Why CoinBase is A Fad

Let me state off the bat: I couldn't care less about any of your feelings, and if you all lose money in this, I will take great glee in that. If anyone comes up here and responds: "well Soros, Fidelity, Griffin, Loeb, and Silverlake founder are promoting this, so clearly you are in the wrong here", I will politely ask you to shut the fuck up, and guide you to request them to answer the questions below in "layman" terms as any of these would explain a DCF to someone, who has no idea how finance works. If you are not convinced even 1% by their answers, it's not worth investing in. 


Valuation:

  • How do you ascribe value to these crypto currencies (please help me understand the valuation employed and the assumptions that go into it)?
  • What is the difference between Bitcoin, Ethereum and Dogecoin? Why is one valued higher than the other? What is each bitcoin's competitive moat?
  • What investment time horizon do you recommend, and why?

Legal:

  • How do you ensure that these currencies or the exchanges they're traded on are not immune to either security hacks or other kinds (by now, cases of multi-billion / million dollar hacks seem to be a common phenomenon), how does one ensure that this does not happen?
  • How do you suggest you do due diligence on the parties involved in these transactions, as they seem to be keen on remaining hidden from the public eye?

Commercial:

  • How further long before all major central banks / governments around the world endorse Crypto as a part of their overall monetary policy framework? In a situation where it is not commonly accepted by all, what risks do you see playing out?
  • What reserve currency will these crypto assets be pegged to and why? If USD, why, as bulk of the activity seems to be concentrated in Asia here?
  • How do you differentiate between what is "fake" crypto currency and what is "real" crypto currency unlike the litmus test that exists for commodities (gold etc.)?  

Accounting / Taxation / Insurance:

  • How does one ensure transparent and correct financial reporting of these crypto assets (in terms of accounting)? How should one be reporting the value of these crypto assets on one's tax returns?
  • What's right mark-to-market approach for these assets?

Others:

