Coinbase global (PIECE OF MONEY 6.05%) might be one of the most polarizing names in the crypto industry. After a high-profile initial public offering (IPO) in 2021, the company was valued at $85 billion after day one of trading, Coinbase is now valued at $16 billion. Even Coinbase critics, however, have to admit that the world's second-largest cryptocurrency exchange has been remarkably innovative in bringing new products to market.
And now Coinbase is working on an innovation it says could be the holy grail for crypto investors: a new coin that keeps pace with inflation. If Coinbase manages to achieve this, it could be a game-changer.
Cryptos and Inflation
Traditionally, Bitcoin (BTC 2.05%) was crypto investors turned to hedge against inflation. Bitcoin's total lifetime supply is capped at 21 million coins, specifically to protect Bitcoin from the tendency of governments to print more money whenever they need it.
Dollars may become worthless, it is thought, but Bitcoin will retain its value just like gold. This narrative seemed to make sense until the crypto market crash of 2022, in which nothing seemed to work as expected. Bitcoin was no longer the inflation hedge it promised to be, and gold has surpassed it.
While Bitcoin becomes something of a haven for crypto investors in 2023, it is by no means perfect, and there has always been demand for an inflation-protected cryptocurrency. Even billionaire investor Ray Dalio – a Bitcoin bear – acknowledged earlier this year that an “inflation-linked coin” would be awesome.
Enter the flatcoin. A flatcoin is similar to a stablecoin (which is usually pegged 1:1 to the US dollar) but is pegged to the rate of inflation instead. The idea is that each coin would be tied to the cost of living, so purchasing power would remain constant over time. If inflation were to increase, the value of this flatcoin would also increase.
Imagine walking into a supermarket and being completely unfazed by skyrocketing egg prices or filling up your SUV at the gas pump not caring about skyrocketing gas prices. Coinbase CEO Brian Armstrong used hamburgers to explain the concept: "Every coin buys you a McDonald's burger today and hopefully in five years one coin will buy you a McDonald's burger." In terms of purchasing power, nothing has really changed if you pay with a flatcoin.
At the moment, flatcoin is just a concept. However, on March 23, Coinbase issued a call for developers to start working on practical versions of these flatcoins. Given the current situation in global financial markets, Coinbase sees an opportunity to create exactly the type of flatcoin that inflation-concerned investors are crying out for.
Can Coinbase pull this off?
While developing a flatcoin will be difficult and will likely attract the attention of regulators and lawmakers, Coinbase has two big things going for it. First, he is the co-creator of USD coin (USDC 0.03%), one of the most popular stablecoins in the world. Currently, USD Coin has a total market capitalization of $32.7 billion. Coinbase therefore has enormous experience and expertise in creating similar types of crypto assets.
Second, Coinbase is uniquely positioned to develop this new flatcoin due to its recent launch of Base, a layer 2 scaling solution for Ethereum. When Coinbase issued a developer call for flatcoins, it did so through the Base blog, not the main Coinbase blog.
Through a partnership with Optimism, this Base blockchain project can be optimized for decentralized finance (DeFi) and will be interoperable with Ethereum. So while it may seem like Coinbase is building a flatcoin from the ground up, it actually leverages some of the existing blockchain infrastructure. Coinbase may be able to release a flatcoin sooner than expected.
Coinbase and the Future of Money
It's a fascinating time for anyone interested in the future of silver. Central banks and sovereign governments around the world are calling for the launch of Central Bank Digital Currencies (CBDCs). Some nations are calling for the end of the petrodollar and an era of dedollarization. And just about everyone can agree that the amount of money printed in the United States recently has been off the charts. By 2022, 80% of all dollars in circulation had been printed in the previous two years.
So, I really think there is demand and interest for a flatcoin. As long as inflation remains a threat, investors will continue to look for ways to protect their hard-earned money. While it's easy to choose Coinbase these days, even cryptocurrency skeptics have to recognize that a new flatcoin would be a game-changer. And Coinbase would become an even better long-term buy if it could pull that off.
Dominic Basulto has positions in Bitcoin, Ethereum and USD Coin. The Motley Fool has positions and recommends Bitcoin, Coinbase Global, and Ethereum. The Motley Fool has a disclosure policy.