In the last ten years, Coinbase has gained a massive following among cryptocurrency traders and has become the largest crypto exchange in the US. Despite its strong reputation, Coinbase has faced scrutiny and skepticism, especially in the past two years due to the volatile nature of crypto prices. However, the recent collapse of FTX, the former largest crypto exchange in the world, has sparked even more discussion.
Despite this, Coinbase remains a dominant player in the market. While some may question the effectiveness of cryptocurrencies as an inflation hedge, many traders continue to take advantage of the volatility to generate significant profits. As a result, Coinbase has a high volume of crypto balances, which gives it an advantage over smaller exchanges. In this article, we will explore why Coinbase is a safe and reliable cryptocurrency exchange.
What Sets Coinbase Apart as a Safe and Liquid Cryptocurrency Exchange
As a new trader in the crypto market, one may prioritize exchanges with low transaction fees and a high level of user anonymity. However, it is crucial to consider whether an exchange can handle large volumes of transactions and sustain its operations.
With over a decade of experience in the industry, it is safe to say that Coinbase has proven its reliability. It has weathered significant market fluctuations, such as the crypto bubble burst in 2017-2018 and the FTX fallout in 2022. Its strong liquidity and strategic token allocation make it one of the most stable and durable crypto exchanges. Here are some reasons why Coinbase is a safe choice for crypto traders.
Consistent Market Share
Since the collapse of FTX, Binance has quickly risen to the top of the market, surpassing Coinbase by a significant margin. However, Coinbase has shown that it is not ready to give up its position and become another FTX. Despite a drop in trader confidence, Coinbase has maintained a stable market share.
In January 2023, Coinbase held a market share of 6.97%, which dropped to 4.58% in just one month, the lowest it had been in years. However, it quickly rebounded and has since remained within the 5-6% range. In the second half of 2023, Coinbase saw a sustained increase in its market share, reaching 6.2%. While there have been some fluctuations, they have been much more manageable compared to 2022.
<img src="https://atradingnews.com/wp-content/uploads/2024/02/Is-Coinbase-Safe-Detailed-Review-amp-Data.png" height="353" width="1200">
<figcaption><em>Image Source: </em><em>The Block</em></figcaption>
</figure>
<p>By the end of the year, Coinbase's market share had increased to 6.34%, and it currently stands at 6.35%. While this is lower than the previous year, it is a significant improvement from the previous months. This sustained rebound demonstrates Coinbase's ability to withstand challenges and regain momentum in a highly competitive market. It is undoubtedly a resilient crypto exchange. </p><p>Compared to other exchanges, Coinbase has had one of the most stable market share changes in the past year. For example, Binance, the current market leader, has lost about 25% of its market share since January 2023, dropping from 59% to 35%. This can be attributed to the recent controversy where Binance admitted to violating the US Anti-Money Laundering Act. As a result, its competitors, including Coinbase, have capitalized on this to attract more traders. </p><h3>High Crypto Balances </h3><p>Another crucial factor to consider is the liquidity and availability of digital assets. With a significant balance of primary cryptocurrencies, Coinbase is one of the largest crypto exchanges in the market. These include Bitcoin (BTC) and Ethereum (ETH). </p><p>In terms of Bitcoin, Coinbase is the second-largest holder, with 411,762.68 Bitcoins, accounting for 2.2% of the total circulating supply. It is closely followed by Binance, the top holder, with 554,836.88 Bitcoins, or 2.8% of the total market volume. Bitfinex is in third place, with 388,742.04 Bitcoins, or 2.0% of the total market supply. The gap between the top three and the fourth-placed exchange, OKX, with 132,678.97 Bitcoins, or 0.7%, is significant. </p><p>Regarding Ethereum, Coinbase holds 2,185,579.12 ETH, accounting for 1.8% of the total circulating supply. It ranks third after Binance and Bitfinex, with 3,770,920.82 ETH, or 3.1%, and 2,349,649.56 ETH, or 2.0%, respectively. Kraken is in fourth place, with 1,691,412.27 ETH, or 1.4% of the total circulating supply. These four exchanges hold significantly more Ethereum than OKX, the fifth-placed exchange, with 945,955.80 ETH, or 0.8%. </p><p>Coinbase also has a significant reserve of other cryptocurrencies, making it a popular choice for traders. It ranks second in USDC, with a balance of 516,852,821.09, although this is significantly lower than Binance's 1,454,578,122.56. The third-placed exchange, OKX, has a balance of 157,577,919.60, which is a considerable difference. The remaining exchanges with USDC balances have less than 100,000,000. </p><p>For smaller cryptocurrencies, Coinbase is also a top holder, ranking in the top ten for several coins, including DAI (fifth- 2,848,007.58), USDT (ninth- 35,157,653.02), SKL (seventh- 7,393,205.74), and USDP (fourth- 482,327.81). This high level of liquidity allows Coinbase to handle large volumes of transactions, making it a reliable choice for traders in a highly volatile market. </p><h3>Strategic Token Allocation </h3><p>Another crucial aspect to consider is the level of reliance on a specific token or coin. The downfall of FTX, the former largest crypto exchange, can be attributed to its heavy reliance on its own tokens. This led to a significant outflow of capital from the exchange, affecting other exchanges as well, including Coinbase. </p><p>However, Coinbase has a more diverse token allocation, making it less vulnerable to market fluctuations. It holds a variety of cryptocurrencies and ranks in the top ten for many of them. While Bitcoin remains its most abundant reserve, it also holds significant amounts of Ethereum, which are essential for various government and business transactions. This diversity allows Coinbase to withstand a significant outflow of a single cryptocurrency and maintain its operations. </p><h2>Key Takeaways </h2><p>Despite facing challenges over the past decade, Coinbase has proven its resilience and reliability as a crypto exchange. While it may still have a long way to go before catching up to Binance, it has the potential to surpass the second and third-placed exchanges. Its decade-long presence in the market speaks volumes about its prudence and stability, making it a safe choice for cryptocurrency traders. </p><p><em>This is a guest post by Ivan Serrano. The opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.</em></p>