The depth of crypto winter came on December 15, 2018. On that day, the price of bitcoin dipped to $3,200—more than 80 percent below its high a year earlier. The handful of mainstream media outlets still reporting on crypto noted how far the industry had fallen, and a few pundits pronounced that this time bitcoin was dead for good. Then, as had happened so many times before, bitcoin responded to predictions of its demise by going on a bull run.
The uptick was almost imperceptible at first. In February of 2019, bitcoin shuffled above $4,000, and then, in what would become known as the April Fools’ Day rally, the price shot up nearly $1,000 in a single day. By May, bitcoin was trading above $8,000, and in June it hit the $12,000 mark before settling around $10,000 for the rest of the summer. Longtime bitcoin owners smiled in satisfaction while the hedge fund money that had fled rushed back in. The buzz spread to the financial pages. Bitcoin was back.
Not all crypto was back though. The altcoins, aka “shitcoins,” born in the ICO boom still stank. The prices of many remained down over 90 percent, and there was no mystery why: all of the grand blockchain projects the ICOs were supposed to fund failed to materialize, and most still consisted of little more than a white paper. Investors had prepaid for tokens on some marvelous ride—only to discover the ride was never going to get built and the tokens were now worthless.
In some cases, the projects failed because the ICO promoters were crooks. But in other cases, the projects didn’t launch because the backers found it hard to stay motivated once they were swimming in cash. Good intentions failed as ICO founders discovered it was more agreeable to travel the world and speak at conferences than to labor away over blockchain code.
Even bitcoin’s biggest rivals couldn’t escape the altcoin wipeout. By July, even as the price of bitcoin had increased 62 percent from a year earlier, Ethereum was down 68 percent. It turned out that Ethereum, which had been hailed as a new and better version of bitcoin, had repeated some of bitcoin’s mistakes. Long-promised upgrades to its code base never materialized, meaning that the Ethereum blockchain remained slow and inefficient. Meanwhile, the person best poised to lead improvements to Ethereum, Vitalik Buterin, appeared to be getting swallowed by his cult of personality. One of crypto’s more memorable memes, “Vitalik Clapping,” shows the Ethereum creator on a New York City party boat, pressing his hands together like an alien learning how to applaud. Around him, a gaggle of fresh-faced acolytes look on as a singer serenades him with a bizarre refrain, “Vitalik Clapping, Vitalik Impress. Happy and Clapping, Vitalik Is Impress.” Even by the out-there social mores of crypto, it was weird.
Bitcoin’s other would-be rival, Bitcoin Cash, had basically collapsed. The currency born in the bitter schism over block size was down 75 percent during the same one-year period bitcoin had gained 62 percent. What’s more, it was engulfed in schisms of its own as renegade factions pushed successfully to split the Bitcoin Cash blockchain. Once regarded as a potential replacement for bitcoin, it now looked like an ugly knockoff.
As badly as Ethereum and Bitcoin Cash were faring, they still enjoyed market caps of billions of dollars and a loyal base of fans and developers. The same couldn’t be said of the legions of shitcoins tumbling in an unending free fall.
During the height of crypto mania, the phrase “pre-Cambrian explosion” became a staple of conference chatter. It implied the launch of thousands of cryptocurrencies was akin to the myriad life-forms that had sprung up in the early days of evolution on Earth. By 2019, pundits were using a different phrase from the world of biology: “extinction event.” The gloomier ones predicted that more than two thousand shitcoins would die off like woolly mammoths.
Longtime bitcoin boosters—at least those who hadn’t also invested heavily in altcoins—gloated over this turn of events. They even gave themselves a name—adding yet another term to the ever-growing body of crypto argot. They called themselves “bitcoin maximalists.”
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By mid-2019, bitcoin again was the undisputed king of the crypto world. But it wasn’t the only bright spot in the industry. Another came in the form of stablecoins, a crypto innovation that would create hundreds of billions of dollars of value and pique the interest of one of the most powerful corporations in the world.
Stablecoins came as a response to one of the most common knocks on bitcoin: extreme volatility. What good was a new type of money if its value fluctuated dramatically every few hours? Stablecoins addressed this problem by providing all the benefits of blockchain-based currency—easy transfers, tamper-proof ledgers, and so on—without that volatility. A bona fide stablecoin would always be worth one US dollar, or fluctuate no more than a penny above or below that. As they grew in popularity, other stablecoins would appear that mirrored the value of other major currencies like the yen or the British pound.
