Cryptocurrencies are something we’ve had to write about a lot in Honey lately. Love them or hate them, the nascent asset class has some serious weight in the financial markets today.
And Coinbase, like the digital assets its users trade in, has managed to stir up some controversy since going public earlier this year. Valued at over $50bn, the firm went public via a direct listing on the Nasdaq.
Critics have said that number is too high. Supporters have said it reflects massive future growth in a still-nascent industry.
To get an idea of who is right in that debate, the Honey team caught up with Marcus Hughes, Coinbase’s Managing Director for Europe. Our senior analyst Dan Lane spoke to Marcus about the wider crypto industry but also Coinbase and its plans for the future.
You can see a video of the discussion below or read the transcript.
Hello and welcome to another executive interview from Freetrade, I'm Dan Lane. A quick reminder to sign up to our daily market newsletter Honey for all of our articles and all of our executive interviews.
And with that said, I will introduce our guest today, Marcus Hughes, managing director for Europe at Coinbase. Marcus, thanks so much for joining. We've sourced all our questions here from the Freetrade community forum. I thought we'd start with Coinbase itself. What do you do and what are you trying to achieve?
Yeah, so effectively we operate a platform which makes it easy to buy and sell crypto assets and engage with a whole range of other services that we're launching, which really allow access to the kind of crypto ecosystem. So we want to make crypto accessible. We want to make it easy to use, and we're also kind of a trusted place where you can kind of store your crypto assets and have confidence that they're being held securely. I think it's a really exciting time for the kind of crypto ecosystem at the moment. It's really early days. We're really just at the beginning. I'm really excited to kind of see what the future holds in the space.
You say early days, it's funny, isn't it - I saw a video that Brian the CEO said he started Coinbase back when Bitcoin was maybe like $2 and just how much time has come on since then. If we think about recent announcements for Coinbase, you came to the stock market through a direct listing - take us through your decision there.
I think that was something that both Brian and the executive team felt was the right way for a crypto company to go public. It was kind of the ability for the public to have open and free access to shares in the same way as institutional investors would have. I think it's a really interesting time for the whole industry.
I mean, obviously Coinbase kind of being the first big name to go public is exciting. It's great for us. You know, we have this kind of mission to build an open financial system. We have very big ambitions in terms of what we want to achieve. I think going public is one step in that journey.
It seems strange to say it's early days when we've been operating since 2012, but of course back in 2012, we replaced where you could buy and sell Bitcoin. And that was it. And now you're looking at this huge array of services that could be facilitated by crypto, you know, so-called finance 2.0 and it's that kind of aspect that kind of captured my imagination.
And I think the thought that you're providing access to financial services to people around the world that may have no access to a traditional bank account. So I think the sky's the limit in terms of kind of where it can go but the reality is, you know, we're still at the relatively early days and the question is how many other use cases that haven't even been created yet will be imagined in crypto. But I think that's what makes us a really interesting sector.
Yeah. And you mentioned those big ambitions, but I guess if we break that down to think about right now, what's on your plate right now, what are some of the big projects?
Yeah. So I think scaling ourselves internationally obviously is really important and that's in the context of crypto regulation coming in and in many countries around the world, that's something we advocated for from the very early days, you know, our aim was to kind of be the most trusted player in the crypto space.
And so having that regulatory framework - the right kind of regulation I hasten to add - I think is really important for providing confidence to both retail and institutional investors. So the crypto scaling internationally is a huge part of that, you know, building what we refer to as this kind of open financial system.
I think what's also a kind of real focus for us is the breadth of products or services that we'll be offering. And I touched on the kind of utility phase, and this is the kind of concept that crypto can kind of power and enable a whole range of interesting use cases, whether that's decentralised lending or earning a yield on crypto assets.
For example, there's a whole range of use cases that are just starting to emerge. And I think there'll be a huge focus there and understanding a lot of people go into crypto to perhaps speculate on the price of Bitcoin. That's one use case. And I think what we'll see over time is a whole range of very interesting use cases emerge for crypto and aside from pure investment. It's that, that I think we're very focused on.
Yeah. I was maybe going to touch on this later, but it just sounds like a good time to talk about it now. I mean, crypto - there's been this kind of, I think, a pretty lazy narrative, that we have to get through the excitement until we find a use case, or until it becomes a stable currency and it's about waiting.
But there seems to be, from my point of view, a bit of a fork in the road where people are just saying, "I'm not going to wait for that. There are definitely use cases now and we're going to explore those." Is it a case that there are those use cases on one fork and there's the investment side on another, the speculation side? Can they coexist? Is that how you see it playing out?
