Leading U.S. cryptocurrency exchange Coinbase identified some unique business risks in its prospectus released Thursday, including competition from decentralized finance (DeFi) and the potential discovery of the real identity of Bitcoin's pseudonymous creator, Satoshi Nakamoto.
- Per its prospectus, Coinbase noted that "the identification of Satoshi Nakamoto, the pseudonymous person or persons who developed Bitcoin, or the transfer of Satoshi’s Bitcoins" as a risk factor.
- The exchange did not elaborate on how unmasking Satoshi would affect its business. However, in May, for example, the cryptocurrency market was briefly rattled by on-chain data that coins possibly belonging to Nakamoto had moved, as CoinDesk reported at the time.
- The list also included "negative perception of Bitcoin or Ethereum" and "unpredictable social media coverage or 'trending' of crypto assets" as risk factors.
- Decentralized finance (DeFi) was also included as a risk. Coinbase said, "We compete against a growing number of decentralized and noncustodial platforms and our business may be adversely affected if we fail to compete effectively against them."
- Coinbase specifically names DeFi protocols including Ethereum, Tron, Polkadot, and Solana in explaining risks from DeFi growth.
- Indeed, the growth in DeFi trading has been remarkable, with aggregate volumes setting new record highs in January above $50 billion, per CoinDesk's prior reporting.
- Other identified risks are more standard, including the company's revenue being "substantially dependent" on the categorically volatile prices of digital assets, and the potential for platform security breaches, and ongoing as well as potential future litigation individuals or government regulators.
- The U.S. Securities and Exchange Commission (SEC) requires stock issuers to identify the biggest risks to their business before and after going public, and the "risk factors section" of the prospectus and annual or quarterly report is staple reading for educated investors. Companies tend to err on the side of caution, including risks some may consider remote.
- As a sort of winking homage to Nakamoto, Coinbase included the Bitcoin network address associated with the cryptocurrency's creator in the "copies to" field of its prospectus, alongside lawyers and the like.
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