Proceed With Caution

The CEO of Coinbase, a company that I am on the Board of, wrote a note to all of their customers on Friday. That note, which he also posted to his blog,  urged caution in the trading of crypto assets such as Bitcoin and Ethereum.

This is a quote from that note:

Over the course of this year we have invested significant resources to increase trading capacity on our platform and maintain availability of our service. We have increased the size of our support team by 640% and launched phone support in September. We have also invested heavily in our infrastructure and have increased the number of transactions we are processing during peak hours by over 40x.

There may be downtime which can impact your ability to trade

Despite the sizable and ongoing increases in our technical infrastructure and engineering staff, we wanted to remind customers that access to Coinbase services may become degraded or unavailable during times of significant volatility or volume. This could result in the inability to buy or sell for periods of time. Despite ongoing increases in our support capacity, our customer support response times may be delayed, especially for requests that do not involve immediate risks to customer account security. 

The reality is that much of the infrastructure that has been built up over the past seven years to support the trading of crypto assets is struggling to handle the load that the recent excitement over Bitcoin and crypto in general has put on their systems. It reminds me of the days in the mid 90s when all of a sudden everyone wanted to get online and AOL could not handle the massive increase in dial-up customers who wanted to log onto the Internet.

Of course eventually everything got sorted out and we have highly scaled systems that can support the roughly 3 billion people who “go online” every day. But that took some time to happen.

I think we are going through a similar phase of growing pains with crypto/blockchain. And things will be messy for a while. So proceed with caution, don’t get too far out over your skis, don’t invest more than you can afford to lose, and be prudent.


Comments (Archived):

  1. JLM

    .Translation:When the futures trading kicks in, the feces and the fan may come into contact.There is going to be the Mother of All Corrections and the volume is going to be beyond anything the system can handle which may create a panic.That is from the original Aramaic, so it could be off a little.You have been warned.Bitcoin is a trade. It has been a good trade. All trades come back to reality sooner or later.JLMwww.themusingsofthebigredca…

    1. sigmaalgebra

      Gee, the world likes gambling. Okay, have the investment banks sell options on, well, let’s see, the next time, hmm, …, need some official certifications, yes, that’ll do it, the next time an NBA team from MA wins the Superbowl.

    2. LE

      Summary: Segue from rag tag group of entrepreneurs to white shoes is going to be a very good thing for bitcoin and crypto.I see involvement of those dogs who can piss in the tall weeds as a big gain for bitcoin and crypto. They bring super unlimitted legal muscle, lobbyists, donations to politicians and the very strong desire to keep something going that is good for them and not get rolled over easily by the government. This is key to preventing the feds from doing something which could end the party. It’s not like it couldn’t happen but it could be much much harder given the concentrated resources and legal muscle the big guns will bring to the table.I saw the opposite of this happen in a business that I am involved in and it is actually what frequently happens to small business who have no high powered team fighting for them (just some stupid lightweight associations). (Or physicians for that matter.)

      1. jason wright

        white shoes?

        1. LE

          See “Banks, investment banks, and merchant banks”:…White-shoe firm is a phrase used to describe leading professional services firms in the United States, particularly firms that have been in existence for more than a century and represent Fortune 500 companies. It typically—but not always—refers to banking, accounting, law, and management consulting firms, especially those based in New York and Boston.My use of “Rag tag” refers to people by and large spending their own money and as a result not typically taking flyers where they stand to lose big. Sure it happens but not in any way like when people are spending someone elses money or there are entire departments setup to execute pushback.

          1. jason wright

            this is completely new to me. certainly not a British term. thanks.

