Coinbase Deal Shows Google Committed to Crypto – How Much Depends on Who You Ask

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Based on recent headlines and what the company is saying, one would assume that Google is diving into crypto. Still, some see the tech giant’s choice of partner – Coinbase – as proof that Google is just dipping its toe.

A few weeks ago, Google and Coinbase issued a joint press release titled “Google Cloud and Coinbase Launch New Strategic Partnership to Drive Web3 Innovation.” A few days later, Google Cloud introduced its Ethereum Blockchain Node Engine.

It comes months after the search engine giant’s cloud computing section created a digital asset team. The hiring of former PayPal executive Arnold Goldberg to lead Google’s payments division in January was touted as “a broader strategy to team up with a wider range of financial services, including cryptocurrencies.” . in a Bloomberg article and taken up in a lot of crypto press, including here.

At first glance, it would appear that Google is getting aggressive in its approach to crypto. However, some see this as a clear sign that Google is not betting the farm on Web3 as Meta has done, but instead looking to treat crypto like it treats many other industries – a customer for its services.

Breaking down the Coinbase deal may give a clue as to how Google is approaching crypto.

“This partnership has impacted multiple Coinbase businesses, including Exchange, Commerce, Cloud Nodes, and Prime,” Oppenheimer analyst Owen Lau wrote on Oct. 11. “On the Exchange side, Coinbase acts more like a consumer of Google Cloud technology, but on Commerce, Cloud Nodes, and Prime, Coinbase acts more like a technology provider for Google customers.

See also: Web2 “Delenda East”, you say? | Opinion

A blog post by Surojit Chatterjee, Chief Product Officer of Coinbase, divides the connection between the two companies into four parts:

1. Google Cloud will allow certain customers to pay for services using crypto through Coinbase.

2. The Coinbase Cloud Node Service will use Google Cloud’s BigQuery enterprise data warehouse so that Coinbase customers can access data from Google’s blockchain.

3. Google will use Coinbase Prime for custodial services.

4. Coinbase will use Google Cloud for “Exchange and Data Services”.

CoinDesk asked Coinbase for additional comment, but was referred to Chatterjee’s blog.

“Google Cloud’s partnership with Coinbase continues our deep engagement with the Web3 ecosystem,” Richard Widmann, Google Cloud’s chief strategy officer for digital assets, said in an email to CoinDesk. “We view the evolution of blockchain technology and decentralized networks today as analogous to the rise of open source and the internet 10-15 years ago.”

He went on to say that the partnership with Coinbase “builds on our long history of working on open source projects” and that as crypto becomes “more mainstream, businesses will need scalable, secure infrastructure. and sustainable”.

Seismic change?

Of course, few things excite retail investors and crypto enthusiasts more than seeing a big brand embrace crypto in some way. And when one of these companies happens to be the fourth most valuable by market capitalization on Earth, it’s easy for the crypto cheerleading squad to think a seismic shift is afoot.

This is not how a longtime crypto advisor to one of Coinbase’s competitors sees it:

“If Google really thought crypto was going to be a big deal for them, they would have used a smaller custodian for their coins,” said the adviser, who requested anonymity because he consults in the space. “Google may get a better deal with a smaller custodian than with a bigger company like Coinbase.”

In his view, the use of Coinbase Prime for custody as well as allowing a select group of Google customers to pay for services with crypto is an indication that these have been added to the true essence of the deal: Coinbase is now a customer of Google. Cloud.

“Google competes with AWS [Amazon Web Services] for financial services clients, so to speak, they have one of the biggest crypto exchanges as a client helps their credibility with other potential clients,” the advisor said.

In other words, the other features of the Google-Coinbase deal are just extra bells and whistles, he added, because custody is more of a side business for Coinbase.

Coinbase generated $22 million in custodial fees in the three months ending June 30, not even 3% of the company’s total revenue of $808 million in that quarter. Another $22 million in revenue during this period came from “other subscription and services revenue,” a category the company defines as including “Coinbase Cloud revenue, which includes application services , delegation and staking infrastructure, Coinbase One and other subscription licenses.”

Coinbase may be a crypto giant, but for Alphabet, Google’s parent company, it’s just a chip. The tech giant recorded $6.8 billion in cloud services revenue in the three months ending September 30. That’s a billion with a B. And even that number is just adorable next to Alphabet’s $69 billion in third-quarter revenue.

And while a partnership with Google sounds positive for Coinbase, it’s hard to convince some short sellers to change their minds about the exchange.

“They seem desperate,” said a portfolio manager of a billion-dollar fund that shorts Coinbase shares. “It reminds me of all those rinky-dink software companies that put out press releases saying they’re working with IBM. Yes, IBM can now sell its software in its distribution network, but they do so with thousands of other software with which they have agreements. So what? Nobody cares. They should focus on trading revenue and that’s it.

Forays into the business

Others, however, see this as an advantage for Coinbase.

“If you look at what BNY Mellon announced a few weeks ago, you have a lot of custodial providers now suing financial services providers and corporate investors who are getting into crypto,” said James Wester, Chief Cryptocurrency Officer and Co-Head of Payments at market intelligence firm Javelin Strategy & Research. “Coinbase is clearly looking for additional breakthroughs in this space.”

See also: Coinbase files to support Ripple Against SEC Case

Wester added that he doesn’t see how Google would get a better deal with a smaller custodian. “Does a smaller keeper really want to be his pitch, ‘We’re easier to hustle?'”

For up-and-coming players, any foray into crypto by Google is a good sign for the industry.

“Similar to other big tech players, Google has slowed hiring compared to last year, but they have continued to be aggressive in hiring their crypto division – making the initiative a central focus,” said Jeff Feng, co-founder of Sei Network, a small layer-1 blockchain that launched in September. “Crypto has been held back so far by the lack of infrastructure, which Google Cloud will step in to propel forward.”

Given that Alphabet already has around 186,000 employees, aggressiveness in crypto is all relative.

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