What is Coinbase and is it safe?

COINBASE is the largest cryptocurrency exchange in the US and lets you buy and sell coins like bitcoin, ethereum and dogecoin.

The crypto trading platform is similar to others out there like Binance and Kraken but is the only one that's a public company.

That means shares of the company Coinbase are listed on the American stock exchange Nasdaq.

Coinbase went public on April this year and is now worth more than $50billion.

But what exactly does Coinbase do and is it safe? We explain all, including the cryptocurrencies you can trade too.

But first, a word of warning: buying cryptocurrencies as well as stocks and shares is a risky business.

Investing is not a guaranteed way to make money, so make sure you know the risks and can afford to lose the money.

Cryptocurrencies are also highly volatile, so your cash can go down as well as up in the blink of an eye.

🔵 Read our cryptocurrency live blog for the latest Bitcoin updates

What is Coinbase?

Coinbase is an American cryptocurrency exchange, and customers can buy and sell around 50 cryptocurrencies on the platform, including the most popular, bitcoin.

The company was founded in 2012 by Brian Armstrong and Fred Ehrsam.

As of March 2021, Coinbase was the largest cryptocurrency exchange in the US by trading volume.

Coinbase says it has more than 56million verified users across 100 countries.

The company has benefited from bitcoin's rise in value, which recently rocketed again after it was revealed that Amazon is hiring a crypto expert.

The job ad has fuelled speculation that the retail giant could start accepting payments using the digital coins.

5 risks of crypto investments

THE Financial Conduct Authority (FCA) which creates the rules for the banking industry, has warned people about the risks of investing in cryptocurrencies.

  • Consumer protection: Some investments advertising high returns based on cryptoassets may not be subject to regulation beyond anti-money laundering requirements. 
  • Price volatility: Significant price volatility in cryptoassets, combined with the inherent difficulties of valuing cryptoassets reliably, places consumers at a high risk of losses.
  • Product complexity: The complexity of some products and services relating to cryptoassets can make it hard for consumers to understand the risks. There is no guarantee that cryptoassets can be converted back into cash. Converting a cryptoasset back to cash depends on demand and supply existing in the market. 
  • Charges and fees: Consumers should consider the impact of fees and charges on their investment which may be more than those for regulated investment products.  
  • Marketing materials: Firms may overstate the returns of products or understate the risks involved

Coinbase went public on the Nasdaq stock exchange in New York City on April 14.

On the date the company didn't do a traditional initial public offering (IPO), and instead offered a direct listing.

In a direct listing, a company floats its shares on a stock exchange, but without hiring banks to underwrite the transaction, like in an IPO.

A direct listing doesn't allow the business to raise new funds, but it offers current shareholders the chance to sell their stocks on the market.

Music streaming site Spotify also chose this method when it went public in 2018.

Coinbase's overall valuation began at $65.3billion, making it the biggest new US stock market entrant since Uber in 2019.

Is Coinbase safe?

Buying and selling cryptocurrencies such as bitcoin and ethereum isn't regulated.

This is one of the reasons it is very risky as there is no protection if your money is lost or stolen.

Coinbase is a legitimate company and must comply with certain laws covering financial services and consumer protection in the US where it's based.

The company says that it complies with "all applicable laws and regulations in each jurisdiction in which it operates"

And in countries where operating a digital currency business requires a licence it said it is "committed to obtaining licenses as needed to comply with local laws".

In the UK crypto exchanges must follow anti-money laundering rules.

This doesn't make cryptocurrencies any less risky as there is still no Financial Services Compensation Scheme (FSCS) protection if the exchanges collapse, plus the value of cryptocurrencies can drop.

The FCA recently banned the world's largest cryptocurrency exchange Binance from operating in the UK.

Coinbase is a regulated financial services company and has an e-money licence with the FCA.

What can you buy on the platform?

On Coinbase you can buy cryptocurrencies like bitcoin Cash, Ethereum, Ethereum Classic and Litecoin.

You can also now buy Dogecoin which is the recently popular cryptocurrency that started off as a joke.

The effect of the platform has prompted the term the "Coinbase Effect" which refers to the rise in price of cryptocurrencies listed for sale on a dominant crypto exchange.

American paper Barron's says that getting a cryptocurrency listed on the platform plays a big part in what cryptocurrencies are then widely accepted and become popular.

Dating app Bumble went public in February, and it saw its share price soar.

But Brits have previously been warned they might risk losing all of their money if they invest in bitcoin and other cryptocurrencies.

For more on trading, we’ve explained why the cryptocurrency market is going up.

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