We are diving deep today into the story of a
company that in many ways really charted the
course for mainstream cryptocurrency adoption
right here in the United States. But make no
mistake, this journey was never a smooth cruise
to the top. Not at all. It was more of a turbulent.
often chaotic whitewater rafting trip featuring,
you know, unprecedented financial booms, sudden
regulatory landmines, intense internal culture
wars. And even, you know, the high stakes drama
of international cybercrime. It's really a perfect
case study. It really is. If you want to understand
the entire arc of the crypto industry's attempt
to professionalize and mature, you just have
to look at Coinbase, Global Inc. And we get the
sources to do it. We do. We're holding a stack
of sources detailing its history, its products,
its highly volatile financials. And I think perhaps
most importantly, it's legal compliance battles.
So our mission today is pretty straightforward.
Yeah. We want to unpack the complete history
of Coinbase from its small 2012 founding out
of a startup incubator. Right. All the way up
to its major strategic movements and legal showdowns
through late 2025. It's really the story of an
entity constantly fighting for legitimacy, either
catching up to or actively fighting with regulators.
All while becoming the custodian for over half
a trillion dollars in digital assets. It's just
a staggering amount of responsibility. And what's
fascinating here is just the sheer audacity required
to navigate that shift. How so? Well, they began
as this scrappy startup sort of advocating for
decentralized finance, yet they became a public
S &P 500 entity by defining what it means to
be a hyper -compliant, law -abiding... crypto
exchange. In an industry that's historically
been really skeptical of any centralized authority.
Exactly. That tension is the core of their business
model. That tension is what we need to explore.
OK, let's unpack this journey starting right
at the very beginning. So the founding story
is, I mean, it's a classic blend of Silicon Valley
innovation and Wall Street pragmatism. It really
is. It began in June 2012 with Brian Armstrong,
who was a former engineer from Airbnb. He brought
the technical vision. And he found his co -founder,
Fred Urson. who was a former Goldman Sachs trader
of all places, on Reddit. On Reddit, yeah. It's
that perfect, necessary combination of deep technical
understanding on one side and traditional financial
market experience on the other. And they needed
to signal their intent right away. And they did.
Securing that early momentum was crucial. Almost
immediately, they received a cash infusion of
$150 ,000 by enrolling in the prestigious Y Combinator
Startup Incubator program. And that wasn't just
seed money, was it? No, not at all. It was an
instant stamp of traditional tech legitimacy.
It suggested they were aiming to build a scalable,
venture -backed enterprise, not just some niche
peer -to -peer service. And here's a piece of,
I think, surprising founding trivia. that is
hugely symbolic of the philosophical splits you
see in crypto. There is actually a third founding
member, Ben Reeves, the co -founder of Blockchain
.info. Right. But he parted ways right before
that Y Combinator funding, and the reason was
very specific. It was a fundamental disagreement
over how the Coinbase wallet should operate.
And that one disagreement tells you everything
you need to know about the future of centralized
exchanges. It really does. Reeves wanted what's
called a non -custodial wallet. where users would
maintain control over their own private keys.
The crypto ethos of be your own bank. But Armstrong
and Airsome pushed for a custodial solution.
Yes, where Coinbase manages the keys for the
user's convenience. By opting for custody, they
implicitly chose convenience and ease of use
over that core crypto ideal. And that set the
stage for their entire regulatory path. Absolutely.
And the name itself, Coinbase. It's highly technical,
almost like rooted in the mechanics of the Bitcoin
protocol. Precisely. It's named after Coinbase
transactions, which are these special unique
transactions that happen when new cryptocurrency
is introduced into circulation on a proof of
work blockchain like Bitcoin. It's the transaction
that pays the miner who successfully validates
a block. Exactly. Choosing such a technical foundational
name suggested they saw themselves as integral
to the infrastructure of crypto, not just another
marketplace. And they launched their services
just four months later. Yep. October 2012, they
were allowing users to buy and sell bitcoins
for the first time using simple bank transfers.
They were building the first really friendly
on -ramp. And their early scale -up showed a
massive appetite from traditional investors.
Oh, huge. By May 2013, they had secured a $5
million Series A. Just six months after that,
they snagged a huge $25 million investment led
by Andreessen Horowitz. That kind of rapid accumulation
of VC money was just... Unheard of in the early
crypto space. It was. And it cemented their perception
as the most legitimate player. That trend really
climaxed in January 2015 when they secured a
$75 million funding round. And this round included
some traditional finance heavyweights. It did.
People like the New York Stock Exchange and USAA
were throwing their support behind the company.