I think they could absolutely coexist. I mean, I think there are a whole range of reasons why people come into crypto now. Some is just pure investment. You buy Bitcoin, you speculate that the value may increase.
Others are building a whole bunch of very, very interesting products and services using crypto effectively tokens to kind of power those products and services. So whether it's a theory, the concept of like a decentralised world computer, or peer to peer lending use cases, remittance use cases, I think there are many of these that will emerge and, you know, I think we're beginning to see what those look like.
I think there'll be a flurry of continued activity here, and we can't get away from the fact that a number of these assets have experienced a lot of volatility in the past. And I I'm sure that will continue for some time to come.
I think, as we see the market mature, as we see the ecosystem mature, more players come in, more traditional players dip their toe in the water of crypto we will see these use cases emerge with a high degree of certainty and understanding. But I do think that these things can coexist and I'll give you another example of where I think it could be a kind of fork, but things could continue to operate together.
You have kind of central bank digital currencies, you know, either being launched or already launched in a number of countries now. Some would argue, well, those don't really embrace the true ethos of crypto. You know, you're still at the mercy of interest rates, monetary policy of a central bank - but that doesn't mean that they can't exist alongside, you know, USDC or Bitcoin or another asset.
So I think we're kind of everything to play for in many ways. You know, there's so many interesting use cases coming up, and I do think that they can co-exist. I don't think crypto is going to tear up the traditional finance system overnight, but I do think it could provide a very compelling alternative in many ways to how you can do things.
And that's what I think is so interesting about crypto - it's, re-imagining how you achieve many things, rather than, you know, traditional FinTech will be looking at improving, maybe making it cheaper or easier. Now, crypto is slightly more revolutionary in saying actually there's this decentralised way of looking at things and I think that's really, really compelling.
Yeah. I mean, you mentioned the central banks getting involved. We saw Jerome Powell maybe even tabling discussions round it and I think in Nebraska there's the bill going through to hopefully create the world's first crypto bank.
These are the people and these are the government levels who were maybe terrified of crypto five years ago, they're kind of slowly turning onto embracing it. And I think one big difference again, maybe from the rise last time in 2017 is institutional investors getting involved this time. What's changed there? Why have they suddenly come around?
Yeah. And it was a bit of a kind of running joke in the crypto industry that mass institutional take-up is just around the corner and, you know, people would joke, “oh, well, you know, it still hasn't come.” I think it definitely will, and truly has arrived now. That'd be the first point I'd make, you know, I think we're talking traditional institutions and hedge funds and pension funds and corporates, you know, now putting crypto on their balance sheet.
Again, overnight, we're not going to find that, you know, all of a sudden institutions are fully into crypto, 100% confident in everything related to crypto. I think it's a journey. It's a process of kind of educating institutional investors, getting them comfortable with what is crypto, what's the underlying technology? What are the use cases? How do you safely and securely custody crypto assets, which is a unique issue for institutions compared to kind of traditional finance while looking at kind of securities where, you know, custody of securities is kind of well-established and understood.
So I think there's a lot of education, it goes back to the point I made previously around demystifying the space. But undoubtedly, we're seeing traditional institutional take-up increase significantly. And I think that will be a continued pattern. And I don't think it will happen overnight.
You know, I think there's a question of institutions getting familiar and comfortable with these assets. I think what we're also seeing is underlying client demand. So for example, private wealth management firms, getting that underlying demand from their clients that they want to allocate, perhaps a portion of their portfolio to crypto and those calls are too strong to resist. And that is a way that some institutions are first coming to us because they need to service that client demand.
So I think it's really good to see, both on the retail and the institutional side, a very strong kind of growth in taking an interest and will be very interested to see how that kind of evolves as institutions get a bit more comfortable with the sector. And going back to the earlier point, I think it's that unfamiliarity that we need to get over, right?
How do we kind of create an understanding of what crypto is about and what it is powering and kind of break down some of those kinds of those barriers to understanding. And that's a really important role, I think, for the coin investors of the world.
Europe is your patch. Are you seeing that the biggest barrier is this kind of unfamiliarity, is this caution in Europe as opposed to the US or what are the differences you're finding in global markets?
Yeah, I mean, of course even within Europe you have a lot of very kind of discrete markets. So, you know, the UK and Germany might be quite different to kind of Greece and Italy. So I caution somewhat against generalisation, but I do think it's a kind of Europe wide question, probably global question, of how do we inform and educate, how do we explain why crypto is interesting and why people should kind of dip their toe in the water there?
