I've been deep diving into Coinbase and Coinbase Wallet . The Coinbase exchange is useful to me for ease in tax reporting. The on-chain Coinbase Wallet is useful for ensuring my cryptos are safely off the exchange. In addition, I am a Coinbase One subscriber, which has some benefits. Before getting into that, I'll share my history with crypto. Then we can connect that history to how I am starting to see Coinbase. Before delving into the topic, this is posted in the Hive Texas Community as what I discuss here is mostly what I have available to me in Texas. Other states have access to other products, depending on their regulations. So, my experience here may not match what's available where you live.
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The Backstory
The crypto community launched with Bitcoin . The whole idea of Bitcoin was to find a way to opt out of an inflationary economy. If you recall, Bitcoin was created in the period following the 2008 financial crisis. I recall that my pressing concern was the sudden printing of money to bail out the banks. In Europe, they had bail ins, taking money from depositors. Given the traceability of Bitcoin, it is obvious that financial privacy was never the point. The goal was first and foremost to opt out of the traditional financial system.
It is only afterwards when people got burnt for Silk Road and other criminal activities that privacy suddenly became an issue. People learned the hard way that Bitcoin can be traced. The ensuing interest in crypto privacy, as far as I know, largely stems from a desire to hide earnings and avoid paying taxes on gains. Soon, there was the introduction of privacy coins.
Personally, I've been a mixed bag when it comes to why I started to get into cryptos. At first, it was just speculation and curiosity. By the time I decided to really get into crypto, there was already a crypto community focused on the financial aspects and to some degree anti-government sentiment. Although I have misgivings about governments, having worked for state and local governments, I have never been hostile to governance in general. But some of the values of the crypto community seeped into my own thinking over the years.
Recently, I have been rethinking my views on crypto and traditional finance. I have been questioning my own intentions and trying to find a way to align my finances with my goals and values.
Where I Stand on Crypto and Traditional Finance
I have very specific problems that I want crypto to solve for me.
- Bank Shenanigans - My greatest annoyances with personal finance have to do with the things banks do such as: overdraft fees, monthly account fees, deposit delays, payment delays, delays transferring between banks, and the possibility of having my account shut down without explanation.
- Inflation - I completely agree that inflation is a problem that robs everybody of their hard-earned money. I do agree that it is a hidden tax. With inflation, earning interest on your deposits is an illusion when your money is losing value. On top of that, you pay taxes on the interest earned.
- Complexity of Investing - traditional investing is complicated with stocks, bonds, ETFs, mutual funds, insurance, derivatives, and other financial products. If you're lucky, you might beat the market. But you can usually expect about an 8% annual return, minus fees. And, of course, you can only trade on certain days and at certain times.
- My own tendencies - I don't keep tight books. I don't have time to download statements to reconcile them with outstanding payments and deposits. I'm decent at budgeting, but I tend to overbudget to help when my numbers are off. I also tend to be a bit tight in my timing. This is why I prefer instant transfers and payments. When there is float, there is an illusion that I have money that I don't. It doesn't make sense to me to keep a second set of books showing what I should have only because banks are slow.
Privacy and KYC are not major issues for me. These are less important than self-custody and financial clarity. Doomsday scenarios don't drive my financial decisions. Some of the prepper things I do are mostly for convenience. For example, I got a generator because we lost power and were miserable for a few days. My amateur radio license is mostly so I can call on local guys for help, not to talk to somebody on the other side of the world. I have discreet problems to solve.
Putting It Into Motion
Recently, I have been learning about The Bitcoin Standard by Saifedean Ammous after having watched a video by Jack Mallers, the CEO of Strike, who lives almost completely on Bitcoin. His paycheck gets deposited to his Strike account where it is instantly bridged into Bitcoin. Then, he pays his credit cards from the same account, which converts his Bitcoin to fiat when the credit card company pulls payment from his account.
Strike doesn't work for me. I don't get paid large lump sums of cash. Instead, I have multiple small and frequent deposits. The result is that Strike doesn't solve the main problem I have with banks, which is the float. There is a delay between sending money to Strike and when it posts. And there is a delay between when I make a credit card payment and when it clears with Strike. The end result is that the balance on the account is never accurate. If I need to keep a second set of books to account for float, then what's the point? I'll eventually slip up and have a payment or several payments rejected.
Coinbase?
I think the idea of living on Bitcoin has merit. My problem with Strike is that it's an isolated island. I have no reliable way to add money or make payments in real time. Everything has to "travel by boat". However, Coinbase has had some advantages that I had not considered. The greatest advantage with Coinbase is that it works well with my bank, JP Morgan Chase.