This was crucial for moving them beyond the realm
of just internet money and into the perception
of a regulated financial services provider. And
that legitimacy helped them build out their user
base and their partners. By 2014, they already
boasted 1 million users. They were also busy
acquiring smaller companies, integrating services
like the Blockchain Explorer service blocker
and the social bookmarking service KIPT to consolidate
talent and tech. Their partnership strategy was
just as aggressive. They weren't just facilitating
retail trades. They were pushing Bitcoin into
traditional commerce infrastructure. You have
to think back to 2014 when major retailers like
Overstock, Dell, Expedia, Dish Network and even
Time Inc. suddenly announced they would accept
Bitcoin. And Coinbase was often the engine running
those transactions, integrating Bitcoin into
the traditional checkout process. They were integrating
it into the payment ecosystem, too. Right. That
same year, they added Bitcoin payment processing
to key financial infrastructure players like
Stripe, Braintree and PayPal. This infrastructure
push led them directly to focusing on professionalization.
It did. In January 2015, they launched their
dedicated U .S.-based Bitcoin exchange for high
volume professional traders. This platform was
later rebranded as the Global Digital Asset Exchange
or GDAX in 2016. And that was a clear move to
separate the casual retail investor from the
institutional market. Exactly. It allowed them
to offer more sophisticated tools and lower fees
for the really serious players. And that professional
platform, GDAX, it underwent another major transformation
later in the decade. It did, rebranding again
to Coinbase Pro in May of 2018. And at the same
time, they launched Coinbase Prime, which was
dedicated entirely to institutional clients,
you know, the hedge funds and massive asset managers.
This market segmentation was key, but it only
really worked because they embraced the regulatory
structure. That's the key. In early 2017, they
achieved a major legitimacy milestone by obtaining
the highly complex and frankly sought after BitLicense.
Along with trading licenses for Ethereum and
Litecoin from the New York State Department of
Financial Services, the NYSDFS. And these licenses
were non -negotiable for anyone operating legally
in New York. It really distinguished Coinbase
from competitors who were operating in a much
more ambiguous regulatory environment. But operating
as a regulated entity meant inviting some pretty
serious scrutiny, particularly from the IRS.
The IRS came knocking in November 2017. They
ordered Coinbase to report user data for anyone
who had at least $20 ,000 in transactions in
a single year. So what did that mean for users?
Well, Coinbase later notified about 13 ,000 affected
customers in February 2018 that their taxpayer
ID, name, address, and transactional records
from 2013 to 2015 would be handed over. And that
demand marked a definitive turning point. It
really did. It's where the early myth of cryptocurrency
anonymity began to dissolve for mainstream exchange
users. The government made it crypto clear. If
you use a centralized U .S. based exchange, you
are traceable and your transactions are taxable.
Stepping back for a moment. They weren't just
focused on trading. They were also investing
in the future of the ecosystem itself. That's
right. in april 2018 they launched coinbase ventures
an early stage venture fund and their very first
investment went to compound labs so they were
trying to create a sort of self -reinforcing
loop Exactly. And we can't overlook their foundational
role in the stablecoin market, which is now critical
to global crypto trading stability. Right. It
is USDC. In September 2018, Coinbase was part
of the center consortium alongside Circle and
Bitmain that launched USD Coin or USDC. It quickly
became fundamental because it provided a dollar
pegged asset that enabled stable liquid trading.
And Coinbase still maintains a significant equity
stake in the issuer. circle. They do. So finally,
their commitment to compliance and technical
sophistication led them to a major acquisition
in 2019 that immediately plunged them into a
huge controversy. Utrino. In February 2019, they
acquired this blockchain intelligence platform,
but they faced immediate internal and external
backlash. So why did this deal go so sideways
so fast? Well, because the founders of Neutrino
had direct connections to the infamous hacking
team. And hacking team had a terrible reputation.
A terrible reputation for supplying aggressive
internet surveillance technology to governments
with, frankly, abysmal human rights records globally.
This created an instant ethical and reputational
red flag for Coinbase, which was trying to project
this image of pristine legitimacy. So it put
CEO Brian Armstrong on the defensive. It did.
He responded directly, admitting that the company
did not properly evaluate the deal from a due
diligence perspective. And crucially, the sources
note that staff formerly associated with Hacking
Team were transitioned out of Coinbase following
the backlash. Yes. And it shows the fine line
these centralized crypto exchanges have to walk.
