Coinbase has over 35 million customers in more than 100 countries, based in New York City. It was formed in 2012 by Brian Armstrong & Fred Ersam. Because of Coinbase’s high trading fees, the company has called the “Goldman Sachs of cryptocurrencies”. The company has been profitable for over three years, and its market capitalization was eight billion dollars at the time of its recent filing. In light of the insane growth of the cryptocurrency market in 2020 and Bitcoin price has reached over US $35 thousand, it estimated that its price might be much higher in the future.
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The cryptocurrency exchange Coinbase filed a filing for its initial public offer (IPO) with the Securities and Exchange Commission (SEC) in December. However, experts seem to think that this IPO would delay due to difficulties in obtaining government approval as a new industry. The first cryptocurrency, Bitcoin, has been around only for 12 years and has had an active trading market for less than ten years. With the explosion of the ICO market in 2015, Ethereum emerged as the second-largest blockchain using a distributed ledger.
Complaints about Coinbase to the SEC
According to online source Mashable, Coinbase customers filed 115 fraud complaints with the SEC in 2018 regarding lack of funds deposited, blocked accounts, and customer service lack.
There were claims by some clients that Coinbase was withholding funds in an unstated manner; there were other claims for thousands of dollars lost due to Coinbase’s alleged mismanagement.
Problems with Coinbase
Coinbase was forced to comply with the US federal court’s decision and hand over data on 13,000 customers who bought bitcoins between 2013 and 2015 to determine who had evaded cryptocurrency taxes.
Additionally, on December 28, 2020, Coinbase suspended XRP cryptocurrency trading after the SEC said that XRP is a security and the blockchain company Ripple had conducted an unregistered offering of the security on the Coinbase platform for $1.3 billion.
Surges In User Traffic And Trading Activity Are Taxing Coinbase
In the past week alone, the Bitcoin price has reached an all-time high, surpassing $40,000, before suffering the largest daily decline in history.
Larry Cermak, director of research at The Block, provided remarkable evidence of the record activity on Coinbase when the platform recorded a daily volume of 9.56 billion dollars on January 11, which was greater than the daily volume for the entire first quarter of 2019.
Because Coinbase is not equipped to provide adequate trading services during these periods of congestion, it cannot rapidly expand its Amazon Web Services servers. A crypto-focused trading platform does not have the time or resources to address issues of this nature.
Although traditional exchanges usually operate 6-8 hours a day with a 14-16 hour break for any infrastructure maintenance, five days a week, crypto exchanges operate 24/7, which makes maintaining this system much more challenging. Coinbase cannot increase servers’ capacity temporarily, as Netflix does, in anticipation of the influx of traffic resulting from the release of a new film. This is a result of volatility in cryptocurrency prices and, as a result, traffic spikes. Consequently, server maintenance is a very costly endeavor.
Conclusion
Several obstacles may stand in Coinbase’s way on its way to an IPO. The most significant of which is the regulatory regulation of the cryptocurrency market as such. At some point, Coinbase would likely trade directly, as did Slack, Spotify, and Palantir, without any roadshows or new share offers.
No matter how we look at it, the example with the Libra cryptocurrency, in which Facebook participated, illustrates global regulators’ extreme caution regarding cryptocurrencies.
