Historically, Coinbase announcements have caused huge retail influxes of retail investors, erratic price swings, and even allegations of market manipulation. That’s why it was a surprise today when Coinbase‘s latest announcement came not with a bang but a bearish whimper. Prices are down across the board today and there has been very little reaction to Coinbases momentous announcement. Whether or not the market chooses to react in the next 24 hours, one thing is for sure. Coinbase’s addition of ERC20 support will have wide-reaching effects around the cryptocurrency markets for years to come and cannot be overlooked.
What is ERC20?
ERC20 is the standard used by Ethereum tokens and smart contracts. It serves as an interface to which anyone wishing to issue a token or write a smart contract must comply. There are a total of 59,948 Ethereum contracts out there. Although Ethereum’s market share has shrunk, they almost single-handedly dominated the ICO bull market of 2017.
For instance, many of the most successful currencies such as EOS which raised $185 million in just 5 days, Bancor which raised $153 million, and at least 2 more that raised $70 million or more. ERC20 tokens are seen as the bedrock of ICOs, and blockchain applications by fans of Ethereum.
How will this affect Coinbase?
Coinbase has a number of products this will affect. The first, and potentially the most important for institutional investors is Coinbase Custody. While unfamiliar to many retail investors, Coinbase Custody is a digital asset custody service that provides secure storage and financial controls of large holdings. No one knows how many customers are using custody, but it is seen as the most prominent digital asset custodian in the U.S. Therefore, the addition of ERC20 tokens might open up the door for a more diverse set of cryptocurrency trusts.
GDAX, Coinbase’s digital asset trading platform, which currently only supports Bitcoin, Ethereum, Litecoin, and Bitcoin Cash will “wait for additional regulatory clarity” before adding more assets. It’s unclear what this means, in what jurisdictions they are seeking more guidance on regulation, or what their legal concerns are. Coinbase also has not established a timeline on this so whether or not it happens in 2018 is up for speculation.
Coinbase, the companies flagship product will continue following the process it instituted after the Bitcoin Cash insider trading scandal and price pump of only adding coins to Coinbase after they have been listed on GDAX.
Coinbase Asset Management, the companies index fund, will include any new assets on a market capitalization basis. I.e. if you invest $100,000 and new ERC 20 Token x has 20% of the market cap of coins on Coinbase, you will own $20,000 of token x.
Coinbase also announced that their payment processing product, Coinbase Commerce, has no plans at all to accept payments in any other cryptocurrencies. This is obviously a blow to all of the coins wishing to be used for real-time transactions but highlights the cautious approach the company is taking.
How will this affect CryptoMarkets?
The move has failed to give the markets any confidence with the total market capitalization down around $30 billion. The move couldn’t even boost Ethereum which is odwn almost 10% today. I could be wrong, but I think if this move had come when the market cap was at $700 billion reactions would have been stronger.