        2. JLM

          .He actually means “silk stockings.”JLMwww.themusingsofthebigredca…

      2. JLM

        .There is certainly that possibility, but I do not think so. What I see happening is the dark side of the moon of the “derivatives” crash.Derivatives were an invention of the “mousse-in-the-hair” investment banker class who took a lousy security (a mortgage, as an example) and chopped it into three tranches thereby seeming to create chicken salad out of chicken excrement.The top tier was gold and the bottom tier was crap, but the cumulative values were more than the original security.They then sold the different portions hither and yon and made a lot of money.It was a great business until someone said, “How does one foreclose on the middle tier of a securitized second lien roof loan in Montgomery, Alabama?” It was a neighbor of one of Roy Moore’s supporters.Then the mousse-in-the-hair boys were caught short — none of them had actually ever collected on a loan or repossessed a piece of collateral in their lives.[There is a bit of spice to be added to the story by those nitwits who guaranteed and insured the performance of these derivatives, but that’s for another time.]At first, this was a great business. And, then, reality interposed its sharp beak. Nobody went to jail, but they should have. It was reckless.I have never been a fan of Bitcoin as a currency. That skepticism stays intact.I believe that Bitcoin is a real trade, meaning it is something with sufficient volatility and depth that it will make one a buck on the right side of the trade.I think the blockchain is real and someday there will be a good app, a killer app, one day. Perhaps, even within my lifetime.All of this is to say, we are in that “the dentists are getting in” phase of the investment cycle.The white shoe and silk stocking firms may sprinkle a little holy water on this because they want some skim, but all of those crappy ICOs are going to make the Black Plague seem like a head cold.This ends up like derivatives. Derivatives were being made on Floor #2, sold on Floor #3, shorted on Floor #4, researched on Floor #5 and nobody went to jail.Derivatives.Did I mention junk bonds and LBOs? They were the prior cycle of craziness to derivatives. They made a lot of people a lot of money until the music stopped and there were no more chairs. At least Milken went to jail.I have always thought it interesting that Milken got 10 years and had it reduced to 2 because of his cooperation ratting out everyone.What one learns from the entire junk bond saga is how crooked the white shoe and silk stocking firms are willing to be. It is a good lesson.JLMwww.themusingsofthebigredca…

        1. LE

          Well one thing is that the exchanges have access to a load of customer data (and buyers) and analysis of that data that others don’t. That closely held info is very valuable. I am (and have been) in regular contact with some people that run exchanges. I have noted how they have operated for the past roughly 5 years. Sonar wise they are definitely going in a direction which says that there are more than dentists in at this phase and essentially unlimited new dentists coming onboard. (Fwiw.) I would like to point out that this is not based on what they say (I don’t ask and they don’t say) but how they act and have acted. These exchanges are backed up on approvals to trade while they KYC/AML new customers. By 2 weeks to a month or longer last I checked (which was when bitcoin was only $5k roughly. I would imagine now it takes even more time.Regardless of the value or actual use it’s something that has the potential (now that grandma knows about it) to take a little bit of money from a very large amount of people. So my statement regarding white shoe firms was merely saying that they will protect that small stream of gamblers. Also mortgage securities was not that and never had this kind of publicity (did it?)Of course like with anything else neither of us know for sure and we both admit that.That said I do not invest in this even if this comment seems to indicate that I think it stands a good chance of going up over time if held even if volatile (Like Warren Buffet and tech, till the bitter end).

