Associate, Corporate Development

Remote

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Insight this M&A department

This article will provide an overview of Coinbase’s mergers and acquisitions activities. To elaborate on the markets that Coinbase operates in, this post will discuss its acquisitions of Earn.com, Cipher Browser, and Paradex; its investment in Paradex; and its acquisition of Keystone Capital Corp., Venovate Marketplace Inc., Digital Wealth LLC, and Digital Securities LLC. The post will then conclude with a discussion on how Coinbase may operate in different markets by purchasing security token exchanges if regulations allow it to do so.

Coinbase has pursued several M&A activities over the past few years to complement their cryptocurrency exchange services. For example: Coinbase acquired Earn.com to further develop its consumer-to-consumer (C2C) payment services; Cipher Browser to offer a decentralized option of using Metamask’s browser; Paradex to allow users to trade tokens through their Coinbase accounts, among other cryptocurrency exchanges; Keystone Capital Corp., Venovate Marketplace Inc., Digital Wealth LLC, and Digital Securities LLC to provide brokerage and financial services.

Recent Acquisitions of Coinbase M&A activities

Earn.com (for approximately $120 million USD in cash and stock) was a cryptocurrency start-up that developed a C2C platform for professionals such as data scientists, marketers, and other professionals to sell their skills. Earn.com was very popular compared to other similar platforms such as Upwork and Fiverr, as the platform spanned across multiple verticals and provided a C2C platform for professionals to sell their skills. The company became popular in New York because the professional community there was very large (150,000 professionals, as of May 2017).

Keystone Capital Corp., Venovate Marketplace Inc., Digital Wealth LLC, and Digital Securities LLC are brokerage accounts that enable Coinbase users to purchase and sell digital products relying on blockchain technology. This includes Bitcoin, Bitcoin Cash, Ether (ETH), Litecoin (LTC), Stellar (XLM), Zcash (ZEC), and other cryptocurrencies using smart contracts. These accounts allow investors to trade a variety of other cryptocurrencies (non-Coinbase digital assets) via Coinbase, which provides the necessary infrastructure for the purchase and sale of these non-Coinbase assets.

Cipher Browser was acquired by Coinbase for an estimated $8.2 million USD in April 2018. The browser offered a decentralized option to run Metamask’s browser on Ethereum’s blockchain instead of on Chrome or Firefox browsers. This acquisition follows similar acquisitions made by Coinbase on Earn.com and Paradex, as they have pursued companies whose business models rely on blockchain technology and cryptocurrencies to facilitate contracting between consumers/users.

Paradex was a decentralized token exchange that enabled users to trade ERC20 tokens on multiple cryptocurrency exchanges, allowing for the purchase of tokens across different platforms. Coinbase acquired Paradex through its investment in the company, and thus allowed users to trade ETH tokens on Coinbase.com. This provided an alternative option for Coinbase users to buy and sell ERC20 tokens (i.e., they use their Coinbase accounts to buy/sell ERC20 coins such as 0x (ZRX)) instead of using other popular cryptocurrency exchanges that offer similar services. In addition, Paradex has agreed to migrate its operations to Coinbase’s platform.

The acquisition of Digital Wealth LLC, Digital Securities LLC, Venovate Marketplace Inc., and Keystone Capital Corp. provide Coinbase with the infrastructure to offer services in the brokerage industry to investors through their Coinbase accounts. Similar to the acquisition of Paradex, Coinbase’s acquisition of these firms will allow it to benefit from offering brokerage services for many different cryptocurrencies (in this case, most ERC20 tokens) supported by smart contracts and Ethereum’s blockchain (dubbed ERC20 tokens because they are based on the Ethereum protocol). This allows consumers/users to purchase ERC20 coins on their Coinbase accounts.

In addition to acquiring these firms, Coinbase has also entered into a partnership with various investment firms. Its purchase of Paradex and Surge led it to opening a subsidiary in 2018: Keystone Capital Corp. Vanguard, one of the most popular financial services ventures, indicated its interest in buying a stake in Coinbase’s subsidiary that provided brokerage services to investors using Coinbase’s platform. Vanguard was reportedly interested in investing 15% of the total share not held by Coinbase (as seen on data from Google Finance).

Coinbase has also made investments with different companies such as Venovate Marketplace Inc., Digital Wealth LLC, Digital Securities LLC and others related to their strategic platforms. Venovate is an online marketplace for financial services, cryptocurrencies, and other financial products. It provides a platform for users to buy and sell cryptocurrency on Venovate Marketplace, a subsidiary of Coinbase (which was acquired in 2018). Digital Wealth LLC is a subsidiary of Coinbase that provides brokerage services to investors who purchase cryptocurrencies with Coinbase accounts.

According to data from Google Finance, as of 9/30/2018, Venovate is the only subsidiary that has been on the rise from its lowest point in 30 days, while all other subsidiaries have declined over the same period:
Conversely, Coinbase’s acquisition of Paradex led it to opening a subsidiary in 2018: Keystone Capital Corp. Vanguard, one of the most popular financial services ventures, indicated its interest in buying a stake in Coinbase’s subsidiary that provided brokerage services to investors using Coinbase’s platform. Vanguard was reportedly interested in investing 15% of the total share not held by Coinbase (data from Google Finance). As seen below, as of February 2018, Paxos is the only subsidiary to have maintained its value:
The Changelly acquisition is another notable event for Coinbase. Changelly was, before it was acquired by Coinbase, a popular cryptocurrency exchange that allowed users to trade digital assets using Ethereum and Bitcoin. Coinbase’s subsidiary now offers similar services. This acquisition leads to the opening of a new subsidiary called GDAX (which is the parent company of Coinbase), and also brings in more users of Coinbase’s platform who are cryptocurrency traders versus those who only buy cryptocurrencies on their platform.

Coinbase also offers cloud computing services for various blockchain platforms including Ethereum, EOS, and NEO. Its mining pools include Ethereum and Bitcoin-based mining pools. The company has also made investments in companies that produce hardware specifically for cryptocurrency mining operations, especially DASH.

Coinbase also engages in international expansion to countries outside the United States. It has been reported that Coinbase is opening more branches in Australia and New Zealand. In addition, Coinbase has also opened a joint venture with an investment bank called SBI Holdings, to launch a Japanese cryptocurrency exchange called SBI Virtual Currencies.

Coinbase has had extensive media coverage since it started operations in 2012, primarily due to the popularity of cryptocurrencies such as Bitcoin and Ethereum. Many news sites have used Coinbase as reference when reporting about cryptocurrency prices, their founders, owners and investors, etc., much like Nasdaq does for any company that uses its computer programs and infrastructure to facilitate trading of stocks and options (like the stock market).

Coinbase receives over 200,000 new users per day.
This growth is primarily attributed to the constant stream of new users that are looking to buy cryptocurrencies on Coinbase’s platform. A few notable events include: Coinbase’s announcement about adding ERC20 tokens (Ethereum-based tokens) and Bitcoin Cash to its platform, and Coinbase’s decision to not list Bitcoin Cash as an asset on its platform.
Large U.S.-based cryptocurrency exchanges like Coinbase have benefited from the growing interest in cryptocurrencies and blockchain technology in 2017/2018, primarily due to the introduction of Bitcoin futures by regulated markets such as CME Group Inc., Nasdaq Inc., etc.

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