Over the past decade, Coinbase has attracted millions of cryptocurrency traders and has grown to become the largest cryptocurrency exchange in the United States. Despite its solid reputation, Coinbase has not escaped scrutiny and skepticism. This phenomenon has become more severe over the past two years, with cryptocurrency prices rising and falling sharply in a short period of time. However, what became a hot topic was the sudden collapse of FTX, the world’s largest cryptocurrency exchange.
Nonetheless, he is still an influential figure in the market. True believers value cryptocurrencies despite their lack of certainty as an inflation hedge. The inverse correlation between Bitcoin and inflation shows how much macroeconomic indicators can influence cryptocurrency prices. Traders continue to leverage cryptocurrency volatility to generate huge profits.
Given this, Coinbase enjoys high cryptocurrency balances. These powerful cryptocurrency exchange giants take advantage of the weaknesses of smaller peers. Inflows and outflows can sometimes be overwhelming, but liquidity ensures you can sustain operations. So, in this article, we will explain why Coinbase is a safe cryptocurrency exchange.
What makes Coinbase a secure and liquid cryptocurrency exchange?
As a beginner in cryptocurrency trading, you often look for exchanges with low trading fees and secure user anonymity. However, a more important consideration is whether large transactions can sustain business operations.
Having been in the industry for over 10 years, you may never have to ask yourself, “Is Coinbase safe?” It experienced tremendous ups and downs, including the bursting of the cryptocurrency bubble in 2017 and 2018 and the decline of FTX in 2022. Liquidity and smart token allocation make it one of the most durable cryptocurrency exchanges. These are just a few reasons why Coinbase is a safe cryptocurrency exchange.
Stable monthly market share
After the FTX collapse, we saw how Binance quickly took over the market. It took down Coinbase and maintained a wide gap over its peers for a long time.
Nonetheless, Coinbase has yet to waver despite a significant drop in trader confidence and has shown that it will not become another FTX. Binance may be a giant now, but Coinbase is one of the first cryptocurrency exchanges. It has stood the test of time, facing massive cryptocurrency market shocks in recent years.
However, what makes it a memorable cryptocurrency exchange contender is its stable market share. The market share in January 2023 was 6.97%. It plummeted to 4.58% in just one month, recording the lowest market share in several years.
It rebounded in the following months but remained within the 5-6% range. However, we can see the market share steadily increasing from the second half of 2023, reaching 6.2%. There have been some ups and downs, but it has been much more manageable than 2022.
At the end of the year, market share rose again to 6.34%. As of today, it stands at 6.35%. It may be down year-over-year, but it’s much better than the previous month. The continued rebound shows that we can withstand challenges and regain momentum even in the face of fierce competition. It is actually a resilient cryptocurrency exchange.
And when compared to other exchanges, Coinbase has had one of the most stable changes in market share over the past year. Let’s take Binance as an example. Although it still remains the largest exchange, it has already lost around 25% of its market share after falling from 59% in January 2023 to 35% now.
This can be said to be due to the recent controversy over the company’s admission of wrongdoing in violation of the U.S. Anti-Money Laundering Act. Therefore, close competitors like Coinbase, OKX, and Upbeat leverage this to generate more traders.
High cryptocurrency balance
Another factor to consider is the liquidity and availability of digital assets. Given its decent balance of native cryptocurrencies, Coinbase remains a huge cryptocurrency exchange. These include Bitcoin (BTC) and Ethereum (ETH).
Coinbase is the second largest cryptocurrency exchange by overall Bitcoin balance. As of this writing, Bitcoin holds 411,762.68 units, or 2.2% of the market’s total circulating supply. It is also close to the gap with Binance, the top Bitcoin holder, at 554,836.88, or 2.8% of the total market trading volume.
Bitfinex ranked third with 388,742.04 (2.0% of total market supply). The top three Bitcoin exchanges have a wide margin of 132,678.97, or 0.7%, over fourth-place OKX.
For Ethereum, the total balance on Coinbase is 2,185,579.12, or 1.8% of the total circulating supply. It ranked third after Binance and Bitfinex with 3,770,920.82 (3.1%) and 2,349,649.56 (2.0%), respectively. Kraken ranks fourth with 1,691,412.27 coins, or 1.4% of all coins in circulation. These four Ethereum holders are significantly larger than 5th place OKX with 945,955.80 (0.8%).
Even in other cryptocurrencies, Coinbase has one of the largest holdings. It ranks second in USDC with 516,852,821.09, but is much lower than Binance with 1,454,578,122.56. There is a big difference from 3rd place OKX (157,577,919.60). The balances on the remaining exchanges with USDC are less than 100,000,000.
When it comes to smaller cryptocurrencies, Coinbase remains popular as it is one of the top 10 for holding reserves. Some examples include DAI (5th – 2,848,007.58), USDT (9th – 35,157,653.02), SKL (7th – 7,393,205.74), and USDP (4th – 482,327.81).
Given this, Coinbase appears to have adequate liquidity levels to sustain high volume transactions. This is an important aspect to consider in highly volatile markets.
Careful Token Allocation
Traders should also consider their dependence on specific tokens or coins. FTX, previously the largest cryptocurrency exchange, may have overlooked this important aspect. Its reliance on its own token led to its unexpected downfall in 2022. This led to capital outflow from many other exchanges, and Coinbase was no exception.
Simply put, Coinbase does not appear to be just another FTX given its high balance of various cryptocurrencies. It is not heavily dependent on a single cryptocurrency. It holds a variety of cryptocurrencies and is one of the top 10 exchanges among the many cryptocurrencies it holds.
As with most cryptocurrency exchanges, Bitcoin still remains the richest reserve. This is an important token because it is widely accepted by many companies around the world. Ethereum is secondarily also used for business and government transactions. Many government agencies are signing Ethereum contracts for their services.
These two cryptocurrencies are essential to various states, especially Texas, which boasts the 9th largest economy in the world. This is why it is easier to follow the requirements and process for forming an LLC in Texas with cryptocurrency payments.
Therefore, Coinbase can withstand large outflows of single cryptocurrencies. Thankfully, higher liquidity will help cover lost capital while refocusing other reserves.
Key Takeaways
Coinbase has experienced highs and lows since its founding 10 years ago. There is a long way to go before it can compete head-to-head with Binance, but it has great potential to surpass third and second places. Its existence for over a decade speaks volumes about its resilience and prudence. Therefore, this cryptocurrency exchange promises safety to cryptocurrency traders.
This is a guest post by Ivan Serrano. The opinions expressed are solely personal and do not necessarily reflect the opinions of BTC Inc or Bitcoin Magazine.