Stablecoins weren’t new in 2019. The best known one, called Tether, had appeared in 2015. It caught on with traders who wanted to move in and out of various cryptocurrencies without the fees that came with converting from crypto to traditional currency. Tether, however, suffered from a sketchy reputation. How, traders wondered, could they be sure Tether coins were actually worth a greenback? The shadowy organization that oversaw Tether assured users that there was a reserve to back every single Tether with a dollar—yet they refused to undergo an audit to prove this. This was suspicious. Such suspicions have only mounted in light of Tether’s ties to the controversial exchange Bitfinex, and in the wake of a fraud investigation by New York’s attorney general.
Tether wasn’t the only stablecoin to prompt questions about what was propping it up. In early 2018, a stablecoin startup called Basis raised $133 million from blue-chip investors like Bain Capital and Google Ventures. Basis proposed to keep its coin stable by issuing bonds every time it fell below $1. The plan didn’t make much sense, given there was no guarantee people would buy the bonds. Meanwhile, the SEC warned that the bond plan amounted to selling securities. Basis gave up in short order and returned most of the money it had raised.
What did make sense, when it came to stablecoins, was to peg their value to a reserve of US dollars and conduct third-party audits to prove the dollars were really there. This is what Coinbase did in the summer of 2019, working with rival Circle to create a new cryptocurrency called USD Coin. Meanwhile, the Winklevoss twins created a stablecoin of their own called Gemini Dollar. Soon these and a growing array of other stablecoins provided credibility to the concept and challenged Tether as fixtures of crypto trading markets. By 2020, Coinbase and others were paying interest on customers’ stash of stablecoins—a sign of how cryptocurrency could resemble an ordinary savings account.
More importantly, the growth of stablecoins signaled to important people outside the crypto world that blockchain-based money could transform finance. National governments, which had long looked at crypto with suspicion, began to experiment with stablecoins as a way to issue money. Then, in June of 2019, Facebook dropped a bombshell.
Rumors had swirled for months that the social network was going to launch a cryptocurrency, but the company’s plans, dubbed Project Libra, turned out to be bigger and more ambitious than many had imagined. Libra, its new currency, would be pegged to a basket of global currencies—including dollars, euros, and Swiss francs—and available to Facebook users around the world. This meant that anyone who used Facebook, or one of the company’s other products like Instagram or WhatsApp, would have easy access to the new currency.
Even more remarkable was that Facebook had assembled a coalition of A-list brands in finance and technology as partners, including Visa, Mastercard, Uber, Spotify, and eBay. Facebook’s master plan called for its partners to help maintain dozens of blockchain nodes that would create a transaction ledger for Libra, and to contribute to the reserve fund that would back the Libra with hard currency.
The partner list included two companies that specialized in storing cryptocurrency, and it also included Coinbase. There already was a link between Facebook and Coinbase: the head of Project Libra was David Marcus, a former president of PayPal who, until recently, had been on Coinbase’s board of directors. But while Silicon Valley gossips have speculated for years that Facebook has tried to acquire Coinbase, the rumors are false—Facebook never even inquired, and Brian Armstrong and Mark Zuckerberg have never met.
When it came to Project Libra, the plan was for Coinbase to be just one of a hundred or so partners to help Facebook run the new blockchain network—if it ever got off the ground in the first place. Unfortunately for Facebook, by the time it announced Libra, the company had become radioactive to Congress and regulators around the world. The social network was already the subject of numerous antitrust investigations, and for many governments, the prospect of Facebook controlling a global supply of money was beyond the pale. Meanwhile, some of Facebook’s high-profile partners, including Visa and PayPal, became skittish of the political heat and bolted the consortium.
The Libra plan wasn’t just a political minefield—some feared it was also an economic one. Katharina Pistor, a professor at Columbia Law School, told Fortune magazine that Libra could destabilize the exchange rate in developing economies like Kenya if currency traders used Facebook’s money instead of the local currency. Others likened Libra to a gambit by a handful of companies to privatize the money supply. A few suggested it was tantamount to outright treason. “If Facebook raised an army, this would be only slightly more hostile to the people of the United States than what is currently proposed,” declared Preston Byrne, an outspoken cryptocurrency lawyer.
Critics raised many valid questions, and, as of the time of this writing, it’s far from clear whether Facebook can overcome government opposition and actually launch Project Libra. What is clear is that Silicon Valley is still able to dream up grand and world-changing technologies—whether or not the rest of the world wants to embrace them. It also shows that those technologies are likely to disrupt global finance.