  • How do you convince someone , who's not a sophisticated and / or an accredited investor, that investing in crypto assets is a better use of capital as opposed to investing in even more hard, tangible assets (real estate) or non-riskier (as well as non-volatile, and more transparent investment options: government bonds, ETF / index funds)    
  • Why is there a need for crypto / bitcoins when the existing forms of payment (hard cash, soft cash) seem to be acceptable by most? I am really hoping that the answer to this question is not that a bunch of millennials / generation Z want to "own" something different, and so everyone jumped on the bandwagon to make that happen.
    *************************************************************Why CoinBase Sucks:  I have no vendetta against anybody from CoinBase, nor do I hold any position in any company. I have been hearing about this crypto crap since 2016/17 when I was starting at grad school, but really didn't care much at that point. More recently, when I felt I had been a victim of some crypto fraud (i.e. my identity had been compromised), I decided to take this personally.  I could really attack any company that has crypto roots, but since CoinBase is the "Amazon" or "Uber" of its industry (that is to say the most recognizable name in the space), I am focusing my efforts on it. Again, I don't care if Jim Simmons has invested in the company or Warren Buffet did (though he hasn't), if it doesn't make any economic sense, it is not worth investing in.  
    1. Retail Users: Retail users are driving bulk of the activity here. 32% of the trading volume is coming from them and it makes up 94% of the transaction revenue. Retail and institutional guys are lumped under "verified users", but their criteria for verified users is ridiculous (it is essentially anybody who has provided an email address or a phone number or some other information). It's really not that time-consuming to open an email account, and as they themselves state, they don't know how many "unique" verified users or MTU are on their platform. So for all you know, maybe 100 or 200 folks are driving bulk of the activity here, and they are clearly doing no due diligence checks to verify the identity/finances of the users. I don't know how are Robinhood's onboarding measures different, but Robinhood clearly asks for Social Security number (at least that's what I remember it asking for in 2016), and it seems the barriers to trading here are very low on CoinBase. Why this matters? Because it potentially opens them up to a bunch of lawsuits, which are already in the action and 2) they may potentially be overstating their key business metrics (not potentially, definitely) 
    2. Litigation: Company has 3/4 legal proceedings either going against it or has been threatened with. Truly an innovative and cutting-edge company to be dealing with litigation issues at the start of its public life. I can only imagine what other marvelous moments are ahead of it  
    3. Security: Clearly the company has not been paying much attention to the security hacks that happen on this platform otherwise they would have created a provision for them or had some sort of reserve to deal with these situations. For their crypto asset wallets, they state the risk of loss is remote. How do you reconcile this with the litigation proceedings that the company has going on? There is a disconnect here 
    4. Salaries: Maybe I am looking at the wrong place here, but I can't find the cash compensation of the management team, so I am assuming that the salaries they mention their are cash compensations. Brian Armstrong is getting paid $1 million in base, the salary of Zoom CEO (arguably a shitty company too but at least has a relevant use) is $300K. But what surprises me the most is that they don't have a chief security officer or anyone listed there on the management, and 2) the salary for chief legal officer (one of the more important guys in this business) is ~200K. I am not really factoring in stock options here or any of that stuff because I really think CoinBase is worthless and will be going down. I don't think Brian understands the risks inherent in this business or he would be paying his chief legal officer more here   
    5. Technology & Development: This is where I am assuming that security expenses are being included, but it's not abundantly clear to me. They say: "technology and development expenses include personnel-related expenses incurred in operating, maintaining, and enhancing our platform. These costs also include website hosting, infrastructure expenses, costs incurred in developing new products and services and the amortization of acquired developed technology". I don't think the company regards security of the platform vital enough otherwise they would be drawing more investor attention to it.
    6. Valuation: Their valuation of their crypto assets is amusingly funny. I am not an accountant, but I find it ridiculous that they value the assets on their book based off the closing on the last day of the respective period. So where are you capturing the volatility in the crypto markets? Dumb. And. Wrong.  
    7. Disclosure: As I said before, their disclosure sucks. 31% of the assets on their platform are "other crypto assets" and make up 50% of their revenues. But no breakdown on these other assets. I don't know the difference between Bitcoin and Ethereum and Lithium and Sodium and Potassium (all the fucking elements of the Chemistry table), but some of you schmucks might know. However, for a company that is making 50% of its revenue from two assets (Bitcoin and Ethereum), it should talk about each in more detail and what separates them. Nothing. This revenue / asset concentration is nothing to write about.   
    8. Acquisition: OK I am not dissecting all the acquisitions they've made nor have I researched them. But in January 2022, they made an acquisition of 257 million of which 151 or something was in cash. Why pay in cash if you think think your stock is worth more? Dunno, doesn't make much sense to me.  

The banks, who took this company public, are schmucks. Those of you who invested in it are schmucks. The regulator is the biggest schmuck out of them all. It's a moron show. Sincerely hoping all of you lose your money here. Best of luck! 

Signing off.  

PS -- Don't come back with Oh there's a Harvard / Uchicago / MIT / Wharton guy there , so clearly they know what they are doing. Never underestimate the power of stupidity in large groups. If you haven't met anyone dumb from any of these institutions, you will be in for a surprise when you meet someone.

PAS - I don't care who sits on their board. A good board doesn't make a useless company any useful   
PAAS -- Understand that most of the analysis above is superficial in nature and really not going deep. But for a superficial business model, you really don't need to spend much of your brain cells  

Comments (66)

Funniest
10mo 
Patrick Basedman, what's your opinion? Comment below:

I ain't reading all that

i'm happy for you tho

or sorry that happened

  • 42
10mo 
heremaji, what's your opinion? Comment below:

Why don't you tell me the difference in 5 sentences between the two, and I will decide if it makes sense to me. You seem very smart.

2) if a company like CoinBase is the first of its kind publicly listed company in this space, you'd expect them to elaborate on these differences. After all this "asset class" hasn't been around for a long time.  

9mo 
ratingfortheweekend, what's your opinion? Comment below:

One is the equivalent to digital gold, and is the "hardest asset" in the world. The other is equivalent to gas, used to run an entire economy. Without any gas you cannot participate in the new economy.

