In May, Facebook said David Marcus was leaving his role running Messenger to start an internal blockchain initiative. Since the moment, a big question has been circling in the crypto world: What about his seat on Coinbase’s board?
Coinbase, the leading exchange for bitcoin and other digital currencies, is the clear breakout success in the early days of blockchain, reaching a valuation of $8 billion on a reported $1 billion in revenue last year. While Facebook hasn’t talked publicly about its plans in blockchain, speculation has swirled that the social network could make a big splash in the fledgling market, through a potential acquisition of Coinbase.
With that in mind, Marcus put any talk of a conflict to rest on Friday — by stepping down from Coinbase’s board.
“Under David’s leadership Facebook is poised to be one of the leading players in crypto and an active acquirer,” said Ryan Gilbert, a partner at Propel Venture Partners and a small Coinbase investor. “Who knows, one day an acquisition of Coinbase could be in the cards.”
A Facebook spokesperson declined to comment on the rumors, but said one reason Marcus left the Coinbase board was “to avoid the appearance of conflict, rather than because of an actual conflict.”
Marcus previously founded a payments start-up, then sold it to PayPal — then became president of PayPal. He only just joined the Coinbase board in December. At the time, he said that he was excited to help Coinbase CEO Brian Armstrong “democratize access to cryptocurrencies.”
Here’s what Marcus said in a statement on Friday as to why, eight months later, he’s leaving the board:
“Because of the new group I’m setting up at Facebook around Blockchain, I’ve decided it was appropriate for me to resign from the Coinbase board. Getting to know Brian, who’s become a friend, and the whole Coinbase leadership team and board has been an immense privilege. I’ve been thoroughly impressed by the talent and execution the team has demonstrated during my tenure, and I wish the team all the success it deserves going forward.
Facebook, meanwhile, has dropped a few hints about what it’s up to via a couple of job postings. The company is hiring a public policy manager for blockchain at its Silicon Valley headquarters or in Washington, D.C., and is looking for a software engineering manager for the blockchain group in Tel Aviv, Israel.
“The group is a startup within Facebook, with a vision to make blockchain technology work at Facebook scale and improve the lives of billions of people around the world,” the latter posting says.
A Facebook tie-up with Coinbase would bring some unique complications. For one, Coinbase operates in highly regulated financial markets. The company is licensed for money transmission in the U.S. and by individual states, registered as a money services business with FinCEN (the Treasury Department’s Financial Crimes Enforcement Network), and complies with the Bank Secrecy Act.
In April, the Wall Street Journal reported that Coinbase was in talks with the SEC about becoming a licensed brokerage firm and electronic-trading venue.
For Facebook, that would be a heavy regulatory burden to assume, particularly at a time when lawmakers and consumers are pushing the company to clean up its processes for protecting user data.
Following the Cambridge Analytica scandal earlier this year and the social network’s acknowledgement of how broadly its platform was used by foreign actors ahead of the 2016 election, CEO Mark Zuckerberg testified in front of U.S. and European legislators. All have demanded greater accountability and even regulation.
But Coinbase, which ranked 10th in the latest CNBC Disruptor list, brings obvious potential appeal to Facebook. As of December, Coinbase had 13.3 million users, according to data compiled by Alistair Milne, co-founder and chief investment officer of Altana Digital Currency Fund. That was up from 4.7 million a little over a year earlier, and was more than the number of customers at brokerage Charles Schwab.
Facebook is willing to open up its wallet for rapidly growing platforms of engaged users — whether that’s Instagram for photos or WhatsApp for messaging. And even with its stock price up only slightly this year, Facebook has a market value of $520 billion — plenty of ammunition to take on a company the size of Coinbase.
Still, by all accounts, Coinbase has no interest in selling. Even with the cryptocurrency markets cooling this year, after a gangbusters 2017, Coinbase has grand ambitions.
In his second quarter update to employees last month, Armstrong highlighted the hiring of five senior leaders in the quarter, 59 people in product and engineering and the launch of new business units to focus on general, professional and institutional investors.
Coinbase has also been an acquirer, buying four companies in the quarter, including Earn.com, an email product that lets senders pay users in cryptocurrency.
“We’re at the beginning of imagining what might be possible when we combine all of the brilliance of these teams with all the opportunity ahead of Coinbase,” Armstrong wrote.
As for Marcus’s latest move, Armstrong said in a statement that “he remains a close friend of the company, and we thank him for his help along the start of our journey to create an open financial system for the world.”
