After all, Coinbase does most of what an investment bank does, but for cryptocurrencies like Bitcoin and Ethereum.
Yet, a decade after Fred Ehrsam and Brian Armstrong came up with the Coinbase concept in a San Francisco apartment, still none of the big finance houses do the same.
Watching its shares fly out of the traps on Nasdaq today at not far off the value of Goldman Sachs must be galling to say the least.
Especially because: Goldman, Ehrsam was one of your own employees!
It’s like GS had the golden goose but left the farm gate open. Now it’s returned with enough golden eggs to buy the whole county.
Talk to some in the crypto world and they say the banks have been on a voyage of denial, then self-discovery, and now panic about digital assets.
Says one: “They never really took Bitcoin or Ethereum seriously until the prices started to explode in 2017-8. Then the crash happened and they forgot about it again. But then they soared in 2020 and have kept on coming. Traders in banks’ dealing rooms are now getting asked by clients: can’t you help me invest in this stuff?’”
Sadly for the banks, they can still only pass them over to the likes of Coinbase.
Why did they do so little to help themselves? Was it naivete or willful blindness?
As one ex-Barclays banker now in crypto puts it: “We had a division looking at blockchain [the technology that underpins crypto] in 2014 at Barclays.
“We were trying to work out how we could use it to run our operations.
“It wasn’t that we weren’t on it, or aware of it. But it would have meant replicating our entire operation - a massive change, and all for a technology that was just moving too fast.”
Timing was also against the banks.
Crypto was getting established after the global financial crisis.
Investment banks were all facing fines, criminal prosecutions and intense scrutiny from regulators in the aftermath.
It would have been, and to some extent still is, impossible for them to get involved in anything as difficult to control and audit as crypto.
“The slightest whiff of a crypto client using us for moneylaundering could have had us shut down,” says one UK investment banker.
However, as the cryptos have shaken off some of their notoriety for being used by gangsters and moneylaunderers, increasing numbers of investors are trying to get into the game.
Says Asen Kostadinov, head of strategy at Copper, a London crypto custody provider, more hedge funds and family offices are now getting interested.
He says the Coinbase float will act as a “gateway drug” to investors into buying the currencies directly. “People not that close to the crypto market now have a blue chip tech stock to invest in that’s straightforward and easy to understand. If you’re a tech investor who’s not in Coinbase, you’ll need to answer: ‘why?’”
From buying Coinbase shares, he predicts, investors will go on to buy the currencies directly.
Some bankers point out that, for all the hype around Bitcoin, crypto is still a tiny market for investors relative to, say, the dollar, the pound or the equity and bond markets.
And investment banks will only go where their investor clients want them to.
Goldman Sachs nearly went big into bitcoin in the 2017 boom but pulled back from pressing the button. JPMorgan chief Jamie Dimon declared bitcoin was a fraud.
Fast forward three years, and JPMorgan co-president Daniel Pinto was just asked whether his bank would start trading bitcoin for customers.
His answer: “If over time an asset class develops that is going to be used by different asset managers and investors, we will have to be involved. The demand isn’t there yet, but I’m sure it will be at some point.”
I’d take that as a yes.
Another major bank with customers numbering in the many millions responds similarly, protesting that it has plenty of time to get into crypto when it becomes truly mainstream.
Says one senior executive there: “As crypto becomes more Midwest than Wild West, we’ll get into it. But we’re not worried about getting left behind by specialists like Coinbase.
“You can’t buy your morning paper with crypto. My parents’ generation will never use it. It’s really not got much real utility yet.
“When it does, we’ll move, and at a scale that only banks like us can.
“You can catch up on technology relatively quickly, but it takes decades to build a customer base like ours.”
So, who does he most resemble; a realist, or the owner of your local Blockbuster circa 2010?