They need robust blockchain intelligence tools
for regulatory compliance and tracing illicit
funds. But they have to avoid any association
with surveillance practices that violate user
trust. It's a real tightrope. Moving into 2020,
the company was gearing up for its public debut,
but it also underwent these massive structural
and cultural changes, which were largely accelerated
by the pandemic. That's right. In May 2020, Coinbase
announced it was shifting completely to remote
work and would no longer recognize a formal headquarters.
They committed to operating as a remote first
company until at least 2025. That was a defining
sort of pioneering structural decision. It really
was. By shedding that traditional headquarters
model, they gain a ton of operational flexibility,
but also face unique challenges in maintaining
corporate culture and internal cohesion. Especially
while preparing for the intense scrutiny of a
public listing. Exactly. But despite that remote
dispersion, they were still aggressively acquiring
technology they needed to scale. Right. They
bought Tagomi, a high -end digital asset trading
firm, for a significant sum somewhere between
$75 and $100 million. And later? They acquired
Agara. Yes, an AI powered support platform for
40 to 50 million specifically to automate and
improve their often criticized customer experience
tools. That investment in customer support automation
through Agara, it really foreshadowed the massive
customer service issues that were still looming,
which we will definitely touch on later. But
this period was also defined by some deep internal
friction surrounding social and political activism.
Right at the moment, the company was trying to
define its public. identity and that friction
really came to a head in June of 2020 it did
Following the murder of George Floyd, the CEO
faced severe internal backlash for initially
refusing to make a public statement about the
Black Lives Matter movement. Citing the company's
commitment to an apolitical culture. Right. And
although he later offered some acknowledgement
on Twitter, the internal debate was fierce. Armstrong
eventually doubled down on his stance in September
2020. With that highly consequential blog post
that outlined the mission -focused philosophy.
That's the one. He emphasized that Coinbase would
not engage. in social or political activism,
explicitly citing the harm and distraction he
believed it had caused other tech firms like
Google and Facebook. And this wasn't just a memo,
was it? He made the policy immediately actionable.
He did. He offered a generous severance package
for any employees who disagreed with this nonpolitical
direction and chose to leave. What was the implication
of forcing that choice on staff? It reinforced
this idea that Coinbase was going to be a pure
financial services utility focused solely on
its crypto mission. This created a cleaner narrative
for Wall Street, a focus on profit and infrastructure
free from distracting social debates. But it
cost them a number of employees who felt the
company should be more socially engaged. It did.
And this attempt to enforce an apolitical culture
became one of the key narratives surrounding
the company heading into the IPO. Yet the internal
scrutiny regarding transparency and compensation
didn't just go away. Definitely not. In December
2020, the New York Times published a pretty damaging
report based on 2018 compensation data. And it
suggested that women were paid an average of
8 percent less and black employees 7 percent
less than comparable male and non -black employees
in similar roles. Which was an exceptionally
poor look for a company about to debut on the
public market. It's important to provide the
counterpoint here, though, because the analysis
was incomplete. Absolutely. The critical context
is that the analysis, as it was published, made
no adjustments for education or experience levels.
Which doesn't negate the disparity, but it does
complicate the simple narrative. It does. And
in response, Coinbase took aggressive corrective
action in May 2021. They eliminated salary and
equity negotiations during recruiting entirely.
The goal being to ensure that all employees in
the same position, in the same location, receive
the same salary and equity offer. Right. They
used data to infer strict internal pay parity,
which was a significant move for a rapidly scaling
tech firm. So after all this internal turbulence,
the stage was finally set for the blockbuster
public listing. And by Q1 2021, the market was
absolutely feverish. Coinbase reported a nine
-fold increase in first quarter revenue, hitting
a massive $1 .8 billion. A jump attributed overwhelmingly
to the historic surge in the price of Bitcoin
and Ether. That financial momentum set up one
of the most anticipated public listings in years.
On April 14th, 2021, Coinbase debuted on the
Nasdaq exchange. And they opted for a direct
stock listing, a DPO. rather than a traditional
IPO. Remind us why that route was significant.
Well, a direct listing means the company sells
existing shares rather than issuing new ones.
It allows employees and existing investors to
sell their shares immediately without the dilution
and lockup periods you see with a traditional
IPO. So it signaled a lot of confidence from
the founders and investors. It did. The Nasdaq
set a reference price of $250 a share, valuing
the company at $47 billion. pre -market. And
the market reaction was explosive. It really
was. Coinbase closed its first day of trading
at $328 .28 per share, valuing the company well
over $60 billion. Now that IPO was the single
biggest moment where cryptocurrency, represented
by this hyper -compliant regulated entity, truly
crashed the gates of Wall Street and traditional
finance. No question. But the immediate aftermath
of the listing was defined by a major regulatory
skirmish with the SEC. over a plant product called
Lend. Correct. In September 2021, the U .S. Securities
and Exchange Commission reportedly threatened
to sue Coinbase if they launched their cryptocurrency
lending product Lend. Because the SEC viewed
the interest bearing product. as an unregistered
security offering. Right. But what made the situation
so confusing for the company and the broader
market was that similar crypto lending products
were already being actively offered by competitors.