        2. sigmaalgebra

          Sounds like you have been paying attention to Michael Lewis and the associated movie The Big Short!Fun movie!”But they are all rated AAA!”.So, right, pile it up from the sawdust on the floor of a house with 40,000 chickens, call that diversified and then give it AAA!That case of diversified isn’t in the theorems studied on the law of large numbers!> What I see happening is the dark side of the moon of the “derivatives” crash.”Dark side of the moon”? You and Kubrick. There’s the back side from us, but it gets essentially as much light from the sun as the side we can see.As at…inBitcoin ‘Ought to Be Outlawed,’ Nobel Prize Winner Stiglitz SaysBy Kevin CostelloeNovember 29, 2017, 7:27 AM ESTUpdated on November 29, 2017, 9:50 AM ESTStiglitz discusses Bitcoin on Bloomberg Television.Nobel Prize-winning economist Joseph Stiglitz said “bitcoin is successful only because of its potential for circumvention, lack of oversight.”“So it seems to me it ought to be outlawed,” Stiglitz said Wednesday in a Bloomberg Television interview with Francine Lacqua and Tom Keene. “It doesn’t serve any socially useful function.”Bitcoin surpassed $11,000 in a matter of hours after hitting the $10,000 milestone, taking this year’s price surge to almost 12-fold as buyers shrugged off increased warnings that the largest digital currency is an asset bubble.“It’s a bubble that’s going to give a lot of people a lot of exciting times as it rides up and then goes down,” Stiglitz added. Such a party pooper!”We need a man like Herbert Hoover again”uh, I meant Franklin Raines. Now THERE’S a guy who REALLY knows how to throw a PARTY, a REALLY big party!We had a party from 2000 to 2007 or so. Sounds like time for another party!Where’s the law that says we have to wait 30 years for another party?I know; I know; I know; that 1929 party did have some hangover symptoms, but this time it’s different!ForI think the blockchain is real and someday there will be a good app, a killer app, one day. Perhaps, even within my lifetime. SURE! We can’t say never; never is a long time! So, we have to conclude eventually? Uh, did someone mention that eventually we are all dead?

      3. sigmaalgebra

        At the beginning of the Michael Lewis movie The Big Short about the 2008 crash, there is“What gets us into trouble is not what we don’t know, it’s what we know for sure that just ain’t so.”—Mark Twain

    3. JamesHRH

      ‘The original Aramaic’ is an all timer.

  2. Tristero

    Anytime its going gang busters, you cannot access coin base. They are just cautioning you that you cannot day trade it reliably. The secret is to HODL. It always skyrockets, then corrects but it never corrects too low. I have been riding since 3000. I swore I was getting in too late. But as they caution, never put in more than you can lose.

  3. creative group

    CONTRIBUTORS:”There may be downtime which can impact your ability to trade” – CoinbaseCaveat EmptorCaptain Obvious!UNEQUIVOCALLYUNAPOLOGETICALLYINDEPENDENT

  4. Vendita Auto

    Good PR

    1. jason wright

      a legal statement inside a PR wrapper, and possibly in part to preempt any grumblings that it might be being subjective in its behaviour. lawyers earn their fees, but class actions are cost effective.has Coinbase now released bitcoin cash tokens to its qualifying account holders, or are they still waiting to get access to what is their sovereign asset?I’m so looking forward to the rise of decentralised exchanges. Coinbase and similar are not native to the core principle of decentralisation. their presence and influence in the ecosystem are a net negative.- square pegs and round holes is a common problem in the blockchain space, and too many startups voicing loudly in public their high philosophical self sovereign custody principles (and citing revolutionary France and the historical struggles between aristocracy and peasantry et.c.) but not necessarily behaving by those same principles of equality in private. there’s much hypocrisy in the space and too many founders not to be believed in their slick PR videos.

      1. Vendita Auto


        1. jason wright

          not releasing tokens throttles supply. what conclusions can be drawn? what motives are in play?

      2. LE

        Legally it means nothing. It’s more like when I was growing up and there was a sign at the horse back riding place that said ‘ride at your own risk’. My dad said it meant nothing and that they still could and would be sued. The idea was to ward off the pain in the ass bystanders into exploring or even contacting an attorney. [1] I think I used a similar strategy to get people to stop smoking at work in the 80’s.[1] Another great sign is the one in auto repair shops that says that insurance regulations prevent customers from being in the shop. I don’t think there is any insurance contract that says anything like that at all. And it’s hard to believe it even exists. It’s just an easy way to keep people out of the shop and make as if there is someone else making the decision not the shop owner. So you can’t argue with someone merely highlighting a higher authority.