  • Analyst 1 in IB - Gen
10mo 

if youre still saying these things at 45k/BTC and 3.5k/eth you can safely assume they solve things that you are too stupid to understand. hfsp

10mo 
heremaji, what's your opinion? Comment below:

Doesn't seem as if you understand how demand/supply works and / or underestimate the number of idiots in the world who just jump on the bandwagon. You should become a tech VC. That field truly has the most number of copy-cats, maybe more so than middle market PE.  

  • 1
  • Analyst 1 in IB - Gen
10mo 

have you outperformed the crypto market in the past 5 years? it would appear as though this post is you coping that you havent 

10mo 
heremaji, what's your opinion? Comment below:

I am as serious as this subject warrants one to be. This is such a joke asset class that to argue for its use is analogous to trying to convince someone that the world is really round (and not flat)...or that humans didn't really evolve from apes. 

10mo 
Costin8, what's your opinion? Comment below:

Says a lot that this made more inclined to believe some of the crypto maxi stuff

10mo 
fattailed, what's your opinion? Comment below:

You used quite a lot of words to say "I'm mid curve iq"

Array
  • 1
9mo 
heremaji, what's your opinion? Comment below:

Yes I am mid-curve IQ. Glad you got that right, fat tailed. 

  • 1
  • Anonymous Monkey's picture
  • Anonymous Monkey
  • Rank: Chimp
10mo 
Anonymous Monkey, what's your opinion? Comment below:

The shit is definitionally a Ponzi scheme - this is proof as to why it will be forever easy to scam a great percentage of the population.

10mo 
poignant, what's your opinion? Comment below:

Since you had the time to write this up seems like you have some spare time. Might I suggest heading over to YouTube and watching Gary Genslers BlockChain and Money course provided by MIT OpenCourse where for free. Answers most if not all of your questions and is very informative.

9mo 
heremaji, what's your opinion? Comment below:

Might I suggest you come up with an intelligent rebuttal rather than sending suggestions I didn't ask you for. 

  • 3
9mo 
heremaji, what's your opinion? Comment below:

This is actually fun. Come at me, so I can bazooka you down. 

  • 1
9mo 
maplesyrup334, what's your opinion? Comment below:

Dude all the major banks will have crypto trading desks in the next few years. Wall Street Oasis even added a crypto forum. It's not a fad by any means. You should do more research on crypto as I can see a simple google search could help you. You make good points on the downside of coinbase. My guess is there whole business model is centered around volatility, not necessarily long crypto as a theme. They also mark up prices when they sell to individuals, and most people don't even realize. They have a VC arm also and use their platform to pump out some of these coins I think. I think the biggest risk is people self custody-ing their assets and taking it off the exchanges. Time will tell with not your keys not your coins on how coinbase fares. Although there is a benefit of having a central custodian as most people are bad at managing their assets, given your points on the serious security hacks crypto has faced. 

9mo 
Venturepapi, what's your opinion? Comment below:

The entire point of crypto is decentralization... "Not your keys not your coins" 

If people are too stupid to figure out how to self custody, they have no business investing their money in this space making centralized exchanges kind of worthless for what role they should actually be playing in the ecosystem. The banks getting involved is a far point but this isn't new + revenue from institutional clients at Coinbase account for <10% and the company is overvalued AF. 

This entire space loves to keep kicking the can down the road saying how its early days, meanwhile silly amounts of money and energy have been poured in with not much to actually show accept more tools for speculation. 

9mo 
heremaji, what's your opinion? Comment below:

I stopped reading when you said WSO added crypto forum as if that should be a criteria for a validation of an asset class. You seem very sensible, indeed. 

9mo 
maplesyrup334, what's your opinion? Comment below:

Ok thanks - might be sensible to add some crypto into the portfolio so you don't underperform the sp500 

  • Prospect in Research - Other
9mo 

Whole lot of name calling and not a lot of answering this guys post

  • 3
  • Associate 2 in PE - LBOs
9mo 

I would actually take the time to respond but holy shit if you can't summarize an investment thesis to be concise then it doesn't deserve an intelligent response either?

