It’s good to the be the top dog at Coinbase—better than it is to be the chief of JPMorgan or Goldman Sachs, if CEO Brian Armstrong’s total pay is anything to go by.
The 38-year-old exec’s compensation is among the information disclosed when the crypto exchange filed for its IPO, which is scheduled to happen on April 14. The direct listing won’t raise any money, which is fine because Coinbase doesn’t need any: The exchange has more than a $1 billion on its balance sheet and raked in about $1.8 billion in revenue during the first three months of the year. The offering will, however, put a stamp of legitimacy on a company that could be valued at as much as $100 billion, according to some estimates.
The extra scrutiny that comes from being a listed company, from audited financial information to additional disclosures and transparency, could open the door to a new segment of cautious players getting involved in crypto. As the company’s shares near their trading debut on the Nasdaq exchange under the ticker COIN, here are a few surprising factoids:
How much does Coinbase CEO Brian Armstrong get paid?
Armstrong, who worked at Deloitte & Touche and Airbnb before co-founding Coinbase eight years ago, brought home $59.5 million in total compensation last year, well in excess of Wall Street CEOs like JPMorgan’s Jamie Dimon and Goldman Sachs’s David Solomon (Solomon’s comp was docked by $10 million because of the bank’s role in the 1MDB scandal). Armstrong’s base salary was comparable to that of Jeffrey Sprecher, the chief at Intercontinental Exchange, which operates the New York Stock Exchange and other important commodity and derivatives markets around the world.
That said, a major chunk of Armstrong’s compensation, some $56.7 million of it, was in the form of options. Coinbase declined to provide further information about that compensation, such as vesting and exercise price, citing the company’s pre-listing quiet period. Armstrong also received $1.8 million in compensation for costs pertaining to “personal security measures,” according to the filing.
Coinbase makes more money on trading than Nasdaq and NYSE do
Coinbase generates more revenue per-trade than the major US stock exchanges do, even as those markets handle 60- to 100-times more notional (dollar amount) trading than the crypto platform does. As Matt Levine wrote for Bloomberg: “Coinbase is in a sweet spot where the crypto business is mature enough that it probably won’t lose everyone’s Bitcoins, but immature enough that it can still charge 0.57% of transaction volumes.”
Put another way, Nasdaq and NYSE (which has roots in the 19th century) compete with about a dozen other US exchanges (in addition to dark pools and other types of trading venues), which helps keep a lid on the trading fees and other charges. It’s reasonable to expect crypto exchange fees to decline if the industry matures, but also that trading volumes could likewise increase.
Crypto volatility is Coinbase’s No. 1 risk factor
The first risk Coinbase mentions in its S-1 is the whiplash inherent in prices for virtual assets: “Due to the highly volatile nature of the cryptoeconomy and the prices of crypto assets, our operating results have, and will continue to, fluctuate significantly from quarter to quarter.”
Interest in bitcoin and other digital assets blossoms when prices are climbing, and likewise can crash when prices tank. You can see it in the number of monthly users at Coinbase, which reported 2.4 million monthly transacting users (MTUs) in March 2018 when bitcoin was trading as high as $11,000 or so; MTUs plunged to around 900,000 in December of that year as the original crypto asset’s price dropped some 70% to about $3,000.
Coinbase settled charges for market manipulation known as ‘wash trading’
Another risk factor worth watching is regulation—a word mentioned 161 times in Coinbase’s IPO filing:
We are subject to an extensive and highly-evolving regulatory landscape and any adverse changes to, or our failure to comply with, any laws and regulations could adversely affect our brand, reputation, business, operating results, and financial condition.
We are and may continue to be subject to material litigation, including individual and class action lawsuits, as well as investigations and enforcement actions by regulators and governmental authorities, which may adversely affect our business, operating results, and financial condition.
Coinbase got a $6.5 million (feather) tap on the wrist last month from the Commodity Futures Trading Commission (CFTF) when it settled charges for “recklessly delivered false, misleading, or inaccurate reports concerning transactions in digital assets, including Bitcoin.” The regulator says Coinbase ran two automated trading programs named Hedger and Replicator that sometimes traded with each other, known as “wash trading,” which the CFTC says created the illusion that there was more trading activity than there really was. The CFTC says a former Coinbase employee did something similar for six weeks in 2016, also creating an illusion of trading volume.
Timothy Massad, a former CFTC chairman, says these charges shouldn’t create the illusion that Coinbase is well regulated. The CFTC doesn’t have the power to set standards for the spot bitcoin market, and neither does any other US agency. “The fact that the trading was several years old is also a reminder that enforcement cases, which take a long time to bring, are no substitute for immediate oversight of an exchange by a regulator,” he wrote in an editorial for Bloomberg. The case also shows that Coinbase had its own proprietary trading operation on its own exchange. While that information was disclosed to customers, it’s a type of conflict of interest that would be highly unacceptable on a regulated US stock or derivatives exchange.
“Surely being a public company will be a plus for transparency,” Massad said. “But that is not enough.”