From Inadequacy to Financial Infrastructure Giant: Coinbase's Regulatory Reversal Strategy

As of February 2026, looking back at Coinbase Global Inc. (NASDAQ: COIN), its journey emerges not merely as a success story of a cryptocurrency exchange but as a complex dialogue with the regulatory environment. Starting in 2012 as a Y Combinator-related project called “Bitbank,” and surviving the crisis caused by the Mt. Gox incident—whose management failures threatened the entire industry—Coinbase has evolved into a key player supporting the US financial system. Its trajectory transcends simple corporate growth, reflecting a deeper narrative of regulatory navigation and industry shaping.

Chapter One: Victory in Compliance Strategy—Lessons Learned from Management Failures

Reinventing Trust as a Service

In 2012, Brian Armstrong, a former Airbnb fraud prevention engineer, initially named his project “Bitbank” when applying to Y Combinator. That choice of name alone reveals his ambition—aiming not just to develop a wallet but to build a financial institution.

Drawing from his experience at Airbnb, Armstrong was acutely aware of the friction in international remittances. While Bitcoin technically solved the transfer of value, user experience was extremely poor. Early Bitcoin users faced complex desktop clients and 34-character hash addresses, risking the loss of all assets through minor mistakes.

Armstrong’s core insight was that “trust is a service.” This became the founding principle of Coinbase and laid the groundwork for its subsequent success.

The Signposts from Competitors’ Failures

2013 to 2014 was a tumultuous period in the cryptocurrency exchange industry. Mt. Gox, based in Japan, handled 70% of global Bitcoin trading volume but was riddled with mismanagement, lacked audits, and routinely misappropriated customer funds. The industry’s negligence eventually reached a critical turning point.

In this context, Coinbase made a historic strategic decision. While many competitors avoided regulation by registering offshore, Coinbase chose to operate with full compliance within the US mainland.

Implementing this required enormous costs and patience. Opening bank accounts was extremely difficult; Armstrong and Fred Ehrsam (a Goldman Sachs trader) repeatedly visited financial institutions like Silicon Valley Bank to persuade them. Additionally, obtaining money transmission licenses across all 50 US states—what could be called a “long march of licensing”—was a grueling process.

In August 2014, the Mt. Gox incident sent shockwaves through the industry. 850,000 Bitcoins were lost, causing market panic. However, Coinbase’s transparent reserve system and compliance infrastructure attracted nearly all US capital seeking safety. The chaos caused by Mt. Gox’s failures positioned Coinbase as a “safe haven” for crypto assets, enabling it to withstand subsequent regulatory storms and solidify its role.

Chapter Two: Organizational Culture Shake-up—Internal Conflicts and External Pressures

The “De-politicization” Declaration and Its Divisive Impact

In 2020, amid nationwide protests following George Floyd’s death, Silicon Valley tech firms publicly supported Black Lives Matter. Meanwhile, inside Coinbase, a different movement emerged.

During a June all-hands Q&A, employees requested a public statement of support for BLM. Armstrong avoided a direct answer, stating that the company was only interested in economic freedom. This response sparked fierce internal backlash; some employees organized a walkout and criticized management sharply via Slack channels.

On September 27, Armstrong published a blog titled “Coinbase is a Mission-Driven Company,” clearly stating its stance. He rejected participation in political debates unrelated to its core mission—advancing economic freedom through crypto—and issued a “last warning” to employees who disagreed with the cultural direction, opening the door to resignation.

Ultimately, about 60 employees (roughly 5% of the workforce) accepted this proposal and left. External critics labeled it “authoritarian,” but veteran Silicon Valley investors like Paul Graham expressed support. In hindsight, this “organizational reform” helped Coinbase avoid internal culture wars during its 2021 IPO preparation, maintaining high organizational efficiency.

Accusations of Racial Discrimination and Preemptive Defense

At the end of 2020, journalist Nathaniel Popper of the New York Times completed a months-long investigation into systemic discrimination against Black employees at Coinbase—exposing 7% salary cuts, workplace bullying, and discriminatory comments.

Coinbase responded aggressively. Days before the article’s publication, it sent a public letter to all employees, “pre-announcing” negative coverage, listing former employees’ names, and claiming that internal investigations found no evidence of misconduct.

This tactic reversed typical corporate PR norms. Usually, companies respond after media reports surface; Coinbase preempted the story, attempting to control the narrative before it became public. While criticized as “witness intimidation,” this “pre-emptive strike” sent a strong signal internally and to investors: Coinbase is not controlled by the media.

Chapter Three: Political Power Play—2024 Election and Regulatory Reshaping

Courtroom Reversal

Facing SEC regulatory pressure led by Gary Gensler, Coinbase refused to settle like Kraken or Binance, launching a full-scale counterattack.