So Coinbase felt like they were being unfairly
targeted. They did. They publicly expressed intense
confusion, even a degree of anger. They claimed
the SEC hadn't even provided a satisfactory legal
reason for the threat. So what did they do? Despite
the confusion and the existence of these similar
products, they canceled the launch of Lend. And
that decision was a critical move that reinforced
their image as a conservative compliance -first
exchange. It really was. They chose not to engage
in an early, high -profile legal fight with the
SEC, prioritizing their legal status even when
they fundamentally disagreed with the regulatory
action. And just to close out that year with
a moment of market chaos, we had the famous trillionaire
glitch. That was a fun one. In December 2021,
Coinbase experienced a major display glitch that
vastly inflated user balances, incorrectly showing
numerous users as trillionaires or multibillionaires.
So no funds were actually lost or gained? No,
no. But can you imagine the moment you logged
in and thought you had become the wealthiest
person on Earth? It was a momentary lapse that
really showed the fragility of the technology
under immense scale and pressure. The whole atmosphere
shifted dramatically as we move into 2022. The
early success of the IPO was pretty quickly overshadowed
by a major market contraction. It was, and it
started with operational hurdles overseas. Specifically
in India, right, one of the world's most promising
crypto markets. Exactly. Coinbase started operations
there in April 2022, intending to use the widely
adopted Unified Payments Interface, or UPI, to
let users easily convert rupees into crypto.
But the National Payments Corporation of India
which oversees UPI, it quickly issued a public
statement. They did. And they said they were
not aware of any crypto exchange using UPI, which
created immediate severe friction. That swift
rejection from India's National Payment Authority
forced Coinbase to suspend rupee conversion services
almost immediately. It did, effectively suspending
most of its fiat to crypto business in India.
And it highlights this persistent challenge for
compliant exchanges. Integrating into a major
nation's banking infrastructure often requires...
requires explicit high -level regulatory buy
-in. And Coinbase moves without it. Right. Then
came the famous crypto winter. The global market
downturn put Coinbase under severe financial
pressure, leading to two massive rounds of layoffs.
The initial cut in June 2022 was painful. It
was. 18 % of their global workforce, about 1
,100 full -time jobs, were eliminated. Then in
January 2023, they cut another 950 employees.
And CEO Brian Armstrong explicitly tied these
reductions to the macroeconomic downturn and,
critically, the possibility of further contagion
after the FTX collapse. Yes. He emphasized they
were shutting down several projects where we
have a lower probability of success. The cuts
were an attempt to safeguard the balance sheet
during a period of zero visibility. and massive
industry failures. So they were bleeding money,
but they used this downturn to secure strategic
institutional partnerships that solidified their
position as the trusted intermediary. Exactly.
While the retail market suffered, Coinbase pivoted
hard to institutional clients. In August 2022,
they partnered with BlackRock, the world's largest
asset manager. And this deal allowed BlackRock
clients using that massive Aladdin investment
management system to oversee their Bitcoin exposure
and facilitate trading directly on Coinbase's
exchange. It was a critical vote of confidence
during the deepest part of the winter. They also
struck a major deal with Google Cloud Platform.
Yes. In October 2022, Google Cloud agreed to
accept crypto payments for cloud services using
Coinbase Commerce. And just as important, Coinbase
agreed to transfer its own data apps from Amazon
Web Services to Google Cloud as part of the deal.
Right. These partnerships signaled to the market
that Coinbase was structurally sound and actively
integrating with the biggest traditional financial
and tech players. So now we come to the defining
drama of the past few years. the core regulatory
battle with the SEC, which really dominated their
operating environment. It began in earnest in
March 2023 when they received the dreaded Wells
Notice from the SEC. For those unfamiliar, a
Wells Notice is a formal letter from the regulator
signaling their intent to recommend enforcement
action. It's basically a pre -lawsuit warning.
It is, and it carries significant legal and stock
market implications immediately. The SEC signaled
they intended to sue specifically over Coinbase's
staking products, which they claimed were unregistered
securities. And Coinbase, predictably, responded
defensively, calling the investigation cursory.