        1. jason wright

          I’m sure the lawyer was in the room when the missive was penned.

          1. LE

            You are missing the point. The blog post is to set expectations and lay the groundwork for a future modification. The lawyer being ‘in the room’ (if that was the case even) doesn’t mean the lawyer blesses it as the only thing that needs to happen. Just to make sure (once again if they were even there) that nothing is said that might be used against them in the future. [1][1] What almost certainly didn’t happen with Matt Prince of Cloudflare and his “I woke up in a bad mood” which is more or less has to go down as the antithesis of the example set by the Tylenol crisis in the 80’s.

  5. Tom Labus

    Thinly traded with small volume equals extreme volatility. Bitcoin charts would show sea serpents like a medieval ocean map.This article is saying the market is being controlled by a 1k guys.

    1. Girish Mehta

      In this age of outrage, seems a bit outrageous that there isn’t more outrage about this…?

      1. jason wright

        – “Bitcoin’s electricity consumption as a percentage of the world’s electricity consumption0.15%”.if most of it comes from hydro then it is one of the least troublesome uses of energy in this world.

        1. Girish Mehta

          Very small percentages of Very large numbers are….large numbers.Trajectory. Alternatives.”By July 2019, the bitcoin network will require more electricity than the entire United States currently uses”.…I have seen it referenced in different places that this electricity is being materially fueled by coal-fired plants in China, but I have no first-hand knowledge of the mix of the energy sources re Bitcoin specifically.In all the breathlessness by the “thought-leaders” re how Bitcoin went mainstream when it crossed 10K, or how it is now a liquid market (I disagree on both assertions ), how much discussion are you seeing of this topic ?Secondly, leave aside price for a minute. If value/utility should exceed cost, what does that imply about the kind of “usages” that would support such a cost ?

          1. JLM

            .This is actually the market Tesla batteries is focused on.JLMwww.themusingsofthebigredca…

          2. sigmaalgebra

            Gee, I learned something. Silly me. All along I thought that the market Tesla was focused on was subsidies from DC, especially from the global warming quasi-religion crowd!

        2. sigmaalgebra

          This will all become trivial once someone finds an algorithm that shows that P = NP. Guys, there’s no proof they are different!

      2. Tom Labus

        Can ripple do a financial transaction without the underlying crypto currency

    2. JLM

      .What are you? An adult. Stop already.Next thing you’re going to want to delve into the sponsorship.You are not going to be invited to the best New Years Eve parties if this behavior continues. Party pooper.JLMwww.themusingsofthebigredca…

      1. sigmaalgebra

        Party POPPER, Dom-style!BTW, can, at least could, get some just drop dead gorgeous flutes at West Virginia Glass. Long ago my wife and I got five dozen in all from them including a dozen or so flutes. It appears that Jackie got just what she wanted for the WH from them, also. I know, they’re terrific, but also have to understand, they’re cheap!

      2. sigmaalgebra

        There should be ways to do such things with a “balanced book”, that is, necessarily what make on one lose on another in the same “book”. Then make money on the spreads and fees!

  6. Matt Zagaja

    Just cashed out. I know when to count my winnings in the casino.

    1. Richard

      It’s zero sum but for the fed gov’s take It will be super ironic if the 2017 cap gains decrease the 2017/2108 budget deficit. It’s is a bit outrageous that the tax payers need to subsidize the tax losses, however.

    2. jason wright

      because you read this post?

      1. Matt Zagaja

        Well I bought in becuase of a previous post a couple years ago, so it seemed like a reasonable conclusion to the journey.

    3. LE

      Your brain has been modified now with the win. So you need to resist the temptation to give it another shot. That is the danger with any drug.

