Cryptocurrencies will survive price swings: Coinbase

On Thursday, the same day the former hedge fund manager Michael Novogratz declared that bitcoin had reached its bottom (at around $6,200), Coinbase opened a New York office on the edge of Union Square Park, to court local banks and hedge funds. It is based in San Francisco.

The company, which runs a cryptocurrency exchange and offers digital wallets to consumers and custody services to individuals and institutional investors, highlighted its fast growth and made a case for legitimacy in the financial services world.

Though its volume of trades dropped about 83% from February to July, the company seems to be withstanding the mercurial crypto markets. Coinbase has 20 million customers and more than 500 employees in seven offices around the world. It has raised more than $220 million from investors including the New York Stock Exchange, Mitsubishi UFJ Financial Group, and USAA.

The ribbon-cutting event prominently featured the company’s new chief compliance officer, Jeff Horowitz, who was hired from Bank of New York Mellon’s Pershing unit and had previously worked for the Federal Deposit Insurance Corp.

Adam White, general manager of Coinbase Institutional, emphasized that the company is a registered money services business, it complies with the Bank Secrecy Act, know-your-customer and other anti-laundering rules, it has a New York BitLicense and money transmitter licenses in several other states, and it is regulated by the New York State Department of Financial Services. It has bought a couple of broker-dealers and a registered investment adviser.

He downplayed the volatility of cryptocurrencies.

“We have way too much focus on the price of bitcoin,” White said. “I understand why. It’s incredibly headline attractive — everyone wants to know if the price is up or down. It captures people’s attention, it brings interest, it’s awareness, it’s fascinating. But it’s by no means a direct, one-to-one correlation to the development of this space.”

He pointed to other important indicators: “How many developers are building application on things like bitcoin and Ethereum? How much capital has entered the ecosystem? How many new apps are being developed and launched and are they solving real problems for people?”

White described a future in which cryptocurrencies let everyone participate in the financial system.

“We think cryptocurrencies will bring about more equality, efficiency and innovation in the world by creating this open financial system,” he said. In other countries with unstable fiat currencies, they could be especially helpful.

“In the Western world, we need cryptocurrency the least,” White said. “We have good payment infrastructure, we have good stores of wealth. But if you look to other parts of the world, that’s not always the case.”

With smartphones and cryptocurrency, consumers can be their own bank and move money anywhere in the world, he said.

Cryptocurrency can help people control their wealth, and it can be an efficient store of value, he said.

The Marshall Islands recently said the nation is exploring the idea of a sovereign digital currency, he said.

“They said, we’re going to challenge this fundamental concept of what is money and how is it created and managed.”

He also noted that cryptocurrency could be used to move money more quickly.

“It’s literally faster and maybe in some ways cheaper for me to take out $10,000 in cash from the bank, buy a train ticket, fly to Australia, give it to my friend there, than it is for me to send a wire for those same funds,” White said. “Why does it take two or three business days for funds to move internationally, when at the end of the day it’s ones and zeros moving?”

And the future of cryptocurrencies, he said, will be “killer apps” that will appeal to billions of people, such as one called Earn that lets people earn digital currency for doing tasks such as reviewing software.

“I don’t think there has been a killer app yet. We’re seeing examples and small glimpses of it, but I do think it’s going to happen,” White said.

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