Coinbase has become a household name in the United States as the largest publicly traded crypto exchange. However, as the crypto markets become more competitive, the company appears to be fumbling the bag, leaving it vulnerable to competition.
Coinbase’s stock price is down nearly 80% from where it began the year, and the company recently made headlines for laying off one-fifth of its workforce. In the first quarter of 2022, the company lost $430 million, falling short of Wall Street analysts’ expectations. Its trading volumes and monthly transacting users were both down from the previous quarter, which is bad news for a company that relies heavily on transaction fees for revenue.
The exchange got off to a faster start than even Coinbase could have predicted, as evidenced by its decision last month to rescind job offers to candidates who had already accepted them. Its competitors, on the other hand, have been waiting for their chance to enter the US market. Sensing Coinbase’s weakness, the world’s two largest crypto exchanges by volume (Coinbase is third globally) — Binance and FTX — are hoping to capitalize on the opportunity stateside.
The three crypto titans all have different established customer bases and are competing for market share. According to Coinbase’s most recent quarterly filing, retail investors account for approximately 95 percent of transaction revenue, while institutions account for the majority of trading volume.
FTX is best known for catering to more sophisticated traders through its derivatives offering, which accounts for the majority of the exchange’s volume — a natural fit for the exchange given its founder and CEO Sam Bankman-background Fried’s working at a quant hedge fund. Last month, Coinbase entered the derivatives market for the first time, while FTX launched an institutional trading platform in March of this year.
SBF, as he’s known in the crypto world, has been pulling out all the stops to broaden its appeal to the average retail investor, including introducing zero-fee U.S. stock trading in May to try to turn FTX into a one-stop shop for its customers’ needs. After all, if Coinbase rose to its current level of success in large part due to retail investors in the United States, its decline presents a valuable opportunity for global exchanges to poach its users and boost their own revenues.
It makes sense that Binance wants to attract more retail investors, but the largest global exchange is still a bit of a dark horse in the race for the US market, competing for customers with FTX. Binance is the company. As of July 12, spot trading volumes in the US division were less than $300 million. That’s a drop in the bucket compared to its global business, which saw $10 billion in volume for the same time period — roughly seven times higher than FTX and Coinbase.
Binance now accounts for 70% of all trading volume. US, the American subsidiary of the global exchange, is funded by institutional customers, according to CEO Brian Shroder in an interview with TechCrunch. Nonetheless, retail investors generate more revenue overall, thanks in part to Binance’s steep discounts. He added that the US offers to its highest-volume customers.
Binance is also taking a different approach to attracting U.S. retail investors than FTX, focusing on its core competency in crypto.
“Some exchanges want to return to stock trading and focus on that market.” Again, neither approach is correct or incorrect. We are solely focused on web3. We’re not going back; instead, we’re going forward. Binance founder Changpeng Zhao told Decrypt in an interview this week, “We want to build more web3 tools.”
When it comes to marketing in the United States, the exchange is also taking a less flashy approach. During the crypto bull run, other competitors such as Coinbase, FTX, and Crypto.com spent millions of dollars on Super Bowl ads, but Binance.US remained relatively quiet.
Binance.US appears to be reversing its reputation, which was once marred by rapid management turnover and ongoing regulatory battles, under Shroder’s leadership, and gaining ground in the fight to win over the U.S. retail investor. Customers will find its strategy undeniably appealing: undercut competitors by offering lower fees.
Coinbase’s fees are notoriously high, ranging from up to 3.99 percent for certain spot trades to 0.20 percent for FTX.US. In the meantime, Binance.US reaffirmed its commitment to keeping costs low for its customers last month when it launched fee-free bitcoin spot trading for all users, claiming to be the first U.S. crypto exchange to do so, though it’s worth noting that exchanges still make money from trade spreads even if they don’t charge an upfront fee. It also launched a staking product last month, claiming to offer some of the highest APY rates among its competitors, and it plans to add fee-free trading for more currencies in the future.
“There is no doubt that we are the lowest-cost provider in this space,” Shroder said.
When asked how Binance.US is able to offer above-market yields on its staking product, Shroder replied, “My guess is that when you look at the other firms having much lower APYs, it’s just that they are taking that themselves, and we are passing it on to the customer.”
Naturally, investors prefer lower fees and higher returns, giving Binance a potential advantage over Coinbase in that it can afford to sacrifice profits in the United States to attract users as long as they are made elsewhere. The same is true for FTX, which can offer no-fee equity trading only because it makes money elsewhere in its business.
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Customers have been enthusiastic about Binance.US, while investors have been wary at times. Nonetheless, in April, the company received its first external funding from investors, in the form of a $200 million round valued at $4.5 billion. The fundraise was a critical first step on the company’s path to an IPO, which Shroder expects to happen within the next two to three years, according to TechCrunch.
With the new funds and an extension to the round, which Shroder says is on the way, the company appears to be well positioned to weather a choppy market. According to TechCrunch, it is actively hiring for 80+ new roles to supplement its current employee base of 400.