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Comment by chollida1 | Hacker News Reader

I think this makes alot of sense. No real 800lb gorilla in the space yet.

Coinbase is big but they have nowhere near the money, legal reach, engineer head count, or infrastructure of a Microsoft, Facebook, google or Amazon.

if the rumors of Coinbase making loads of money are true then they make a great and vulnerable target. I mean Coinbase is the US leader in crypto but they don't really have any moat around them to prevent one of the big 5 from coming in and competing with them by slashing trading cost to almost zero.

Where would Coinbase be if trading commissions were gone.

That's got to be a "Netscape loosing all its Navigator revenue due to a free Internet explorer" type scary for Coinbase.

Even if Coinbase is making money like crazy, you'd think they still have to seriously consider selling.

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Facebook has the muscle to turn Coinbase into an acquisition success on the scale of Instagram. They already have their VP of FB Messaging, David Marcus, on the Coinbase board as well.

If I were a Coinbase investor, such as Andreessen Horowitz, I'd take a long hard look at a potential acquisition. It could increase the value of their cryptocurrency holdings and speed up market adoption.

Simply cutting trading commissions is not enough to compete with Coinbase; I believe they already have competitors that offer lower rates.

The main reason they remain one of the largest players in the marketspace is because they are one of the only "fiat bridges" -- a place where you can actually buy and sell crypto for government-backed dollars.

There's a reason why there are a dozen crypto exchanges but not many more (any more?) fiat bridges -- it requires setting up banking relationships, complying with KYC regulations, etc.

> The main reason they remain one of the largest players in the marketspace is because they are one of the only "fiat bridges" -- a place where you can actually buy and sell crypto for government-backed dollars.

Fully agree and as I said, when mentioning legal reach, I think this is one area where the big 5 can compete better than even coinbase.

They will all

- obviously follow the US KYC laws

- already have huge legal teams

- experience working with government regulators

Yes, but they have absolutely no experience in this marketspace. It's fundamentally very tricky from a fraud perspective -- you have customers using various kinds of reversible payment systems (credit cards, ACH / SEPA bank transfers) to purchase assets that can be irreversibly sent elsewhere. It's also very customer-support heavy, and as another commenter mentioned, these companies may be loath to onboard the large numbers of support staff required.

Can be made easier if they force everyone to link to their real Facebook account..

Facebook accounts don't have anywhere near the level of KYC as a bank (or a fiat bridge masquerading as a bank). Think social security numbers, DOB, verified residential address, and copies of government-issued ID. Heck, Facebook accounts don't even really have legal names, just maybe a legit phone number.

Why it's as if it's in Facebook's interest to get this information too.

The solution to that is pretty straightforward - do not allow outbound cryptocurrency transactions. Any financial institution already compliant with KYC and AML laws could add in a "deposit cryptocurrency" button and a cryptocurrency exchange and be in business relatively straightforwardly.

Or at least have the bar for outbound cryptocurrency transactions be very inconveniently high. Like, "bring your passport into a local branch and wait a week".

You're not going to have many customers for long if you have a "roach motel" model for depositing funds. Customers get very worried and very angry, very quickly, if they cannot reliably withdraw their funds.

You could have "WE DON'T DO CRYPTO WITHDRAWALS, ONLY DEPOSITS" in giant 30pt bright red letters on the account signup flow in three different places, and people would still think they could, and then threaten suits and class actions when they find out they can't.

Why would they still think they could, despite all warnings to the contrary? Because withdrawals are a fundamental action in banking, and they think cryptocurrency is another form of money. (Don't get me started on the alien concept of an irreversible transaction...)

When you target the cryptocurrency-newbie customer as your market, results like this are unfortunately predictable.

Imagine becoming a major hub for crypto trading - and charging commissions/fees for nothing more than an accounting entry, with the only real costs being the fees for transfer of incoming and outgoing crypto, which the customer also pays for.

If (a big If) the crypto market gets very huge, that strategy alone could easily make a few million dollars per day, or billions of dollars per year.

Hopefully you're spending at least a little bit of that windfall on security audits, or you're not going to be around for very long: https://magoo.github.io/Blockchain-Graveyard/

> they don't really have any moat around them to prevent one of the big 5 from coming in and competing with them

With that in mind why does an acquisition make sense for Facebook?

It seems like a similar price war was unleashed among brokerage houses (driven mainly hy Schwab, but also Robinhood), but brokerages are not buying one another. Instead the competition has shifted into fee-based products (like ETFs and mutual funds) as well as portfolio management.

Arguably because it gives Facebook a global commerce platform for its global forum. If Facebook is the culmination of Web 2.0 (UGC) and crypto is Web 3.0, then it makes perfect sense.

Although, I'd have to imagine that given government concern on both Facebook and cryptocurrency, extensive regulation would be a certainty.

The list of countries supported for Facebook Messenger Payments https://www.facebook.com/business/help/376967925660473 and the list of countries supported by Coinbase https://www.coinbase.com/global overlaps significantly. Coinbase has more global presence, but it seems unlikely that it’s a moat-level achievement.

Hard to classify them as "vulnerable" given how successful they've been independently and they're privately held. I'd be "vulnerable" to the right eye-popping offer too, so don't bet on anything right now.

If you read the comment you replied to, he states they are vulnerable to one of the big 5 competing against them and wiping out their business model. This isn't hard to classify at all, it's a matter of fact.

> Hard to classify them as "vulnerable" given how successful they've been

Coinbase’s volumes have consistently fallen every month since December. January was less than December, February less than January, March less than February, et cetera. That, and their valuation, puts them at risk of having to (a) lay off lots of people or (b) do a down round.

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