If you are so sure that Coinbase and crypto is for schmucks then short it? Put in all your cash, if you are so damn sure/smarter than everyone else. Super simple, let's re-visit in 5 years and see who was right.

9mo 
heremaji, what's your opinion? Comment below:

Because idiots like you don't get these things in a concise manner, Associate 2 in PE, hence the essay. Humor me more. 

  • 1
9mo 
heremaji, what's your opinion? Comment below:

Anyone else want to take a go here. Or have your wealth of insults dried up. Come at me 

  • 1
9mo 
4thDimension, what's your opinion? Comment below:

didn't you make this post not too long ago coping about the success of BAYC? why are you devoting so much time/energy into a space that you find useless? https://www.wallstreetoasis.com/forum/off-topic/wtf-is-this-bored-apes-club-who-are-these-jokers-weirdos#comment-2742836 

It looks to me like you hardly understand crypto and are confused/insecure by its success

9mo 
heremaji, what's your opinion? Comment below:

you are intelligent to use a mouse and read through a user's post history. Well done!!

  • 1
  • Analyst 2 in PE - LBOs
9mo 

At least he can do some basic research, not like you

  • 1
9mo 
Lancer, what's your opinion? Comment below:

"How does one ensure transparent and correct financial reporting of these crypto assets (in terms of accounting)? How should one be reporting the value of these crypto assets on one's tax returns?"

They're taxed similar to other property (not securities or currencies).

9mo 
heremaji, what's your opinion? Comment below:

Property prices are not as volatile as crypto's, and so this approach doesn't make any sense. 

  • 1
9mo 
Lancer, what's your opinion? Comment below:

To clarify, you asked for an explanation in layman's terms. Do you not understand the explanation? Or think that current tax treatment is bad policy?

9mo 
YabberShneebs, what's your opinion? Comment below:

Growing at 1000% YoY and already being highly profitable doesn't sound like a fad to me. Sure multiples are going to drop and that will affect Coinbase but the stats are there.

9mo 
heremaji, what's your opinion? Comment below:

Your argument is dumb, and your existence is a fad. 

  • 1
9mo 
heremaji, what's your opinion? Comment below:

Clearly you don't know what you're doing because if you did you would know it's all B/S. Anything that you can't predict price of is B/S. 

  • 1
9mo 
heremaji, what's your opinion? Comment below:

I can insult you, but I decided to pity your 0 existence 

  • 1
9mo 
userdoesnotexist, what's your opinion? Comment below:

I will only support "CRYPTO" currency if they help you get rid of these actual stupid, physical coins, which make too much god damn noise in your pockets 

9mo 
danflashes, what's your opinion? Comment below:

Correct take, I would just say the analysis doesn't precisely get at the issue with crypto which is that it is a pyramid scheme. The best resource I've seen to understand the crypto space is a video called "Line Goes Up" by Folding Ideas on YouTube. Banks hiring finance majors who took a compsci 101 class to write reports on blockchain is profoundly dumb. The problem is that finance people think that because finance is hard, computer science must naturally be less hard and therefore easier to understand. And computer science people think the opposite.

  • 1
9mo 
allendave6945, what's your opinion? Comment below:

Hello, Nice and informative information.  Once again, Bitcoin has bounced back and is currently trading slightly above $60,000 support zone against the US Dollar and the bulls are so much in charge to see btc to $65,000 and ahead. Its still a great time to day trade with the little you hold and its not still late to buy little btc and grow your portfolio as i have been doing with Innovation markets binary for the past 6 weeks now and i came to understand that you can make profit from the market at anytime and its even profitable when btc is bullishing so your portfolio can grow too. Their  signals are so accurate and yields lots of profits, using this signals has made me 5.34 btc with my initial 0.7 btc which you all traders/investors will see is profitable. This is the most beneficial means of trading as experienced. Reach out to him on telegram : bernie_doran_fx or their website (marketinvestmentbinary . com) for inquires

  • 2
  • Associate 1 in IB-M&A
9mo 

idk, i'm not a crypto bull, but surely some of you can point him the right direction and answer some of his questions? no point posting and saying "lol it went up 10000% of course it means something". Tulips did the same back then. 

all i'm seeing is "lol you're wrong" "lol you can go google those answers" "you're retarded". Totally unhelpful and if anything, contributes nothing to discussion. 

