One could believe Google is entering the cryptocurrency market based on recent news and statements made by the firm. However, some believe Google is only dabbling because of its choice of partner, Coinbase, from the tech behemoth.
Google and Coinbase sent a news release together a couple of weeks ago with the heading “Google Cloud and Coinbase Launch New Strategic Partnership to Drive Web3 Innovation.” Google Cloud unveiled its Ethereum blockchain node engine a few days later.
This comes months after the cloud computing division of the large search engine company established a digital assets team. The appointment of PayPal Exec Arnold Goldberg to manage Google’s payments group in January was heralded as part of a broader strategy to collaborate with a broader spectrum of financial services, including cryptocurrencies.
On the surface, it would appear that Google is adopting a more assertive stance toward cryptocurrencies. Some, however, interpret this as a blatant indication that Google is not placing all of its chips on Web3 the way Meta has, but rather is seeking to treat cryptocurrency as a client for its services, similar to how it does many other businesses.
Analyzing the Coinbase deal could provide insight into Google’s approach to cryptocurrencies.
On October 11, Oppenheimer analyst Owen Lau stated, This cooperation has touched on various Coinbase businesses including Exchange, Commerce, Cloud Nodes, and Prime. Coinbase acts more like a technology consumer of Google Cloud on the Exchange side, while acting more like a technology provider to Google’s clients on Commerce, Cloud Nodes, and Prime.
Surojit Chatterjee, chief product officer of Coinbase, divides the partnership between the two firms into four parts:
1. Some users of Google Cloud will be able to pay for services using cryptocurrency through Coinbase.
2. To give Coinbase users access to Google’s blockchain data, the node service on the Coinbase Cloud will employ the BigQuery enterprise data warehouse on Google Cloud.
3. To provide custody services, Google will employ Coinbase Prime.
4. Google Cloud will be used by Coinbase for exchange and data services.
The collaboration between Google Cloud and Coinbase is a continuation of their expanding involvement in the Web3 ecosystem, according to Richard Widmann, head of strategy for digital assets at Google Cloud. They compare the current development of blockchain technology and decentralized networks to the rise of open source software and the internet ten to fifteen years ago.
He continued by saying that the collaboration with Coinbase “builds on their extensive history working on open-source projects” and that as cryptocurrencies become more widely accepted, businesses will require infrastructure that is scalable, safe, and long-lasting.
Seismic movement?
Undoubtedly, seeing a major company using cryptocurrency in some way is one of the things that excites retail investors and crypto fans the most. And when one of those businesses also happens to be the fourth-most valuable company on Earth in terms of market value, it’s simple for crypto’s supporters to believe a fundamental shift is taking place.
One seasoned crypto advisor to one of Coinbase’s rivals disagrees with that:
The advisor, who sought anonymity because he consults in the area, claimed that if Google truly believed that cryptocurrencies would be a huge concern for them, they would have picked a smaller custodian for their assets. In comparison to a larger organization like Coinbase, “Google can negotiate a better price with a smaller custodian.”
He believes that the usage of Coinbase Prime for custody and the ability for a select number of Google users to pay for services using cryptocurrencies are signs that these features were added on after the fact, which means that Coinbase is now a client of Google Cloud.
To have one of the biggest cryptocurrency exchanges as a client boosts Google’s reputation with other potential clients because it competes with AWS [Amazon Web Services] for financial services clients, the advisor added.
He continued that the additional elements of the Google-Coinbase agreement are only extra bells and whistles because custody is more of a side business for Coinbase.
In the three months ended June 30, Coinbase produced custodial fees of $22 million, which was less than 3% of the $808 million in total revenue for the quarter. Other subscription and services revenue” according to the company “includes revenue from Coinbase Cloud, which includes staking application, delegation and infrastructure services, Coinbase One, and other subscription licences and adds an additional $22 million in earnings over that period.
While Alphabet, the parent company of Google, may view Coinbase as a crypto titan, it only sees it as a flea. The tech giant earned $6.8 billion from cloud services in the three months that ended on September 30. Billion with a capital B. Even so, it pales in comparison to Alphabet’s Q3 sales of $69 billion.
And while collaborating with companies like Google might appear to be beneficial for Coinbase, it can be difficult to persuade certain short sellers to modify their opinions of the exchange.
One portfolio manager at a $1 billion fund that is shorting Coinbase’s stock stated, “They seem desperate. This makes me think of all the shady software firms who issue press releases announcing their collaboration with IBM. Yes, IBM is now able to sell its software through its distribution network, but they are doing so alongside thousands of other pieces of software with which they have agreements. Then what? Nobody is interested. They should only concentrate on trading profits.
Entrances into the market
Others, however, believe that Coinbase will benefit from this.
James Wester, director of cryptocurrency and co-head of payments at market intelligence firm Javelin Strategy & Research, said: “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.” “Coinbase is obviously seeking for new entry points into that market.”
Wester continued by saying he does not understand how Google would benefit from a smaller custodian. Is saying that we’re easy to push around really what a smaller custodian wants to say?
Any Google entry into the cryptocurrency space is encouraging for up-and-coming players.
According to Jeff Feng, co-founder of Sei Network, a minor layer 1 blockchain that launched in September, Compared to last year, Google has cut back on recruiting “similar to other significant tech players,” but they have kept up their aggressive hiring for their cryptocurrency company. The lack of infrastructure has previously prevented cryptocurrency from progressing, but Google Cloud will fill that void.
But being aggressive in the crypto space is relative given that Alphabet already employs about 186,000 people.