If the US government won’t allow crypto to blossom, it’s very likely China will. The People’s Republic has already tasked its central bank with creating a digital version of its currency, the renminbi. For the Communist Party, the advantages are twofold: digital currency can be used to surveil Chinese citizens more closely than ever, and it will be a tool to pressure other countries to abandon the US dollar as the world’s main reserve currency. If this begins to take place, it’s a safe bet Congress and the United States will look at Facebook’s Libra in a different light.
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Governments may have greeted Facebook’s digital currency plans with surprise and alarm, but in crypto circles, Project Libra mostly generated guffaws. This wasn’t real cryptocurrency but a debased version, one that would be controlled by a cabal of powerful companies. Veteran crypto boosters invoked the c-word—centralized—and warned people to avoid it.
Suspicions of the new corporate cryptocurrency, coupled with the ongoing slump of altcoins, led bitcoin’s halo to shine brighter than ever. Satoshi’s currency was now a decade old and more secure than ever. To underscore the point, crypto billionaire and early Coinbase investor Barry Silbert launched a wave of national TV commercials urging investors to drop gold and buy bitcoin. Meanwhile, the venerable brokerage firm Charles Schwab published a list in late 2019 of the most commonly held stocks by the millennial generation. The list was topped by Amazon, Apple, Tesla, and Facebook. Number five, ahead of Berkshire Hathaway and Disney, was a stock called Grayscale Bitcoin Trust that offers a way for investors to buy bitcoin in the form of a share.
Bitcoin’s resilience—the network has run without interruption for over ten years—resulted in yet more memes. “The Fed Wire is Down. Bitcoin is never down,” tweeted a crypto fund manager and social media personality known as Pomp. He followed this with: “The stock market is closed. Bitcoin never closes.” Hundreds of other crypto disciples chimed in with their own aphorisms—“Banks close your account without notice. Bitcoin never closes your account.” And so on.
The buzz around bitcoin in mid-2019 felt like a religious revival. The oldest cryptocurrency had triumphed over rival sects that had sprung up around different altcoins, and bitcoin believers felt their god was on top once and for all. That didn’t mean bitcoin didn’t have powerful enemies—including the president of the United States.
“I am not a fan of bitcoin and other Cryptocurrencies, which are not money, and whose value is highly volatile and based on thin air,” huffed President Trump in a Twitter tirade, adding that crypto had been tied to unlawful behavior. The July outburst appeared tied to news about Facebook’s Project Libra and to Trump’s general hostility to the tech industry.
The presidential outburst produced a backlash, ironically, among fringe alt-right figures who were normally staunch Trump supporters. Meanwhile, ordinary bitcoin enthusiasts celebrated that the president’s outburst caused only a small dip in the currency’s price. To them, it was yet more evidence of bitcoin’s resilience.
For Brian and others at Coinbase, bitcoin’s 2019 resurgence felt like the return of an old friend—not least because the company’s revenues began surging anew on the higher price and an upswing of trading volume. And inside the company, ordinary employees cheered the return of Brian to day-to-day decision making. Asiff’s presence had been, for many, never natural or right—only a crypto believer like Brian could lead a company like Coinbase. He had also found in Emilie Choi, the LinkedIn veteran he promoted to succeed Asiff as COO, a trusted lieutenant who could quell internal political battles.
On the business front, the company was still lagging behind Binance, but the gap between the two was shrinking, in part because Coinbase now offered dozens of cryptocurrencies in markets around the world. Meanwhile, Binance’s star lost some of its luster after the exchange suffered a major hack that saw thieves plunder $40 million worth of bitcoin. At the same time, CZ’s run-and-gun style with regulators had become more perilous as rumors swirled about looming investigations by the SEC and other agencies.
Meanwhile, Coinbase’s latest attempt to diversify its income away from trading commissions showed signs of success. Since early 2018, Coinbase had been building out a service called Custody, which allowed funds and wealthy individuals to store their crypto for a small fee. The Custody service also opened the door to offer other crypto-based financial services such as lending and proxy voting for blockchains like Tezos. And in a nod to how crypto trading was becoming ever more like traditional finance, Coinbase outbid Binance to acquire a prime brokerage called Tagomi, which had been founded by a senior Goldman Sachs executive.
In doing all this, Coinbase and its rivals were adding layers of infrastructure that had existed in the traditional banking industry for years. Maybe Asiff wasn’t all wrong. Wall Street and Silicon Valley were growing closer together—a point underscored when Coinbase beat out Fidelity, the epitome of old-school East Coast investment firms, in a bid to acquire bitcoin storage business Xapo. Coinbase’s $55 million acquisition also saw the company take possession of nearly eight hundred thousand new bitcoins. By the end of summer 2019, Coinbase would control more than 5 percent of all bitcoins in existence.