Suggest you post some links to answer his questions or just ignore him and don't add fuel to the fire. 

9mo 
william31, what's your opinion? Comment below:

I feel like these are all the right questions and a lot of folks in crypto would stumble answering them. I'll keep this high level, love talking about this stuff! 

Bitcoin is a hedge. I see Bitcoin (read: not all crypto) as a hedge against the implosion of fiat. Every fiat currency fails on a long enough time horizon, the allure of printing more is simply too much to pass up for the bodies that control them. So folks typically look to Gold as "hard" currency, with supply that can't be messed with. The problem with Gold is that its heavy, tough to store / have to guard it and isn't easily divisible. Satoshi endeavored to solve these problems (and more with making it peer-to-peer) with bitcoin. Gold's market cap is ~$12 trillion and Bitcoin's is ~$800 billion. A lot of folks see Bitcoin as an asymmetric bet on the "store of value" market. 

Bitcoin is a response. Timing of the financial crisis and the release of the whitepaper are not a coincidence in my mind. Satoshi (group of people in my opinion) wanted to react to the bailouts of the major banks. Take a look at what happened in Canada with the protests a couple months back. No matter where you fall on the political spectrum, the reality is a country / its banks froze the usage of currency for its citizens. I felt like that story didn't get a ton of attention, but its borderline distopian in my opinion and Bitcoin is a tool to prepare for that type of thing happening more frequently.

Bitcoin is a first mover. I am closer to a Bitcoin maxi than a lover of all things crypto. Many coins out there are organized pump and dumps that leave many holding the bag. I've gone down countless rabbit holes of other projects. Whether crypto-oriented folks want to admit it or not, their "favorite project" (i.e. biggest bag they hold) is likely adding inefficiency and costs to existing processes. Not everything needs to be decentralized and most things built on Ethereum or Solana, etc. exist or are in process with Bitcoin that has vastly more energy dedicated to network uptime and ensuring its security. (Don't @ me in the comments if you are ETH or SOL maxis - Vitalik hard fork after the DAO hack shows the true lack of decentralization / immutability on ETH and Solana crashes constantly / was a VC pump). 

Just a couple musings. Interested in your thoughts. 

Array
  • 3
9mo 
stefanmarjanovic, what's your opinion? Comment below:

You're missing the point. Cryptocurrency and blockchain is a new technology, not a fad. Sure Coinbase might currently look unsustainable, but it is the flagship of the industry alongside Binance and Gemini. Blockchains which are powered by various types of Cryptocurrencies assist in transforming public ledgers that can be edited into a decentralized network that does not allow information to be tapped into and changed. Bitcoin is digital gold, Ethereum is a pioneer in smart contracts and further advancements in technology. Ethereum is practically Apple or Microsoft in this situation, people called them fads back in the day and the majority of people regretted their words for not having a stake in them. No one is saying to go all in, because that's just stupid but having small positions in the future of financial technologies and cybersecurity is smart. 

  • 1
8mo 
CowardlySEC, what's your opinion? Comment below:

I don't think it's a fad, but the fact it's a massive centralized exchange regulated by the US government kind of defeats the purpose of getting involved in Crypto in the first place no?

Array
  • 2
8mo 
PlanetMoney, what's your opinion? Comment below:

Turns out OP ended up with the last laugh. Honestly with hindsight, re-reading some of the crypto-truther's comments are hilarious

8mo 
mullah123, what's your opinion? Comment below:

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  • Analyst 1 in IB-M&A
7mo 

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3mo 
georgeycolus, what's your opinion? Comment below:

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