What is Coinbase? Everything you need to know

If you're considering entering the cryptocurrency market, chances are you've encountered Coinbase. As one of America's largest cryptocurrency exchanges, Coinbase facilitates the buying, selling, and holding of digital currencies such as bitcoin and ether. With cryptocurrency gaining broader acceptance, there are now multiple avenues for individual trading, including platforms like Venmo, Cash App, and Robinhood. Nonetheless, Coinbase remains a favored choice, boasting over 110 million verified users. Its public debut in April 2021 was widely interpreted as an endorsement of digital currencies' legitimacy. Despite the volatility in crypto prices and the industry's fluctuations, investors continue to utilize Coinbase to monitor token performance, execute trades, and more. Here's a comprehensive guide to trading cryptocurrency on Coinbase.

What is Coinbase?

Coinbase serves as a user-friendly platform for purchasing, selling, and storing various cryptocurrencies. With approximately 240 tradable assets, users can explore a wide range of options. The platform caters more towards beginners, while Advanced Trade caters to experienced traders engaging in high-volume transactions and seeking additional trading features. (Coinbase Pro, the premium service, was discontinued in June 2022, with users migrated to Advanced Trade.)

Interest in investing via apps like Robinhood has surged, with cryptocurrency being no exception, leading to significant growth for Coinbase. Currently accessible in over 100 countries, the platform offers a straightforward interface. Users can view their balances, create watchlists to track cryptocurrency prices, and monitor the market's top movers. Additionally, Coinbase provides the Coinbase Card, a Visa debit card enabling users to earn rewards by spending assets from their portfolios.

In September 2021, Coinbase introduced a new feature allowing users to directly deposit their paychecks into their Coinbase accounts, with the option for automatic conversion to bitcoin or other cryptocurrencies.

Does Coinbase charge any fees?

Coinbase imposes trading fees unlike platforms like Robinhood, which promotes "free trading". The fee structure on Coinbase varies and can be intricate as it doesn't adhere to a flat fee. Transparency regarding fees is limited; you'll only see the exact amount before finalizing your order. Fees are determined based on factors such as location, payment method, order size, market conditions, volatility, and liquidity. Additionally, Coinbase incorporates a spread in the price, representing the gap between the asset's market price and your buying or selling price.

On the other hand, Advanced Trade follows a more straightforward maker-taker model, where maker orders contribute liquidity and taker orders reduce it. Fees range between 0% and 0.60% per trade, with lower costs for larger transactions. For instance, transactions below $10,000 incur a 0.40% maker fee and a 0.60% taker fee, while those between $10,000 and $50,000 have a 0.25% maker fee and a 0.40% taker fee.

Notably, Coinbase doesn't charge users for holding assets in a digital wallet or for transferring cryptocurrency within the Coinbase network. However, Coinbase's fees can diminish profits, particularly if you're not utilizing Advanced Trade.

What are the steps to create a Coinbase account?

Setting up a Coinbase account is a relatively simple process. You'll be required to provide a government-issued photo ID, along with details such as your phone number and the last four digits of your Social Security number. Expect questions about your intended use of the platform. It's essential to practice proper cyber hygiene when selecting a password, opting for uniqueness and employing multi-factor authentication to safeguard your account against potential hackers.

To initiate trading activities, you must link a payment method to your Coinbase account. In the United States, acceptable methods include bank accounts, debit cards, wire transfers, PayPal, Apple Pay, or Google Pay. Note that not all payment methods support actions like cashing out, so it's advisable to review the capabilities of each option.

With your digital wallet established, you're ready to engage in trading. While Coinbase doesn't support trading for all cryptocurrencies, the exchange regularly introduces new coins to its platform.

Would now be a favorable moment to invest in cryptocurrency?

Cryptocurrency prices surged to record highs during the pandemic but have since experienced significant declines. In November 2021, bitcoin reached an all-time high of approximately $68,000 per coin, more than doubling its July 2021 price. Similarly, ether, the second-largest cryptocurrency by market value, peaked at around $4,800 in November 2021. Other cryptocurrencies, known as altcoins, also garnered attention; for instance, Dogecoin surged by 8,000% in the early months of 2021, while tokens like Shiba Inu and Omicron experienced rapid growth.

However, the current landscape is markedly different. The Federal Reserve's decision to raise interest rates since March 2022, aimed at curbing inflation, has exerted downward pressure on financial asset prices, including cryptocurrencies. Additionally, the crypto industry has faced a crisis of trust, partly due to the collapse of previously reputable companies like the major exchange FTX. Bitcoin's price has plummeted below $20,000 per coin from its peak and, as of March 2023, hovers around $28,000 per coin.

The extreme volatility in cryptocurrency prices underscores the risk inherent in investing in this asset class. Unlike traditional financial assets such as stocks and bonds, cryptocurrency lacks the same level of regulation and oversight. Although there have been efforts to increase regulatory scrutiny, the future regulatory landscape remains uncertain, potentially altering the operations of crypto companies. In March, the U.S. Securities and Exchange Commission (SEC) cautioned Coinbase about potential violations of U.S. law related to certain crypto products, highlighting ongoing regulatory crackdowns. Financial advisors typically advise against investing money in cryptocurrency that one cannot afford to lose.

Is purchasing and trading cryptocurrency through Coinbase considered secure?

To engage in cryptocurrency transactions, you'll require a digital wallet to securely store your currency between transactions. Unlike a conventional wallet, a digital one raises the concern: Is the crypto wallet protected from cyber threats?

There are several options available, each with its own security protocols.

If you prefer not to manage cryptocurrency separately from the Coinbase app, you can utilize a hosted wallet. This type of wallet is managed by a third party, such as Coinbase, alleviating worries about forgetting passwords and losing cryptocurrency. (This is a genuine risk; some crypto investors have suffered substantial losses due to forgotten access credentials.)

Cryptocurrency lacks insurance from entities like the Federal Deposit Insurance Corporation (FDIC) or the Securities Investor Protection Corporation, unlike traditional bank accounts or investment portfolios. However, Coinbase asserts that it maintains crime insurance to cover a portion of digital currencies stored across its systems against theft, though unauthorized account access is not covered. Moreover, the company claims to keep 98% or more of customers' digital currency offline, with FDIC insurance covering balances up to $250,000.

For those desiring complete control over their cryptocurrency without third-party involvement, a non-custodial wallet is an option. While this mitigates the risk of third-party hacks, users must remember their passwords or face the potential loss of their cryptocurrency. However, greater control enables participation in advanced activities such as yield farming. Coinbase customers can opt for the Coinbase Wallet, a non-custodial option separate from the app.

To safeguard against computer hacks, users may choose a cold wallet, also known as a hardware wallet, which is a physical device like a USB that remains offline. However, these can be costly; as of March 2023, the Ledger Nano X is priced at $149 and the Trezor Model T at $219.

Interested in further details? Money provides comprehensive lists of the best crypto exchanges and wallets (with Coinbase rated best for beginners in both), along with a full review of the Coinbase crypto wallet.