What a fitting ascent, with a delicious amount of irony.
The headline says it all…
Source: Bloomberg
Coinbase, the second-largest digital asset exchange after Binance, will replace a traditional finance company, Discover Financial (DFS), on the S&P 500.
Discover Financial – a $55 billion company that will generate about $17.4 billion in revenue this year – is being acquired by Capital One in a $35.3 billion deal announced last month.
Discover generates the majority of its revenues from its consumer lending products, most visibly its Discover-branded credit cards.
Discover’s acquisition freed up a spot on the S&P 500 index for Coinbase (COIN), which means Coinbase shares are now a hot commodity, as they will be included in associated index funds.
The news has sent institutional capital flooding into Coinbase, sending shares up more than 16% already.
1-Month Chart of Coinbase (COIN) | Source: Bloomberg
It’s an incredible and ironic story of disruption.
After all, Coinbase deals in digital assets, cryptocurrencies, and stablecoins, which are digital assets backed by fiat currencies and associated securities.
Coinbase is going to have a phenomenal year, given all the pro-crypto developments that have been happening as a result of the new administration.
But its financials don’t tell the whole story about how important Coinbase is in the industry. And I’m not referring to the digital assets industry, but to the broader financial services industry.
In the first quarter of 2025, consider this. Coinbase…
But these metrics aren’t the ironic part about Coinbase making it to the S&P 500.
Literally, just months ago, Coinbase was right in the crosshairs of the SEC – with its lawsuit issued in 2023 for “Operating as an Unregistered Securities Exchange, Broker, and Clearing Agency.”
Under the Biden administration, the SEC basically threw the kitchen sink at Coinbase, precisely because it was the most professional, compliant, transparent, proactive, and successful digital asset exchange in the U.S.
Coinbase is a complete anomaly and has long been a glutton for punishment, which I respect. It went public in April 2021, during the pandemic, and entered the Biden era, with an administration that was openly and vociferously antagonistic to the entire digital assets industry.
Coinbase stepped up to go public, precisely to be transparent and to disclose the details and health of its business through quarterly and annual SEC filings.
It would be made to suffer for that decision.
Pretty much nobody else in the industry wanted the SEC scrutiny of being a publicly traded digital assets company. In fact, most companies in the blockchain industry we’re domiciling their businesses outside of the U.S. due to the antagonistic administration and the lack of regulatory clarity.
Not Coinbase. It put on a brave face, went public, always remained professional, and proactively made every attempt to engage the U.S. government and its regulators – to improve regulatory clarity and increase investment in the U.S. blockchain industry.
Common sense. And smart business.
And that’s precisely why the SEC went after Coinbase. It figured if it could cobble the best in the business, the rest would collapse quickly.
The SEC claimed that Coinbase’s staking programs – whereby investors could stake their digital assets and receive dividends for staking, thus providing liquidity for the respective blockchain – were unregistered securities.
Coinbase’s defense was clear. Staking services are not securities, and most digital assets don’t meet the traditional definition of an investment contract. And it’s worth noting that no Coinbase customer lost money through its staking problem (i.e., no damage was done).
The SEC even went so far as to issue a Wells Notice, signaling its intent to sue Coinbase over its Lend program.
The Lend program allowed holders of USD Coin (USDC), one of the major U.S.-dollar-backed stablecoins, to earn a 4% annual percentage yield – for lending their U.S.-dollar-backed stablecoins.
The SEC’s stance was preposterous. And it was hypocritical.
None of it, and I mean none of it, made any sense.
To understand it is to understand that the party in power saw all digital assets as a threat to its ability to control U.S. citizens – our ability to transact and to invest.
“They” wanted a central bank-controlled digital currency with a digital wallet controlled by the U.S. government, and the ability to freeze funds at will.
A free, vibrant, and healthy market in digital assets was the antithesis of what “they” wanted to accomplish. And they tried to take the entire industry down.
And they failed. Thankfully.
In the first quarter, the “new” SEC leadership dismissed the lawsuit against Coinbase with prejudice. And five out of ten states working to shut down the industry also dropped their staking lawsuits. [Note: The rest will follow.]
Meanwhile, Coinbase’s rise to the S&P 500 is righteous. Against all odds, the team stood firm, maintained composure, and fought for what they knew to be right.
And now it stands as the largest, publicly traded, next-generation financial services company on the S&P 500, clearing a path for many others to follow.
Blockchain-powered companies are rewiring the world’s financial transactions in ways that offer more security, provide instant settlement, remove friction, provide more transparency, and accomplish it all in a way that allows anyone on the planet to participate in digital assets.
Blockchain-powered financial services companies are disrupting the traditional financial services industry. Those who don’t adapt will be replaced.
Discover certainly won’t be the last. I wonder who will be next.
Jeff
The Bleeding Edge is the only free newsletter that delivers daily insights and information from the high-tech world as well as topics and trends relevant to investments.
The Bleeding Edge is the only free newsletter that delivers daily insights and information from the high-tech world as well as topics and trends relevant to investments.
