The Coinbase/Dogecoin Tango
Dogecoin — the cryptocurrency forked from Litecoin in late 2013 as a joke — has gained 475% in the past 30 days to become the seventh largest cryptocurrency by market cap in the world. It is easy to understand why this is happening when we take a look at how DOGE fits into the crypto economy.
While Binance currently dominates DOGE trading volumes (over 45% globally as of writing) there are only three exchanges in the US that support it: Robinhood, Kraken, and Binance.us. While Robinhood volumes are unknown, Kraken and Binance.us only control 3.9% of global DOGE volumes.
Yesterday, Robinhood’s crypto services were suspended amid a rapid rise in the price of DOGE for the second time in three months. My guess is that Robinhood’s customer demand for DOGE exceeded their supply, creating a liquidity issue and forcing Robinhood to buy DOGE on the open market in order to facilitate customer demand.
Earlier this week, Coinbase became a public company. For years, Coinbase has resisted persistent pressure from its users to support Dogecoin. Last month, Elon Musk — a well-known DOGE supporter with a habit of driving the price of DOGE up simply by tweeting about it — put even more pressure on Coinbase to support DOGE.
As a private company, Coinbase took a principled approach in selecting which coins to support. In the early days, Coinbase offered a “Digital Asset Framework” to help the public understand the company’s philosophy for supporting various coins. More recently, the Digital Asset Framework morphed into the Coinbase Asset Hub — a more streamlined process for cryptocurrency developers to submit their coins to Coinbase for listing consideration.
As a private company, Coinbase had the luxury to support the coins that it wanted to. As a public company, Coinbase will likely have less control over this, as new and existing shareholders put pressure on Coinbase to grab as much of the global cryptocurrency trading volumes as possible.
Accordingly, Coinbase has no option now but to support Dogecoin in order to compete and acquire some of the massive DOGE trading volumes away from Robinhood, Binance, and Kraken.
So why has DOGE been mooning over the past month? In order for Coinbase to support DOGE, it needs to acquire a very large amount of the coin to build a large enough reserve to offer brokerage services without running into the liquidity problems that Robinhood encountered.
While this is purely speculation, I will not be surprised if Coinbase announces its support for DOGE in the near future. Much wow.
