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Ok, ok, so usually we only do one big interview per month. But in November we missed one, so why not finish the year with a couple of bangers?
Last week we had Lord Cruddas, this week you get Keith Grose, who oversees Coinbase’s UK entity.
We talk about regulation, derivatives, and even manage to throw in another GTA San Andreas reference.
That makes two in two weeks – where else can you get quality journalism like this?
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We’re talking just after a big drop in the price of BTC. You’ve been doing this for a while now so what’s the mood like internally when it happens? At this point is it like that GTA San Andreas meme? You know the ‘oh s***, here we go again’ one?
Any new technology goes through volatility and I would also argue that this isn’t a Bitcoin thing right now, right? Oracle is down 40%, some other tech stocks have also crashed. The S&P is down. So it’s not just a crypto thing.
But for us internally, we just keep building. We’ve been through long bear markets, like 2022 and 2023. And so for us, it’s just about continuing to deliver great products, regardless of the price. And then obviously for a lot of traders, volatility is actually good. So it depends on if you’re a buy and hold investor or a trader, but these are often the moments where activity actually increases a lot.
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I see crypto as having three key functions. Some people buy and hold Bitcoin or other crypto, kind of like you would stocks. Some people want to use stablecoins to get access to dollars, usually because they’re in a country with high inflation, capital controls, or sanctions, or some combination of those three. And then you have people that want to speculate, using derivatives. So that’s with perpetuals and, now, event contracts. In the UK, we don’t yet have a system that means people feel the pressure to use stablecoins to access USD. Retail can’t trade derivatives either. So is this just people buying and holding?
I would take a step back and look at the mission of Coinbase and our founder Brian Armstrong, which is to increase economic freedom. That’s the underlying mission that we think of when we launch or develop new products. And then on top of that we want to be the everything exchange for customers. Crypto can deliver better financial services, particularly in some markets that have had challenges with either access or stability of financial services. So that’s the underlying mission for us.
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Going back to the UK, this is our biggest market outside of the US. We’re also the biggest crypto player in the UK. So it’s an important place for us. In terms of what people are doing, yes you have a lot of activity on the ‘blue chip’ cryptocurrencies, so Bitcoin, ethereum, solana, and so on. I would not describe that as speculation.
If you held Bitcoin for the last 5 – 10 years, that would have been a great investment and better than most stocks. That’s also happening faster among younger people. We see that Gen Z is twice as likely to start investing with crypto than they are with stocks, for example. There is also still room to grow there as only 12% – 15% of adults in the UK hold crypto.
But beyond that, we do have a lot of other activity in the UK. That could be in payments, in institutional adoption, in staking. For professional and institutional traders we do also have those more sophisticated products, like perpetuals, which we see growing demand for. So definitely there are a lot of people that just want to buy and hold, but there is demand for the full suite of products we offer.
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On the B2B side, given regulatory oversight is improving, are you seeing more players come to you now and ask about adding crypto? You know, I can imagine that five years ago, a company like AJ Bell would not want to talk to you. I still think they wouldn’t want to add crypto today but they’d definitely be more open to it now than they would in the past. Are you seeing that?
Yes absolutely. That has changed dramatically in the last 12 months and it is because regulatory clarity has come into play. If you look historically, large players in the UK did not want to touch crypto because of a lack of regulatory oversight. Now you have a regulatory regime, all of those businesses are now looking at how they can explore crypto.
We are seeing a lot of institutional interest as a result and a lot of that is due to us being the biggest player in town. We custody more than $500bn in crypto today. We’re the only crypto play in the S&P 500. We’re publicly audited. We have that track record of sticking to the most-regulated route to market. So companies feel more secure dealing with Coinbase.
My prediction in the UK is in the next 12 months, if not sooner, I think you will see major platforms, like the Interactive Brokers of the world, for example, offering crypto trading. Some of that will be powered by Coinbase, some of it will be powered by others.
