Coinbase Deal Shows Google Is Committed to Crypto – How Much Depends on Whom You Ask

A tie-up between the crypto and tech giants has been lauded as affirmation for blockchain. In reality, Google is looking for new customers.

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AccessTimeIconNov 3, 2022 at 8:53 p.m. UTCLayer 2
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Lawrence Lewitinn is CoinDesk's managing editor of global capital markets.

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Going by recent headlines and what the company says, one would assume Google is diving into crypto. Yet, some see the tech giant’s choice of partner – Coinbase – as proof Google is just dipping its toe.

A couple of weeks ago, Google and Coinbase put out a joint press release titled, “Google Cloud and Coinbase Launch New Strategic Partnership to Drive Web3 Innovation.” A few days later, Google Cloud introduced its Ethereum blockchain node engine.

This comes months after the search engine giant’s cloud computing section started a digital assets team. The hiring of former PayPal exec Arnold Goldberg to run Google’s payments division in January was touted as “a broader strategy to team up with a wider range of financial services, including cryptocurrencies,” in a Bloomberg article and echoed in a lot of crypto press, including here.

On the surface, it would seem Google is getting aggressive in its approach to crypto. However, some see this as a clear sign Google isn’t betting the farm on Web3 the way Meta has, but is instead looking to treat crypto the way it treats other many industries – a customer for its services.

Breaking down the Coinbase deal may give a clue as to how Google is approaching crypto.

“This partnership has touched on several Coinbase businesses including Exchange, Commerce, Cloud Nodes, and Prime,” wrote Oppenheimer analyst Owen Lau on Oct. 11. “On the Exchange side, Coinbase acts more like a consumer of Google Cloud technology, but on Commerce, Cloud Nodes and Prime, Coinbase acts more like a technology provider to Google's customers.”

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A blog post by Coinbase Chief Product Officer Surojit Chatterjee breaks the two companies’ tie-up into four parts:

1. Google Cloud will let some customers pay for services using some crypto via Coinbase.

2. Coinbase Cloud’s node service will use Google Cloud’s BigQuery enterprise data warehouse so Coinbase customers can have access to Google’s blockchain data.

3. Google will use Coinbase Prime for custody services.

4. Coinbase will use Google Cloud for “exchange and data services.”

CoinDesk asked Coinbase for further comment but was referred to Chatterjee’s blog post.

“Google Cloud’s partnership with Coinbase is a continuation of our deepening engagement with the Web3 ecosystem,” said Richard Widmann, Google Cloud’s head of strategy for digital assets, in an email to CoinDesk. “We view the evolution of blockchain technology and decentralized networks today as analogous to the rise of open source and the internet 10 to 15 years ago.”

He went on to say the partnership with Coinbase ‘builds on our deep history working on open-source projects,” and that as crypto goes “more mainstream, companies will need scalable, secure and sustainable infrastructure.”

Seismic shift?

To be sure, few things get retail investors and crypto enthusiasts more excited than seeing a major brand adopting crypto in some way. And when one of those companies happens to be fourth-most valuable by market cap on Earth, it’s easy for crypto’s cheerleading squad to think a seismic shift is underway.

That’s not how one long-time crypto adviser to one of Coinbase’s competitors sees it:

“If Google really thought crypto was going to be a big deal for them, they would have used a smaller custodian for their coins,” said the adviser, who requested anonymity because he consults in the space. “Google can get a better deal with a smaller custodian than it can with a bigger company like Coinbase.”

In his view, the use of Coinbase Prime for custody as well as allowing a select group of Google customers to pay for services with crypto is an indication that these were tacked on to the real essence of the deal: Coinbase is now a customer of Google Cloud.

“Google is competing with AWS [Amazon Web Services] for financial services customers, so to say they have one of the largest crypto exchanges as a customer helps their credibility with other potential customers,” the adviser said.

The other features of the Google-Coinbase deal, in other words, are just added bells and whistles, he added, because custody is more of a side business for Coinbase.

Coinbase generated custodial fees of $22 million in the three months ending June 30, not even 3% of the company’s total revenue of $808 million in that quarter. Another $22 million in income over that time was taken in from “other subscription and services revenue,” a category the company defines to include “revenue from Coinbase Cloud, which includes staking application, delegation and infrastructure services, Coinbase One, and other subscription licenses.”

Coinbase may be a giant in crypto but to Google’s parent, Alphabet, it’s merely a flea. The tech behemoth saw $6.8 billion in cloud services revenue in the three months ending Sept. 30. That’s billion with a B. And even that figure is just plain adorable next to Alphabet’s Q3 revenue of $69 billion.

And while partnering with the likes of Google would seem positive for Coinbase, it’s hard to convince some short sellers to change their minds on the exchange.

“They sound desperate,” said one portfolio manager at a $1 billion fund that is short Coinbase’s stock. “This reminds me of all these rinky-dink software companies that put out press releases saying they’re working with IBM. Yeah, IBM can sell their software now in their distribution network, but they’re doing it alongside thousands of other software they have deals with. So what? No one cares. They should focus on trading revenues and that’s it.”

Inroads into enterprise

Others, however, see this as a positive for Coinbase.

“If you look at what BNY Mellon announced a couple of weeks ago, you have a lot of custody providers now chasing after financial services providers and corporate investors getting into crypto,” said James Wester, director of cryptocurrency and co-head of payments at market intelligence firm Javelin Strategy & Research. “Coinbase is clearly looking for additional inroads into that space.”

Wester added that he doesn’t see how Google would get a better deal with a smaller custodian. “Is that what a smaller custodian really wants to be their pitch, ‘We’re easier to push around?’”

For up-and-coming players, any foray by Google into crypto is a good sign for the industry.

“Similar to other large tech players, Google has slowed hiring compared with last year, but they have continued to be aggressive in hiring for their crypto division – making the initiative a core focus,” said Jeff Feng, co-founder of Sei Network, a small layer 1 blockchain that launched in September. “Crypto has been held back so far by lack of infrastructure, which Google Cloud will step in to propel forward.”

Given that Alphabet already has around 186,000 employees, though, aggressiveness in crypto is all relative.


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Lawrence Lewitinn is CoinDesk's managing editor of global capital markets.