That's an important part of what we do. I think the other aspect is regulation as well. So we see MiCA Europe wide crypto regulation coming in, seems kind of pretty sensibly framed as a first kind of foundational start to kind of crypto regulation.
I think that's good to say, as I say, we've advocated for regulation. I think it provides confidence to the public. It provides constant confidence to institutional players as well. I think we'll see that kind of evolve over time and it's all these various different moving parts coming together to take that understanding and confidence, which will obviously happen over time.
So turning to Coinbase in particular now, what is the ideal state you want to be in? What services would you offer? Who would you offer them to? What can we expect from Coinbase?
Yeah. So if you look at what our ambitions are, I mean, we've talked about our kind of mission statement, which is to build an open financial system. And that fundamentally is what we want to create.
You know, we want to be able to power this kind of global financial system, and that means access for everyone to finance. And the statistics are incredible, you know, you have many countries in the world where smartphone penetration is 80% plus, and yet the vast majority of people have no access to bank accounts. So if you look at like, what can crypto help to solve, well it can democratise access to finance at the fundamental level.
If you look at how do we fit into that, well, I see Coinbase as that kind of trusted player at the centre of the crypto ecosystem, helping to facilitate and power all these various different services that will form part of that ecosystem.
And I think that really is where we see ourselves, you know, not just the ability to kind of buy or sell assets, but also helping businesses that want to accept crypto payments or businesses that want to kind of build something powered by crypto and that we have the capability to help them do that.
So I think there's a range of ways in which we can kind of help both crypto businesses and traditional businesses leverage the power of crypto. And I think, if I had to be succinct, that's how I'd frame where I see Coinbase.
And are there any plans to diversify away from a predominantly trading fee based revenue model, because that's what you're using at the minute?
Yeah. I mean, I think our CFO, Alicia has talked to this in our most recent earnings, talking about obviously today, we're pretty heavily dependent upon trading revenue. What I would say is month on month, we are diversifying away from pure trading revenue dependence.
As I touched on previously, the products or services that we offer are becoming broader. You know, they're not all dependent upon trading fee revenue. So I do think you'll see that kind of pattern moving away from that dependency over time. It won't happen overnight.
As I say, the level of maturity of the ecosystem I don't think is quite there yet in terms of the breadth of the products or services, but that's changing on a kind of weekly basis. And so I would say watch this space, you know, we've got a lot of exciting products in the pipeline, and I do think you'll see that movement away from such a dependence on trading fee revenue over time.
A lot of investors, either prospective people watching this or people who've maybe bought in recently will be thinking, okay, well, what's next? What should I be watching with Coinbase? Because it seems like there's so much opportunity out there, what should they be watching for in the near term as opposed to thinking, well, actually the wold is our oyster, which that can also breed a sense of well I actually don't know what's going to happen at all then.
Yeah, I think that's fair. So I think our aim has always been to be the kind of trusted operator right at the centre of the ecosystem. I've touched on regulation and why we think that's important. So you can look for us looking to engage with regulators globally, look to get licensed where applicable and in a number of key countries around the world. I think that's a natural trend within the crypto space.
And I view that as a great sign that the system is kind of maturing. I think we talked about diversification of revenue away from trading fee revenue. So range of products and services that aren't dependent on trading free revenue. And there are a lot of interesting use cases emerging if you know what people might want to do.
They might want to lend their crypto out to earn a return, for example, they might want to borrow. There's a whole range of different kinds of services that I think you'll see expand. I mean, one example of where services have been expanding recently is with staking. So proof of stake, crypto assets, without wishing to go down too much of a technical rabbit hole, different validation mechanism for transactions, instead of proof of work, proof of stake involves staking and effectively you earn a return or staking rewards as we term them, from staking your assets. You hold assets on the platform, and you effectively earn a kind of passive return from doing that.
That's one example of the kind of service I think you'll see us increasingly kind of offering. We also have a number of what we call earn campaigns, where again, combining that concept of earning kind of a reward and the educational aspects of what we're trying to do. Demystify and educate - you can come onto the platform or there may be a new asset that we've launched. You can earn a certain number of dollars of that asset for free for watching an informational short video and answering a question. So again, we're keen to engage people, bring them in, help demystify and explain why crypto is compelling and what these different use cases are.
And there are so many exciting assets out there right now carrying really interesting use cases, bringing those to people and helping provide ease of access to those is part of what we want to do.
Marcus, I could talk to you about this all day, but I think that's all we have time for. Thanks very much for joining us and thanks to everyone for watching. If you'd like to keep up with more interviews and our daily market news, be sure to sign up to Honey and bye for now.