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From someone who is not focused too much on crypto, it looks like the US is going through this super bullish, pro-crypto regulatory movement. You have really pro-crypto policies in play. US regulators are allowing new products like perpetuals and event contracts to come to market. In contrast, Europe and the UK are almost the opposite. Very restrictive, very anti-risk, and so on. Is that an accurate depiction of what’s going on and is that frustrating to deal with?
The US has completely shifted its crypto position. You have the GENIUS Act, the Clarity Act, some changes over at the SEC. That has given people regulatory certainty and the ability to launch tons of new products.
I do think that will continue but it’s also driving interest from regulators around the world because the US is the largest capital market. You can’t ignore where the US is going as another regulator. So there’s definitely been a change of interest from the regulators I speak to on a regular basis, and globally about what products are going to happen in the US versus other places, and what’s happening in the market overall.
To your point on perpetuals, they are the largest part of the crypto trading market. So if you step back, they dwarf the spot market globally, and that was a big part of our acquisition of Deribit that happened earlier in the year, to help capture and support part of that market. But as you say, you can’t offer that to retail in the UK, so that is not going to be a focus here, but that is a massive part of the trading market around crypto globally, right? Regardless of how you think of it, the volumes are massive there, and it is a big part of how professional traders think about managing their positions.
So I think, going back to the UK and Europe, what’s going to be interesting is, do stablecoin regulations drive stablecoin adoption in the UK and Europe? Or does that continue to be dominated by USD-backed stablecoin offerings as it is today? I think that’s open-ended, but there’s regulation coming. And I think MiCA, the long term impact of that hasn’t been seen yet. So that’s one question for me.
And then two, as the crypto regime from the FCA comes into play mid next year to late next year, what types of products does that start to open up? And the products I’m most excited about would be bringing things like the ability to lend and borrow based on crypto assets, and bringing the concepts of Lombard lending to users with large holdings. Because I think those are great examples where you’re moving from having to speak to an individual and provide a bunch of paperwork to the benefit of programmable money and smart contracts. So you can instantly access and make decisions around those as a user. They haven’t come to the UK yet, but those are the types of products and experiences that I’m really excited about seeing here because I think there’s a ton of value around those for users.
Speaking to regulators do you get the impression they’ll ease up on derivatives in the UK and also allow event contracts?
There needs to be more clarity around that for the UK. I have no idea if those projects will come here. They are obviously hot topics in the industry right now, right? Two of the large players for event contracts just raised at decacorn valuations over the past two or three weeks, which just tells you what the demand is and the interest in those products globally. But my prediction is, if there’s a change to the retail ban on derivatives, it won’t come from crypto, it will come from options trading and traditional equities. And so I think it’s a broader, like MiFID-level conversation for the UK, rather than a crypto conversation.
The thing that I’d rather see, and I think is holding back the industry more than that here, is we need to adjust our approach with the financial promotions regime. Today it puts all of crypto into one bucket. But there’s a big difference between buying Bitcoin and a meme coin. And so right now, the UK is the hardest market to onboard as a consumer into crypto trading globally.
That’s something that’s really going to hold the UK back long-term if we don’t sort it out. I expect there will be changes to that as we move to the new regime, because right now you’re in this weird situation where it’s easier to access a Bitcoin ETN than it is to buy the underlying with no counterparty risk. That doesn’t make sense, right? And so I think those types of things are more interesting to me to sort out, rather than adding more complex derivatives.
On the topic of regulation, part of crypto’s success, to me, is about regulatory arbitrage. So if you are in Argentina, it might be very hard to access ‘real’ dollars but very easy to access USDT. If you have a situation where more regulations mean it becomes as hard for that person to get USDT, don’t you just kill the market?
I think a better framing is that stablecoins are a great way for people to access remittances and cross-border payments. So you look at companies like SpaceX, or firms trading in oil – they are already using stablecoins. You are seeing a huge increase in B2B and B2C volumes because it is just easier to make payments in stablecoins.
I expect crypto to become more regulated versus less regulated globally over the coming five to ten years, but I don’t think that changes the fact that stablecoins are the best way to make cross border payments. So why would you see that change because of regulation?
