Like many people, I bought my first Bitcoin on Coinbase. The process was seamless and seemed no different than Venmo or Robinhood. I didn’t completely understand Bitcoin at the time but I was encouraged about the promise of an internet based currency and knew that once I had some skin in the game it would incentivize me to really follow it and figure out what it was all about.
When Coinbase added Ethereum and Litecoin, I bought a small amount of each as well with the same ease as buying Bitcoin. I had heard that there were other cryptocurrencies but I couldn’t name any or explain how they were different than Bitcoin.
Ultimately, I had a Coinbase wallet and consistently bought small amounts of these 3 cryptocurrencies for a full 7 months before I decided to purchase my 4th token. Right now, there are over 9 million Coinbase accounts. While we don’t have the data to determine, I would expect that for many of these users, Coinbase is their first and only experience buying cryptocurrency.
Coinbase has been able to establish itself as the “beachhead” product and experience for this new and exciting industry. At this point, I can’t even think of a 2nd app or exchange that I would even consider recommending to a friend in the US to buy their first Bitcoin.
This is an extremely important role for the industry and I have a ton of respect for Coinbase and their ability to create this seamless experience. However, with exponential growth in demand from first time Bitcoin buyers, it is a significant challenge for Coinbase to build the infrastructure required to keep up with this demand. Therefore, it doesn’t make sense for them to focus on integrating as many other promising coins as possible until they can keep up with existing demand for the 3 coins that they have.
This brings the question of what products and services can serve the role to transition a casual first time bitcoin buyer on Coinbase to a diversified blockchain based token investor? Ideally, with the right products and execution, this transition shouldn’t take 7 months like it did for me.
From the current perspective of a diversified blockchain investor (let’s define this as someone who owns at least 6 blockchain based tokens), there are really three ways to see significant growth of your token portfolio.
New individual investors starting to buy Bitcoin (likely through Coinbase). This drives the price for Bitcoin up where you and other blockchain investors diversify these gains into other tokens leading to price increases on them as well.
Existing individual investors who had only been purchasing Bitcoin or Ethereum, decide they want to diversify and start buying other tokens for the first time
Institutional investors create crypto hedge funds that come into the space and start investing in diversified token portfolios.
This third scenario is one of the reasons I’m extremely bullish on the overall cryptocurrency market over the next 6 months when you hear about the rush from sophisticated and well capitalized investors getting into the space by launching new crypto hedge funds. This is well on its way as evidenced by law firms like Cole-Frieman & Mallon stating that they are on track to help set up 24 crypto hedge funds this year alone with several other firms reporting similar numbers.
Therefore, let’s focus on the first two scenarios. While it’s impossible to tell, I would speculate that a significant portion of the growth we have seen in Bitcoin and Ethereum in 2017 has been from new investors.
Coinbase reportedly added 3 million users between March and July as Bitcoin’s price grew 2.6x from $1200 to $3200. I would expect Coinbase to continue it’s growth bringing new first time Bitcoin buyers into the space increasing the value of bitcoin with those gains then spilling over into other tokens.
However, I think the 2nd scenario of converting first time bitcoin buyers to diversified token investors is where there is a significant opportunity for improvement. Existing diversified token investors, cryptocurrency exchanges, and industry blogs should be asking themselves the following question.
How can we facilitate this transition from buying Bitcoin for the first time on Coinbase to owning a portfolio of 6 tokens as fast as possible?
I’ve found the most effective way to do this right now starts with Coinmarketcap. I remember my first reaction when I saw Coinmarketcap and was amazed at how many different tokens existed and how many billions of dollars in market cap these accounted for while having never heard of them.
In Silicon Valley, if a startup raises a round of financing that gives it “unicorn status” or a $1 billion dollar valuation, most people in the tech industry know about it as it is widely covered and talked about. Why had I never heard of “unicorn” tokens like NEM, IOTA, or Dash all with over $1 billion dollar market caps for their tokens?
I get this same reaction when I send a link to Coinmarketcap to anyone who hasn’t seen it before and had only heard of Bitcoin or Ethereum. In my opinion, it is the first eye opener to the vastness of the cryptocurrency world to help people understand that blockchains are more than just Bitcoin. Only recently have I started to see it linked to in articles on Bitcoin from mainstream outlets like the New York Times or Forbes. Even without significant media coverage, it is already reported to have passed the Wall Street Journal in global page views.
Once someone becomes aware of how many tokens exist and how much the entire space has grown over the past year, it provides a significant incentive to want to learn about what blockchains are and why the technology is so valuable.
So in the context of a “3 step plan” into diversified blockchain investing, we’ve accomplished the first two steps. Step 1, an individual is onboarded into the space through Coinbase where they easily buy their first Bitcoin. Step 2, that individual sees Coinmarketcap and becomes aware of other tokens not available on Coinbase and is incentivized to read and learn about blockchains.
So once an individual is in step 2 and they are convinced about the potential for the blockchain and decides to own a diversified portfolio of blockchain based tokens, we need step 3 to teach them how to do that.
Right now, this step can be a significant hurdle. First there is the challenge of deciding which other tokens you want to buy. This should be solved through education about blockchains to understand what use cases make the most sense along with general due diligence to research specific projects. It may also just be simplified by someone deciding they just want to own the top 10 tokens by market cap.
Once you know what you want to buy, then there is the challenge of deciding what exchange to buy it on and which wallet to hold it on. There are usually a number of options for each and it becomes a complicated process to Google your way through it. Exchanges make this particularly difficult because for anyone who does not consider themselves an experienced “trader”, navigating the interface of Bittrex and looking at order books is an absolute nightmare.
This is where I think there is a huge opportunity for exchanges like Shapeshift and Changelly that are significantly more user friendly and don’t require the hurdle of creating and verifying an account. On the other hands, we need adoption on wallets like Exodus and Jaxx to provide a friendly user interface that is similar enough to Coinbase for new users to easily store these other tokens.
I’ve found that these services allow for a clear eight step process
to take any existing Coinbase user interested in a diversified portfolio to being able to start creating one in 30 minutes.
Ultimately, as products like Prism and Iconomi launch they can make this process significantly easier by allowing individuals to get exposure to tokens just by sending Ethereum to a diversified portfolio of tokens without having to figure out which exchange and wallet to use to store them.
I’d love to hear thoughts on how to convert more existing Coinbase Bitcoin buyers into other tokens. What led you to buy your 4th token and what process do you think is the easiest to teach others?