    4. Girish Mehta

      You have successfully conquered FOCO (Fear of Cashing Out).I’ll just leave this here re one of the smartest men in history.https://uploads.disquscdn.c

      1. LE

        Knowing how people think I can’t help but believe there are a significant number of people that are holding that have the reverse feeling.Imagine the enormous stress of wondering whether your holdings (which are a significant portion of your wealth) could drop at any time and lose a great deal of value. That is a day to day thing with this type of volatility. I don’t see how anyone can deny that.Would you rather be @mattzagaja who sells at today’s price and then has to deal with the price rising to 50% more or the guy who holds at today’s price and worries that it could drop by 50%? I think I’d rather be Matt. Last in line is the guy who doesn’t buy at all.By the way the chart shows what I said the other day. It would be nice to walk away with the win and be done. But what more often happens is that someone continues to bet and then loses even bigger. And no it’s not the house’s money. It’s your money. It’s like any money that you have and if you lose it you have lost something of value. The ‘house money’ is just one of those manipulations that professionals use to get one over on newbies. Like ‘do your research’ in stocks.I am not buying. Why?a) I am not going to gamble any amount that could seriously impact my life.b) So given ‘a’ this would be just entertainment to me.c) If I won I very well might be dragged into making bigger bets where I would question ‘a’ and start to rationalize. That is how you get setup for the fall.d) There are things that I do that are irrational, but in those cases I have an edge and much more control (and entertainment).

        1. Andu @

          You don’t have to be any of the two Girish. The smart people will sell in batches. You start selling when you’re on profit, just don’t sell everything at once. This way you average down or up, bot don’t lose it all.Greed is what’s causing most investors to lose, so starting to cash out a bit at a time is a good approach.

          1. JamesHRH

            The Newton point is that ignorant brilliance is not effective.

          2. Girish Mehta

            That’s right. Temperament and self-awareness is much more valuable than intelligence here.

      2. Andu @

        Newton should have taken profit in batches.

      3. LE

        one of the smartest men in historyOne other thing. This is driven by emotion. And intelligence (or physical strength) is no match for emotion. Which has felled many people in history. The only safe route is honestly not to ‘try the drug’ or even play in the game. Your brain will start rationalizing and most people won’t be able to stop.

      4. Douglas Crets

        But what if we are looking at an S-curve, and not a bubble?

        1. Ben Dover ✓Verified


    5. creative group

      Matt Zagaja:Did you use Coinbase to exit and if so was it easy or week’s of trial & error.Captain Obvious!UNEQUIVOCALLYUNAPOLOGETICALLYINDEPENDENT

      1. Matt Zagaja

        Coinbase. It took a few clicks but apparently the money won’t arrive until Friday due to ACH or whatever.

  7. Peter G

    Fred, I’m curious to hear your thoughts on the environmental problems inherent with a scaling proof-of-work blockchain like Bitcoin. Bitcoin’s and ethereum’s needs for cpu resources, and in turn electricity, seem to be getting pretty scary. What do you think can and will be done to turn that trend around? I’m sure you have some ideas that maybe you could blog about?

    1. pointsnfigures

      In an obtuse way it’s driving people to more efficient energy.

    2. Andu @

      Well, there’s IOTA which is not based on the stupid blockchain.

  8. Kirsten Lambertsen

    Definitely definitely definitely feels a little like 1998. Only this time, I have my hindsight and experience goggles on 😉

    1. pointsnfigures

      ha. there are some of us around that remember bear markets

  9. LE

    They need to modify their TOS to include some of the concepts that are in the blog post. A quick scan shows they are not there. [1] [2]…(It hasn’t been modified since August 2017).[1] Even that they have an arbitration clause and that a user agrees to no class action it would still seem to be something to discuss with the lawyers. I can’t think of a downside off the top. A blog post does not change a legal contract.[2] I would even make it a separate ‘clickbox’ in the signup stage. Why? Because you can often head off unhappiness in advance by having someone agree upfront and lower expectations. A blog post does not do that. Example might be if you ask for a restaurant table and they tell you before they seat you ‘I can give you a table now but it’s near the service stand – or you can wait for a booth 15 minutes’. The act of agreeing lessens expectations.