But they didn't just wait for the inevitable
lawsuit. They went on the offensive. It was a
bold move. It was. In April 2023, Coinbase preemptively
sued the SEC, asking a federal court to compel
the regulator to respond to a petition for clear
crypto regulations that Coinbase had filed months
earlier. They were essentially forcing the SEC's
hand, arguing you either give us clear rules
or you must legally acknowledge why you won't.
And the SEC responded in kind just two months
later. in June 2023, filing their massive lawsuit.
What were the key allegations that made this
an existential threat? The core allegations were
comprehensive and spanned years. They claimed
Coinbase had been acting as an unregistered broker,
an unregistered national securities exchange,
and an unregistered clearing agency since 2019.
And on top of that, they alleged that Coinbase
had never registered its staking service, Coinbase
Earn, as required by U .S. securities laws. Right.
And the lawsuit asked for a permanent injunction,
meaning the SEC requested the court to permanently
restrain and enjoin the company from ever doing
this unregistered business again. which would
have crippled their operations. So this litigation
was absolutely foundational to the crypto industry's
future in the US. How did this massive legal
showdown end? Well, it ended abruptly. In February
2025, following the election of Donald Trump,
the SEC filed to dismiss its lawsuit against
Coinbase, bringing the multi -year legal battle
to a sudden conclusion. So the change in political
administration led to a shift in regulatory enforcement.
Clearly, it lifted an enormous legal burden from
Coinbase's shoulders. That is a colossal outcome.
So with that threat gone, let's look at the major
achievements and incidents that happened in 2025
alone, which really demonstrates the pace of
their expansion. The momentum was immediate.
In March 2025, Coinbase officially became the
largest single node operator on the entire Ethereum
network. controlling 11 .42 % of all staked Ether.
Right. This means they are a foundational pillar
of Ethereum security, its operation, and you
could argue its governance structure, given the
influence that concentration of staking power
grants. But that same year, they also faced a
massive corporate security test, a serious cyber
extortion attempt in May 2025. This incident
was fascinating and frankly, terrifying. The
company disclosed that cybercriminals had successfully
bribed rogue overseas support agents, people
working within their outsourced system, to steal
customer data for use in sophisticated social
engineering attacks. And Coinbase took a firm
stance. They refused to pay the $20 million ransom
demanded by the cybercriminals. A massive corporate
security decision. But it came with a predicted
high cost for the breach itself. It did. To mitigate
the risk and maintain customer trust, Coinbase
immediately offered a $20 million reward for
conviction information related to the attackers.
And they reported that less than 1 % of customer
data was actually impacted. But they publicly
disclosed that they expected the total cost,
including customer reimbursements and security
upgrades, to be up to $400 million. That just
demonstrates the immense financial cost of maintaining
security and trust when you scale global support
operations. And while dealing with that breach,
they were executing massive strategic mergers
and acquisitions. That May, they acquired Derivate.
A major Dubai -based cryptocurrency derivatives
exchange. The deal was enormous. $700 million
in cash plus $2 .2 billion in Coinbase stock,
valuing the acquisition near $3 billion. Which
was a clear, aggressive move to expand into the
lucrative derivatives market, allowing them to
offer futures and options trading. Exactly. A
key revenue stream usually dominated by traditional
financial institutions. And finally, the ultimate
symbol of traditional financial legitimacy, inclusion
in the S &P 500 index on May 19th, 2025. That
event, just months after the SEC lawsuit dismissal,
was the culmination of their 13 -year journey.
It confirmed their status not just as a profitable
crypto company, but as a stable, massive institutional
entity integral to the broader U .S. financial
landscape. And despite their established remote
first ethos, they were making physical real estate
moves, too. Absolutely. Which underscores their
commitment to compliance. In June 2025, they
opened a large dedicated office in Charlotte,
North Carolina, specifically designated as a
center of excellence for their compliance and
customer support teams. They also leased new
office space in San Francisco. Sort of reversing
that earlier decision to completely abandon a
physical headquarters. Right. Signaling a need
for anchor points for corporate and regulatory
functions. And wrapping up 2025, we noted their
high level political influence being listed as
a donor funding the White House's East Wing demolition
and a planned ballroom. That kind of high level
political involvement really shows how integrated
they have become into the Washington ecosystem,
especially after that major regulatory victory.
Let's shift our focus now to the modern platform.
What exactly is Coinbase today? It's far more
complex than just a simple place to buy Bitcoin.
Oh, absolutely. They maintain a very clear delineation
between their retail products and their specialized
institutional services. So starting with the
retail side, the foundation is, of course, the
Coinbase app. The core application that millions
use for buying, storing and trading cryptocurrencies.
