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,, 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 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.
- 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?
- 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 on the parties involved in these transactions, as they seem to be keen on remaining hidden from the public eye?
- 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 crypto assets be pegged to and why? , 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?
- How do you convince someone , who's not a sophisticated and / or an , 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: , / )
- 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 " " 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 (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!
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