Centralized exchanges might not be in complete alignment with the original tenets of crypto. These days, they are really nothing more than banks, at least in the developed countries. Due to the quest for regulation, these firms fall under many of the same laws at their banking counterparts. For this reason, comparisons will start to crop up between the different entities.
This is something that Coinbase CEO, Brian Armstrong, highlighted. In fact, it is a sign of the potential of crypto.
For the moment, the discussion is in billions. At some point, it will shift to trillions, a denomincation familiar to Wall Street. Ultimately, cryptocurrency will enter the quadrillions.
So let us look at where things stand and how they could unfold.
Coinbase Showing The Scaling Of Crypto
In the United States, Coinbase is really the only crypto game in town. When dealing with a CEX, that is the leader. Globally, we can look to Binance yet that is basically shut down in the U.S.
This means that Coinbase is gathering the overwhelming share of United States crypto activity. Keep this tidbit in mind when looking at the comparison.
Of course, this doesn't detract from what Coinbase accomplished or its size. This company did play a signficant role in the rise of crypto, at least in North America.
The result is a rather large company, one that rivals the traditonal banks in size.
A well-known cryptocurrency exchange might have become one of the largest “banks” in the United States if the crypto platform is classified as a financial institution. This is an intriguing thought brought up by its top executive. Coinbase CEO Brian Armstrong made a fascinating assumption about the cryptocurrency exchange’s potential rank if it is considered as a bank, saying that Coinbase would be the 21st largest American bank in terms of total assets.
That is an impressive accomplishment. The United States saw a lot of consolidation of its banking system, creating behemoths that control much of the financial sector. Coinbase moving up the scale is a sign that crypto is going to be a player.
We do have to be careful since we are dealing with different entities. Many traditional banking services are not provided by Coinbase.
If we switch to brokerage, we see a bit different story.
On the other hand, the crypto executive believed that if Coinbase would be seen as a brokerage, the cryptocurrency exchange would be definitely among the 10 largest in the country.
“If you think of us more like a brokerage, we’d be the 8th largest brokerage today by AUM,” the Coinbase CEO said, a post that aroused the thoughts of his followers.
All of this shows how crypto is changing things.
The traditoinal financial system is segemented. Part of this is through regulation while another is simply where firms decided to focus their attention. Many of these entities date back more than 100 years, carving out positions in markets they occupied.
Coinbase comes in without that baggage. It is free to enter whatever realms it desires since it is a newcomer. Crypto also creates new models, something the established players are not anxious to implement.
Crypto To Quadrillions
The financial system tends to build upon itself. We are already starting to see this with crypto, specifically Bitcoin.
As financial products are created, value of underlying assets increases. The Bitcoin spot ETF was the first major Wall Street innovation relating to BTC. We can see how things moved over the past year.
This is leading to discussion about Bitcoin as reserves. The headlines talk about governments, especially national. However, the ability for business and funds to get involved will outpace, in total, what governments do. For many funds, the ETF is the only viable path to gain exposure.
When looking at the comparison to traditional financial entities, the gap could close as the value of crypto keeps increasing. Bitcoin draws the attention for its outsized returns compared to other financial assets. Many speculate this could continue.
We could see a secondary layer explode, as different alt-coins find their niches. There will be some major success stories. As these networks expand, bringing more services to the users, network effects occur. This is where we see the potential of a Coinbase.
Of course, its advantage could be zapped if traditional banks are allowed to enter the crypto space. So far, they are prohibited from directly holding the assets. Fed Chair Jerome Powell recently stated that he see no reason why banks could not be involved.
I take this to mean it is only a matter of time before the banking sector has full access to crypto.
While that might not be ideal for Coinbase, it does bode well for the industry in general. For the foreseeable future, the need to travel between crypto and fiat will remain. This means regulated entities that can connect to a nation's legal tender is required.
There is a pathway to quadrillions.
Automated Economies
By the end of the decade, we are going to start to see automated economies. Perhaps, by that time, they will only reach automated sectors. However, as things keep expanding, entire economies will be swallowed up by automation.
This strikes to the core of the crypto conversation. As discussed, AI (automation) and crypto go together. They cannot be separated.
Not only are we discussing the idea of payments between agents, which will be mostly crypto, there is also the new business model. Under this scenario, the value capture is not stocks. Instead, we see tokenization taking over.
If there are individual agents that are worth a billions dollars, how is this realized? Perhaps it is in the hands of a single person, who developed it. That said, there are going to be many opportunities for others to buy in. Tokenization is ideal for this enviroment.
The result is a multitude of tokens that have multi-billion market caps. This will be the value capture of automated economic activity. If developers and entrepreneurs start to think in terms of developing automation economies on their platforms, they will see enormous valuations if they pull it off.
Obviously, some will bring this into being.
What are thsouands of AI agents doing billions in transactions (commercial and financial) worth? That is what markets determine. In the medium term, these have to be built out. As that happens, the pathway to a quadrillion dollars gets shorter.
Crypto has the ability to scale in alignment with AI. This is something the legacy system cannot match.