They began supporting Ether way back in July
2016. And for those who want more sophisticated
charting and trading options, they have Coinbase
Advanced. Right, which evolved from the original
Coinbase Pro. This caters to high volume individual
traders, and notably, they even added popular
meme coins like Dogecoin support in June 2021
to capture that market segment. They're also
pushing recurring revenue and rewards through
premium services. They are. They offer Coinbase
One, a premium feed -based plan with extra features
and fee reductions, and their staking service,
Coinbase. earn is extremely popular. This is
where users lock up their crypto or stake it
to validate transactions on proof of stake blockchains
like Ethereum and earn rewards. And as we noted,
this service was the flashpoint for the SEC's
legal threats, placing it squarely in the crosshairs
of the regulatory debate over what constitutes
a security. And the Coinbase wallet is currently
undergoing a massive strategic transformation.
It is the traditional Coinbase wallet, which
allowed customers to access decentralized apps
or dapps was rebranded in November 2025 as the
base app. And this is a huge strategic pivot.
It is. The goal is to create a true crypto everything
app by combining social media features, messaging,
trading and payments, all built on their proprietary
Ethereum layer to network base. It's an attempt
to move beyond mere trading into becoming a core
social and financial utility layer. They've also
fully. integrated into traditional payment and
stablecoin infrastructure. For sure. They offer
the Coinbase card, which is a debit Visa card
that lets customers spend crypto directly anywhere
Visa is accepted. And their foundational role
with USD coin gives them immense influence over
global stablecoin liquidity. It does. Furthermore,
they are actively building on ramps and off ramps,
evidenced by adding Apple Pay support to their
on ramp platform in late 2024, letting third
party apps fund crypto purchases directly through
familiar payment methods. Shifting to the institutional
side, the offerings are much more specialized,
reflecting the needs of massive financial players.
The flagship offering here is Coinbase Prime,
the tailored trading platform specifically dedicated
to institutional clients. But perhaps the most
critical service is This is where they hold Bitcoin
and other cryptos for those large institutional
clients in secure cold storage accounts. Why
is cold storage so important and how does it
differ from a retail account? Well, cold storage
means the digital assets are held completely
offline, not connected to the Internet, which
dramatically reduces the risk of cyber theft.
And for institutions managing billions of dollars,
that security level is non -negotiable. Absolutely.
It requires Coinbase to meet stringent compliance
and audit standards, reinforcing their image
as a secure vault for digital assets. They are
also building robust infrastructure for commerce.
Yes. Coinbase Commerce allows merchants to accept
crypto payments through simple web integrations
like buttons and hosted checkout pages. And Coinbase
Payments takes that even further. It does. It
offers a stablecoin payment service for e -commerce,
providing the necessary connective tissue for
authorization, refunds and subscriptions, making
crypto acceptance feel as smooth as using a credit
card. And to round out their ecosystem, they're
focused on developers. Right. They provide the
Coinbase developer platform and an API for applications
and accepting digital payments. This is about
building the next generation of crypto enabled
businesses on top of their infrastructure. And
they're still eager for new markets. They are.
In November 2025, they announced a significant
expansion into prediction markets through a high
profile partnership with Kaoshi, further diversifying
their revenue streams beyond core trading fees.
Now, all these products. Custody, Prime, Advanced,
Base are built around a central tension that
every user has to understand. And that's the
reality of centralized custody versus the myth
of crypto autonomy. Which brings us to the most
critical disclosure they made in a Form 10Q filing
back in May 2022. This is a massive aha moment
that many customers may not fully grasp. It's
so important to understand this. Let's dedicate
some time to explaining the unsecured creditor
risk. What exactly did Coinbase state in that
SEC filing? Coinbase explicitly disclosed that
if the company were to face bankruptcy, the crypto
assets held in custody for customers could be
subject to bankruptcy proceedings and such customers
could be treated as our general unsecured creditors.
OK, let's unpack the legal implications of that
statement for the average person. Why is that
disclosure so alarming? Well, in traditional
banking, if a bank fails, your deposits are typically
insured by the FDIC up to a certain limit or
held in segregated accounts. This disclosure
states that your crypto, even if you own it,
is commingled on their balance sheet to a degree
that, upon bankruptcy, it wouldn't be treated
as your property. Exactly. It's not in a little
safety deposit box with your name on it. Instead,
you would be treated like any other creditor
the company owes money to, like a supplier or
a bondholder. Which means you would get pennies
on the dollar, maybe years later, if the bankruptcy
court decides you're due anything at all. Potentially.
