EC The Coinbase Direct Listing: A Crypto Signal

This is a broad macro piece on my thoughts around Coinbase. I am not nearly as knowledgeable on crypto as many others, and I have linked to more in-depth work below for those that want a deeper dive!


The Coinbase Direct Listing

Coinbase went public *sometime* today through a direct listing, similar to Roblox, Spotify, and Slack.

woman wearing white dress shirt

Image Source: Upsplash

This is a big deal, for several reasons

  • It’s a socialization of crypto at a level that we haven’t seen before. 
  • If the SEC is letting them list, that means that there is some level of acceptance for crypto of the top of the regulatory hierarchy. 
  • For that reason, Coinbase is more of a signal of crypto normalization versus purely a company listing – some people have compared this as a moment similar to the Google IPO 

There a few different ways to think about Coinbase [network effects + liquidity]

  1. A Bitcoin exposure
  2. An exchange

Also, some key points:

  • The Market Mechanics: Coinbase makes money when crypto goes up or when there is market volatility – which is fine for a growing crypto market, but could be tested in volatile times.
  • Coinbase is not Bitcoin: It’s not just Bitcoin – the company is diversifying away from pure Bitcoin exposure (~44% of transaction revenue in 2020) and they continue to add more crypto assets to the platform.
  • The Moat: 90% (!!) of customers found them organically – they spend very little on sales and marketing.


An Overview: The Crypto Space 

The total estimate worth of crypto companies is ~$500bn with a total crypto market cap of $2T (data from Dan Held). There is a lot of money flowing into the space right now.

  • Blockchain.com: Just raised $300M at a $5.2B valuation 
  • Fireblocks: Just raised $133M
  • PayPal: Curv was acquired by PayPal for a rumored $500M
  • BitPanda: Just raised at a $1.2B valuation
  • Anchorage: Just raised $80M

I think that the crypto space is just really beginning to get the recognition it likely deserves. For that reason, we will see continued growth of the above. That’s great for crypto, and good for Coinbase if they can hang onto their market share. But in a growing market, nothing is really promised – and Coinbase could fall behind as the smaller, scrappier shops begin to innovate behind the scenes.


A Bitcoin Exposure

Outside of the pure crypto market, there are a lot of publicly traded companies that now own Bitcoin, the most recent one notably being Tesla. The two have begun to trade in tandem – but several other companies (mostly MSTR) have outsized exposure to BTC. This makes these companies somewhat of a proxy trade to BTC. 

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Disclaimer: These views are not investment advice, and should not be interpreted as such. These views are my own, and do not represent my employer. Trading has risk. Big risk. Make sure that you can ...

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