Coinbase is one of the largest crypto trading platforms in the world. The platform has grown over the years to have a customer base of over 56 million verified users, $335 quarterly volume traded and over $223 billion assets worth on the platform.
With these figures, Coinbase might seem to be one of the most secure trading platforms. However, don’t drop your guard just yet. Coinbase had to list some of the risks of trading on the platform on its Initial Public Offering (IPO) as a publicly traded entity.
Some of these Coinbase risks include:
The unpredictability of cryptocurrency
Volatility is one of the major concerns in the crypto industry, and as a crypto entity, it affects Coinbase.
Bitcoin and the other cryptocurrencies are decentralised with no central authority to control supply and value. Instead, they depend on the market forces for value.
Given the valuation and performance of Coinbase depends on the value of cryptocurrencies, you cannot definitely value the platform. It will keep swinging depending on the crypto market price movements.
As a growing entity, crypto’s future is uncertain. You are never too sure whether it will stabilise, decline or even fail altogether. The uncertainty remains a risk of buying Bitcoin through Coinbase.
The inability to maintain the revenue flow
The other Coinbase risk is the possibility of the current revenue flow drying up. For example, the platform currently depends on Bitcoin and Ethereum for most of its revenue. It will be catastrophic for either or both of these assets to become less popular without another cryptocurrency replacing them.
Also, while Coinbase has a broad customer base, it depends on a few of its users for most of its revenue. Of the over 56 million users, only 6.5% of them make regular transactions. Losing this pool of active users would mean a loss of revenue to sustain seamless crypto trading on the platform.
Impacts from government regulations
One of the reasons for the fast Coinbase growth is the decentralised nature of cryptocurrencies and related services. It has grown without limit or control from any central authority. However, this might change as crypto becomes more mainstream.
The government can impose regulations for both cryptocurrencies and crypto exchanges. For example, the ban of cryptos by China and Turkey has affected crypto operations. Besides, the other government regulations like taxations and the need for KYC protocols will directly impact crypto exchanges.
Given the presence in multiple countries, it might take some time to comply with every individual country’s changing regulations.
Possibility of hacking
One factor that appears for both Coinbase pros and cons is online access. As an online facility, Coinbase is easy to access on mobile and at any time for convenience. But, on the other hand, online access makes it susceptible to hacking.
6000 coinbase accounts were recently hacked due to a 2FA exploit, reiterating the importance of safely storing your assets. Coinbase is trying to lower their trading fee but at the same time, they have to cut down on investment in security or customer service. To understand how an exchange earns and invest their money, you can have a look through our detailed CoinSpot Fee Explaination or CoinSpot Review.
Bottom Line
Coinbase offers beginners an easy to use platform for trading crypto assets. While it is currently a reliable trading platform, it still has a variety of possible risks such as the recent hack. That is not to say to avoid trading on Coinbase. Instead, know the risks when trading and only invest money you can afford to lose.