It fundamentally dismantles the idea that funds
held on a centralized exchange are safe and segregated
from the company's own operating risks. It connects
directly back to that early philosophical choice
to offer a custodial wallet instead of requiring
users to hold their own keys. It's the ultimate
tradeoff. You surrender a critical layer of control
and security for the convenience, liquidity and
perceived legality of using the exchange. That
disclosure made during the crypto winter was
a stark reminder of the inherent risk. And what
about the myth of anonymity? If Coinbase is so
focused on compliance, users need to understand
the fundamental reality of privacy on their platform.
The myth of anonymity is completely dissolved
here. For registered users, Coinbase trades are
categorically not anonymous. Because they're
a regulated financial institution. Right. They
are required to collect your taxpayer ID. verify
your identity through know your customer or kyc
protocols and report transactions to the irs
and to adhere strictly to anti -money laundering
or aml regulations, Coinbase makes a deliberate
choice not to trade cryptocurrencies with enhanced
anonymity protection. Yes, like Monero. So they
offer over 250 currencies to U .S. customers,
but they explicitly exclude those anonymity coins.
This is a strategic compliance choice. It's the
clearest possible signal of their compliance
first identity. They choose to exclude assets
that make government tracking difficult, even
if those assets align more closely with the crypto
ideal of privacy. It's a sacrifice of a core
centralized ethos in favor of operating within
the established US financial and legal framework.
To truly grasp the pressure Coinbase operates
under, we have to look at their financial trajectory,
which is a perfect chart of the boom and bust
cycles of the crypto market. It is. The data
from 2019 to 2024 tells an astonishing story
of volatility. In 2019, they were still a relatively
small player in global finance. That's right.
Revenue of just over half a billion dollars,
resulting in a modest net loss of 30 million.
They were still investing heavily with venture
capital backing. Then came the peak of the 2021
bull market, fueled by market excitement and
their IPO. Explosive. Revenue multiplied by nearly
15 times, hitting $7 .8 billion, which translated
into a phenomenal net income of $3 .6 billion.
And the total assets held on the platform soared
to $278 billion. They completely justified their
valuation and their strategy. But the crypto
winter of 2022 hit them devastatingly hard. Oh,
it did. Revenue plummeted to $3 .1 billion and
they recorded their single worst year ever, a
devastating net loss of $2 .6 billion. That loss
was the direct cause of the massive layoffs we
discussed earlier and forced them into a serious
period of strategic contraction. And that pivot
toward institutional services. Yet the recovery
by 2024 shows their resilience and the success
of that institutional pivot. Revenue climbed
robustly back up to $6 .5 billion, with a strong
net income of $2 .5 billion. By the close of
2024, total assets managed by the company had
swelled to $404 billion. And the growth continued
through 2025. Yes. As of October 2025, they hold
nearly $516 billion in digital assets. They are
the largest U .S. exchange, the world's biggest
Bitcoin custodian, holding over 12 % of all Bitcoin
in existence. and a foundational validator for
Ethereum. That kind of scale puts their compliance
and customer service under an intense magnifying
glass. And historically, their customer service
track record is surprisingly poor for a company
of this stature. It really is an indictment of
their early scale. For a significant period from
2018 or up to 2023, Coinbase maintained an F
rating from the Better Business Bureau. And the
complaints were chronic and severe. They were.
From users being suddenly locked out of their
accounts to customers reporting it was nearly
impossible to reach human support after a problem
arose. The sheer volume of complaints was staggering.
That scale of failure in basic support must have
eroded trust among retail users. Though, as noted,
they have since reversed that trend. and improved
their rating to an A -plus as of 2025. They clearly
had to. That kind of operational risk is unacceptable
for a public company. Beyond customer service,
they faced concrete trading compliance issues
early on. They did. In February 2018, they admitted
to overcharging customers for credit and debit
crypto purchases because banks changed the merchant
category code to process crypto as cash advances,
which triggered unexpected fees. And they also
faced scrutiny from the CFTC regarding their
reported... Yes. In March 2021, right before
their public listing, Coinbase agreed to pay
$6 .5 million to settle claims from the Commodity
Futures Trading Commission that they had reported
misleading information about their trading volumes.
Which was a significant strike against their
transparency and market conduct leading up to
the IPO. Now let's talk about the massive regulatory
penalties they paid, separate from the SEC legal
fight. This reveals a clear pattern of compliance
programs failing to scale. The biggest one came
from the New York State Department of Financial
Services, the NYDFS, in January 2023. And Coinbase
agreed to pay a punishing $50 million penalty
for breaking core anti -money laundering, or
AML, laws. And the penalty wasn't just the fine.
