permanent CEO after Kolya, Binance.US founding CFO Joshua Sroge stepped down from the company. Last week, after nine months of searching, the company finally took over Sroge’s role. appointment of former Acorns chief executive Jasmine Lee as the new permanent financial director.
Beyond the problems in the US, Binance also faced heavy scrutiny from regulators in Japan, EU, Germany, Thailand and other regions. Schroeder, who previously led Uber’s Asia-Pacific strategy, likened the exchange to a controversial ridesharing launch.
“What I experienced at Uber, I am experiencing again,” Schroeder said. “When I was at Uber, we were the #1 bad guys, you know? We were big bad guys picking on the taxi industry, hurting taxi workers and stuff like that.”
“What was true of Uber was true of Binance globally and then Binance in the US: it was essentially an entrepreneur who had an innovative approach to technology expansion that was never considered by regulators. ” he continued. “In order to support this, regulators have had to catch up with the technology, and I think this is exactly what we are seeing in the crypto space right now.”
Schroeder is determined to guide Binance.US towards its long-standing goal of becoming a public company, which he believes will be achieved in the next two to three years. He said Binance.US is strong enough to continue to grow even in difficult market conditions, citing the firm’s plans to hire some employees laid off by Coinbase and rival cryptocurrency exchange Gemini as evidence that his company is better prepared for the challenges ahead.
“Coinbase and Gemini have several products and services and they have them; they have been there for a while. We have historically only had a stain [trading] up to this [quarter]. As we add more products and services, we have a very aggressive roadmap. We need more products and technicians; we need more tellers to actually manage these new business units. With the capital injection we just received in our first seed round, we are taking all the funding and putting it back into growth,” Schroeder said.
Only time will tell if Schroeder’s ambitious plan works, but he is determined to change the narrative around Binance.US in the public eye. According to him, one of the biggest public misconceptions about Binance.US has to do with its “desire to be a fully respected and regulated entity,” a goal Schroeder said has been central to the company since its inception.
“In a vacuum where you’re telling your own story, your story is being told by your competitors, or your story is being told based on your CTR. And to the extent that negative headlines get more views than positive ones, I think it just creates a misperception in the market that is not based on reality,” Schroeder said.
Credit: techcrunch.com /