3 key things to understand about Coinbase’s record-setting raise
This is not to say the price doesn’t matter. For anyone who bought bitcoin at $900 a year ago, the current $200 price tag matters a lot. But trading volatility in bitcoin is exactly that–simply a measure of increasingly speculative activity around a particular asset. In this case, that asset is also extremely illiquid, largely unregulated, lacks a robust derivatives market, and is easily dominated by large players scattered around the world. This makes the price on any given day subject to a whole host of influences, none of which have anything to do with what is really happening here. For the moment at least, drawing conclusions about Bitcoin’s strategic potential from its price decline in 2014 fundamentally confuses both what Bitcoin is, and how it works.
Thirdly, Coinbase’s round is important because it showcases suggests a certain maturation is underway in the Bitcoin industry. The company has now raised roughly $105 million in venture funding across four rounds, each at successively higher valuations. Importantly, each round contained participants from the prior one–Union Square and Ribbit, for instance, backed both Coinbase’s $6.1 million Series A round back in May 2013 and its $25 million Series B round in December 2013. Given that the Series A is rumored to have valued Coinbase at a mere $22 million, the company has expanded its valuation by an extraordinary amount in less than two years. As with the early days of the internet, this helps the whole Bitcoin ecosystem. Nothing keeps investment dollars flowing like the occasional 21x (to date) valuation expansion.
The Coinbase round doesn’t mean Bitcoin is totally out of the woods. On the contrary, anyone engaged in this industry will tell you significant issues remain, including how to integrate looming regulation, reduce fraud, how the Bitcoin protocol will scale transactions, deal with mining concentration, etc. But in any case, Coinbase’s financing will likely be seen as a watershed moment in the early history of the digital currency revolution. It marks a point in time at which the conventional wisdom – i.e. the Financial Establishment - began to take Bitcoin seriously.