  10. Brad Lindenberg

    For those who have not been enlightened by the vision for 2025 when fiat currency not longer exists, people with more the 0.1 BTC never have to work again, and the Winklevoss twins are no longer with us, read this:…P.S. It was written 4 years ago.#HODL

    1. SubstrateUndertow

      Is your alias Brad Hindenburg :-)The flaw in that storyline !Collective governance of the public interest is the universalstrange-attractor = homeostatic gravity well that facilitates the core organizing-principle at the heart of all dynamically complex social structures.Bitcoin dynamics that fail to symbiotically contribute to enhancing the efficacy of collective governance/stability of the public interest will not triumph over that universal strange-attractor homeostatic organizing gravity well.

  11. Reminds Me of Bautista in Cuba

    It seems that even the croupier is getting nervous. I guess Fred Wilson is worried that when this bubble bursts an angry mob will bring out their pitchforks and gather outside of his abode. Regarding virtual currencies, Fred Wilson is little more than a shill whether he fully realizes it or not. He seems to be so busy counting his loot, he doesn’t seem to realize where it all came from. Fred Wilson hawking virtual currencies reminds me of Bautista’s gambling deal with the American Mafia which helped paved the way for Castro.

    1. JLM

      .Fulgencio is spinning in his grave. Of course, that would be Fulgencio Batista, not Bautista.Nonetheless, an interesting comment.Batista has the unique distinction of having been an honestly elected President of Cuba and a dictator. He both re-instated its Constitution and suspended it.Cuba in those days was as much a state of the US as Nevada (gambling, prostitution, sinful dinner buffets). The US owned almost all the businesses in Cuba.In between coups, Batista lived in Daytona Beach, Florida and the Waldorf-Astoria. You know who he was friends with while living at the Waldorf? Douglas MacArthur. Mac, of course, knew a thing or two about island despotic regimes.In the near future, Cuba will once again be a province of the United States.JLMwww.themusingsofthebigredca…

      1. Reminds Me of *Batista*

        Thanks for correcting my spelling error. Fulgencio Batista was a thug and puppet of American interests. He was like Boss Tweed in on New York’s infamous Tammany Hall.The topic at hand here is the cryptocurrency sham that Fred Wilson is profiting from and shilling for, not your apparent clairvoyance and implicit presumption that Russia would fail to prevent the USA from doing as you have predicted with absolute certainty.Fulgencio Batista and Fred Wilson are both front men for powerful interests malevolently manipulating the mob (the crowd, not the mafia). If you care to wander wildly off topic please do not do so in response to my comments.

        1. JLM

          .Haha, thanks, I needed that. There are others who would tell you to FUCK OFF, not me, but others.I wish you hadn’t corrected the spelling and I really hate you taking off the reference to Cuba.Freddie may be talking his own book, but he is not quite in the class of Fulgencio Batista.Did you see that Duke v Boston College game? I loved seeing #1 Duke get beat by unranked Boston College.JLMwww.themusingsofthebigredca…

        2. JamesHRH

          Rather uncool to assert that Fred is greedy.He is completely and wholly convinced of his correctness.Arrogance is allowed, especially if its rests on a Hall of Fame track record.Your accomplishments are….?

  12. pointsnfigures

    Yes, yes yes. I have traded when you couldn’t get a handle on bid/ask/last/quantity. Makes it brutally tough to logically and unemotionally unload or load a position.

  13. Douglas Crets

    Skis? Where we’re going, we don’t need skis.

  14. Adam Parish

    The AOL reference is perfect.

  15. OurielOhayon

    it reminds me the Fail Whale Twitter went through in the early days. Except now this is money.

  16. kellercl

    I can’t wait for holidays so my entire family can ask me about bitcoin.

  17. Ben Dover ✓Verified

    Can you say “Ponzi Scheme”? I knew you could. It’s a wonderful day in the neighborhood….