In February 2025, Coinbase announced the withdrawal of most charges against it, reflecting a changing political landscape. It filed an “injunction” with the federal appellate court, demanding enforcement of regulatory agency duties—a bold move akin to a “private prosecutor.” This legal battle was seen as vital for the survival of Coinbase and the entire crypto industry.

The textbook victory of “Money Politics”

Coinbase deeply understood that legal issues in the US ultimately become political issues. It strategically decided to play the role of a super-donor in the 2024 elections.

Senator Sherrod Brown of Ohio, chair of the Senate Banking Committee, was one of the most prominent crypto skeptics in Washington. He repeatedly blocked pro-crypto legislation and was known for grilling Coinbase executives.

To counter this “threat,” the industry, including Ripple, co-funded the super PAC “Fairshake.” Over $119 million was spent in the 2024 cycle, with more than $40 million directed solely at Brown’s Ohio Senate seat. This aggressive advertising contributed to Brown’s narrow defeat.

Beyond financial support, Coinbase launched the grassroots movement “Stand With Crypto,” mobilizing over 2.6 million crypto holders. Publishing “performance reports” (grades A to F) for politicians and organizing voting efforts in swing states fundamentally altered Washington’s political calculus. Brown’s loss sent a warning to all politicians: opposing crypto could jeopardize their careers.

By 2025, Coinbase’s lobbying expenditures reached a record quarterly $1 million, recruiting influential former Obama administration lobbyists like David Plouzze. It transformed from a tech startup into a Washington power player.

Chapter Four: Fundamental Rebuilding of Business Model

Dramatic Shift in Revenue Sources

In 2020, 96% of Coinbase’s revenue depended on trading fees—meaning its performance was entirely tied to Bitcoin price movements. When markets cooled, growth stalled.

During the 2021 bull market, this dependency peaked, with trading revenue soaring to $6.8 billion, foreshadowing future trends. After the 2023 bear market, a structural shift became clear: total net revenue of about $2.9 billion, with subscription services matching trading revenue.

2024 data confirmed this trend. While trading revenue rebounded to approximately $6.56 billion in total revenue of about $6.564 billion, subscription income steadily grew to roughly $2.3 billion. Notably, in Q4 2024, trading revenue of $1.6 billion contrasted with $641 million in services—no longer a secondary, optional income stream.

From 2025 onward, this bifurcation deepened. In Q2, trading revenue of $764 million and services revenue of $656 million were nearly equal; in Q3, trading at $1 billion versus $747 million in services. Institutional forecasts suggest that by the end of 2025, services will comprise about 41% of total revenue—completely breaking away from the 96% dependence on trading fees in 2020.

The Stablecoin Empire and ETF Monopoly Strategy

Coinbase’s co-issued USDC has become central to this new revenue structure. With the Federal Reserve maintaining interest rates, the interest income from USDC reserves is enormous. Coinbase now enjoys a profit model akin to bank net interest margin (NIM) revenue—robust even in bear markets.

The approval of Bitcoin spot ETFs in 2024 marked Coinbase’s ultimate crown jewel in its institutional business.

As of 2026, Coinbase holds approximately 85% of Bitcoin ETF assets under custody. Nearly all major products—BlackRock’s IBIT, Grayscale’s GBTC, Fidelity’s offerings—are stored in Coinbase’s cold wallets.

This dominant position not only yields stable custody fees but also embeds Coinbase into the infrastructure of the global financial system. When investors buy BlackRock or Fidelity Bitcoin ETFs, the underlying assets are physically held within Coinbase’s system—creating immense leverage in regulatory negotiations.

Chapter Five: Web3 Infrastructure Strategy—Ambitions for the Base Chain

From Exchange to Operating System

If Coinbase has existed as an exchange for the past decade, its future aims to transform into a Web 3.0 operating system.

In 2023, Coinbase launched the Layer 2 network “Base” based on OP Stack. This move signals a strategic shift—beyond expanding crypto trading functions, it signifies building decentralized financial infrastructure.

Hundreds of DeFi protocols are already deployed on Base, with monthly users reaching several million. Coinbase envisions becoming a “super app”—integrating payments, savings, investing, staking, and DeFi participation within a single ecosystem.

Regulatory Risks and Long-term Dominance Potential

This vision inherently involves regulatory risks. How much pressure regulators like the Federal Reserve and international financial authorities will exert to prevent Coinbase from gaining excessive control remains uncertain.

However, Coinbase’s longstanding regulatory trust and political influence—built since 2012—are unmatched by other crypto firms. Learning from Mt. Gox’s failures, implementing strict management, and strategically controlling the political environment, Coinbase’s potential to dominate the global crypto flow in the next decade is increasingly credible.

From a mere exchange to a trusted, regulated financial infrastructure—this is Coinbase’s fundamental evolution and a profound signal to the entire industry.