When I transfer money from Chase to Coinbase, it's immediate. Chase debits and Coinbase credits within minutes. The same is true from Coinbase to Chase. There is no significant float time on transfers. This is important because I learned that Coinbase disabled the ACH direct deposit feature on their exchange accounts. I would have otherwise been able to send deposits directly to Coinbase and have them post into Bitcoin instantly.
In the meantime, I can use my Chase bank account to receive deposits that I can then instantly send to Coinbase.
And if I need to make a credit card payment, I can transfer cash to Chase in the needed amount.
Healthy Skepticism
All that works out great if I want to keep all my earnings on Coinbase. But we all know the mantra, "not your keys, not your crypto". There is some risk in keeping the majority of my savings on Coinbase. I could send Bitcoin to an on-chain wallet. But that can get expensive.
I mentioned at the beginning of this post that I subscribed to Coinbase One. The subscription offers higher interest on USDC deposits, higher staking rewards, 24/7 support, tax documents, zero trading fees on up to $10k per month, and up to $10 free gas (network) fees on Base.
In practice, this means that I can maintain a minimum Bitcoin balance on Coinbase for use with the Coinbase debit card to pay for daily incidentals. Any excess savings can go into the on-chain Coinbase Wallet where I control the keys, and therefore the cryptos.
Other Coinbase Discoveries
Looking further into the mechanics on how I could use Coinbase as the nexus of my finances without giving them all my savings, I learned other things too.
I have learned from a Coinbase reply on Reddit that Coinbase are working on a way to add direct deposit to the Coinbase Wallet. Paychecks would directly bridge deposits into the on-chain wallet. There is no official word yet whether this would be for any crypto or only USDC. However, on the other side of this, they already allow me to buy crypto directly to Coinbase Wallet using debit card, ACH bank transfer, transfer from Coinbase, Apple Pay, or fiat balance on Coinbase. In other words, I don't have to hop through the Coinbase exchange to acquire or sell cryptos.
The larger picture here is that other than managing the bridging between traditional finance and my on-chain wallet, Coinbase is making it easier to self-custody. And as a Coinbase One subscriber, I can verify up to three external wallets to work with the exchange without having to KYC every time. This has the further convenience of saving me on the gas fees for those wallets.
From their actions, it seems like Coinbase is slowly working towards empowering their customers to have more control of their own cryptos. By extension, it also means that their customers will slowly become more independent of traditional finance. What they offer now is not a perfect fit for the simplicity I want. But it seems they are working towards what I need.
I don't mind paying the Coinbase One subscription because they have to make money somehow. Unlike banks that use our deposits for fractional banking, Coinbase is facilitating their customers ability to take their money out of the exchange. In this regard, without float, without deposits, without the shenanigans that banks pull to take your money, it's worthwhile to me to pay Coinbase a flat fee to service my crypto wallet.
As I'm writing this, I am extremely surprised that Coinbase is what I've been looking for. It's an incomplete solution that still works because of the instant transfers with Chase bank. When I first started experimenting with the Bitcoin Stanard in my own life, Coinbase was not the first platform that came to mind.
The only pain point is the float on making payments. Some of that is resolved with the Coinbase debit card, which is set to spend Bitcoin on the exchange. I can resolve some of the float with Spritz.finance, which receives crypto and makes payments to credit cards and other services. And, as a last resort, I can always cash out some fiat to my bank and make payments the old-fashioned way. In this way, looking at my wallet and exchange account, I would know exactly where my finances stand without having to maintain a separate account ledger.
I hope that in the future more exchanges wise up and offer similar services. For example, Crypto.com has some big changes coming. And Crypto.com largely has many of the same features between the app and their on-chain wallet. But they are in incomplete solution for me without the tax prep and instant transfers. If Coinbase weren't so cozy with Chase, then I don't think they'd meet my needs either.
In some ways, Robinhood meets my needs. They have a checking account and instant transfers to the exchange, which allows you to buy and sell BTC quickly. If you have more than $2000 in BTC, you could convert that to IBIT to qualify for margin to be able to borrow against your equity. But Robinhood is still traditional finance.
Cash App also has direct deposit and bill pay ACH payments. You can have paychecks instantly bridge to Bitcoin. Cash App is a surprisingly good alternative, except that they can get costly with exchange fees.
There are plenty of options for living on the Bitcoin standard. For the moment, I am finding Bitcoin as the one that makes the most sense for me.