They were required to invest an additional $50
million into their compliance program under NYDFS
supervision. What specifically was the breakdown
that led to this massive fine? The central allegation
was a catastrophic failure in transaction monitoring.
The NYDFS found that Coinbase was completely
unable to keep up with the volume of alerts generated
by its system. Alerts designed to flag suspicious
activity. Right. This resulted in an accumulated
backlog of over 100 ,000 unreviewed alerts, meaning
they were failing to report and investigate suspicious
transactions in a timely manner. They had grown
too quickly and their compliance systems just
couldn't handle the load. And this pattern was
mirrored globally. which indicates a systemic
failure across jurisdictions. Absolutely. That
same month, the Dutch central bank fined Coinbase
3 .3 million euros for failing to obtain the
correct registration in the Netherlands. And
in July 2024, the UK's Financial Conduct Authority
fined their UK branch three and a half million
pounds for breaching a voluntary agreement. The
breach involved unintentionally onboarding high
-risk customers, though Coinbase reported this
was only about 0 .34 % of their total, which
the regulator stated increased the risk of money
laundering. If you look at this entire collection
of fines, NYDFS, Dutch, UK, the CFTC, it powerfully
demonstrates the immense high cost of trying
to operate as a centralized, law -abiding exchange
in this borderless, digitally liquid industry.
It does. They chose compliance, but they had
to pay hundreds of millions of dollars, either
in fines or forced investment, to upgrade their
internal controls to meet the standards required
of a global financial powerhouse. Finally, we
have to revisit the 2022 landmark case that signaled
a new era of enforcement. The first ever crypto
insider trading case, which involved a former
Coinbase product manager. This case was narrative
gold for prosecutors. In July 2022, they charged
former Coinbase product manager Ishan Wahi, his
brother Nikhil Wahi, and a friend, Samir Rahmani.
And Ishan Wahi, because of his position, allegedly
shared confidential information about which tokens
were about to be listed on the exchange. Right.
And this insider information allowed the defendants
to trade those tokens before the listing announcements
drove up the price, resulting in an alleged illicit
profit of over one and a half million dollars.
The narrative got even more dramatic when Ishan
Wadhi, upon being summoned by Coinbase for a
meeting, attempted to buy a one -way ticket to
India and was intercepted by law enforcement
at the airport. Classic. And Coinbase cooperated
fully with the investigation. Of course. They
assisted prosecutors by providing information
from their own internal investigation into the
matter. again reinforcing their image as a proactive
compliance -first actor. And the outcomes were
significant. They were. Nikhil Wahi was sentenced
to 10 months in prison. Ishan Wahi pleaded guilty
later and received a two -year prison sentence
and was ordered to forfeit assets. The third
defendant, Rahmani, remains at large. What's
the precedent here? This case sets a powerful
precedent. It proved that traditional insider
trading laws apply fully to centralized crypto
exchanges and the assets listed on them. It was
a clear warning that regulators and prosecutors
were ready to use federal securities fraud statutes
to police the crypto market. So what does this
all mean for the learner today? We've covered
a massive amount of ground watching Coinbase
rapidly scale from a small Y Combinator project
to a trillion dollar valuation at its peak and
eventually an S &P 500 company. And their story
is undeniably the story of cryptocurrency attempting
to mature under intense regulatory pressure,
both in the U .S. and globally. The big picture
is that their strategy of prioritizing compliance
and institutional trust has delivered tremendous
results. It has. It's established them as the
world's largest Bitcoin custodian and a foundational
component of the Ethereum network. Yet that path
has cost them dearly from intense internal turbulence
over values to massive regulatory fines and the
ultimate existential SEC showdown that only ended
because of a political shift. Their identity
is clear. They are a regulated financial entity
first and a crypto advocate second. And this
required them to sacrifice some of those decentralized
ideals of privacy and non -custodial ownership.
And that sacrifice brings us back to the fundamental
question of user risk. Right. Given that explicit
disclosure in their SEC filing that customer
assets could be treated as those of a general
unsecured creditor in a bankruptcy, what is the
true comprehensive cost of operating as a conservative
law -abiding exchange in this revolutionary decentralized
industry? And more specifically for you, the
learner, what level of risk does that necessary
compromise, the convenience of custody in exchange
for being an unsecured creditor, leave for you
as the individual customer who entrusts your
assets to an S &P 500 powerhouse, no matter how
much they invest in compliance? The journey from
a garage startup to a financial powerhouse dealing
with billion dollar acquisitions and 400 million
dollar cybersecurity threats proves that in the
world of centralized regulated crypto, there
truly is no such thing as a quiet day at the
office. Something profound to mull over until
our next deep dive.