For those uses where there is a more pragmatic reason to use crypto, are you still finding yourself running up against scepticism?
It depends. There are some places where I think institutions haven’t recognised the benefits, and there are some places where I think they have. I think a good example of this is the vast majority of the largest financial institutions are actively planning digital assets, like stablecoins or digital ledger technology projects, like JP Morgan and Standard Chartered, or the card networks, which is another example that tells you why payments people are taking it seriously. Visa and MasterCard are heavily involved in this space. They really want to have a strategic play, because they see the value in the long-term.
If you think stablecoins will be even 20% of the global payments ecosystem, then you can’t afford to ignore that if you’re involved in the space.
As we speak, you’re doing your first ICO-style raise on Coinbase. What is the thinking there and do you see that being a regular part of the business?
This is something the space has been needing for a while and part of the reason why Coinbase wasn’t involved earlier is you didn’t have regulated, compliant players running a transparent auction process with fair allocations and wider distribution. The sale that’s happening today is going to be one of the largest ever in terms of the number of distinct users that are being allocated in the asset.
It’s been done in a very transparent way with an auction process by a regulated public company. It’s an example of the growing up of these things, because a lot of bad stuff came out of the ICO wave five or so years ago. Bringing these processes into a more regulated, compliant-focused framework is going to be good for users and good for the industry.
I still think it’s very early days, but I do think capital formation generally will use this technology in the long run as well. And I think we’re at the very beginning of that journey.
It kind of looks like crypto is going through this process that I would describe as ‘Robinhood-ification’. So Robinhood says it’s an investment app but actually that’s just its marketing strategy. It sells itself as a place to buy stocks, brings in huge volumes of customers, then cross-sells into options and other higher risk products, like event contracts, where it makes the bulk of revenues. It seems like that is the model that a lot of crypto players, like Bybit, Kraken, or Crypto.com are pursuing. You market buying Bitcoin but then sell into perpetuals, options, or CFDs. At the same time, a lot of players in the regular stockbroking or trading sector are moving into crypto. So do you feel the pressure to follow a model like that and do you think you’ll have to adopt this ‘super app’ type of model?
I think Coinbase’s approach will always be to be the licensed, compliant operator. We want to do things by the book because our long term approach is, we want to grow trust in this ecosystem, and we’ll support it through all sorts of different offerings. So we might not always be the first to offer some product because we want to make sure we do it in the right way.
I think today, because crypto is becoming more regulated and there is more adoption of the technology, you’re seeing this blurring of lines between crypto and traditional finance. And I think all players want to more and more become a primary financial account for their users, regardless of what their main revenue drivers are.
I look at Coinbase in the US and we have an Amex card that gives you 4% back in Bitcoin that you can spend and pay using your stablecoin or crypto balance. You can do lending and borrowing, you can do regular ‘buy and hold’ trading, but you can also do options trading and perpetuals and futures.
We want to offer the full range, but I think it’s more about players trying to become your primary financial account. And I think a lot of players are coming at that from different angles, and some of them make more money on certain product lines than others, but ultimately that’s what they want to be. Just like a card wants to be top of wallet, all of these apps are sitting in your finance folder on your phone and they want to be the main app you use. We want to be the place you think of as your primary account and that means you have to have more and more offerings for more and more segments of the user base, even if you started by just offering one, right?
You’re based here in the UK. Do you feel optimistic about crypto here? Or do you look at places like the US and Dubai, and think ‘actually, it’s going to be a lot bigger over there’?
It’s funny, I get asked this question a lot because of my American accent. I am optimistic. I do think there are other places that are ahead of us, but I think the UK knows what it’s playing for and is moving quickly. But I think the next 12 months are critical, because I think we’re in this period where there’s a lot of new technology, there’s a lot of change.
A lot of trad-fi players are going to be adding this technology, and I think you really want that to be built in the UK. And so I think regulators and policymakers are aware of that. So I am optimistic but let’s talk again in 12 to 24 months because this is going to be the critical period.
