Coinbase Global (NASDAQ:COIN), the cryptocurrency exchange that came public April 14 in a direct listing, wants you to know it’s nowhere. And everywhere. A recent tweet notes that it’s closing its San Francisco office and going entirely virtual. There’s no headquarters.
But is there a company and what is it worth? COIN stock is down almost 22% from its initial trade as speculators sell and investors question the company’s thesis. Cryptocurrencies like Bitcoin (CCC:BTC-USD) and Ethereum (CCC:ETH-USD) are going to take over the world. Why?
There is a market here. It’s now worth $2.4 trillion, more than any U.S. stock, more even than Apple (NASDAQ:AAPL). Bitcoin, the original crypto-asset, based on an encryption problem with just 21 million possible answers, is now valued at $57,500/coin, up from $9,600 a year ago.
Whether you believe in it or not, crypto is an asset. But is it a currency?
Buy the Processors
Analysts now believe that it’s blockchain, not Bitcoin, that’s the revolution. Consequently, many now believe Coinbase will be left behind.
Wedbush analyst Daniel Ives writes that government regulation, and “stablecoins” like the digital Yuan, give power to transaction processors like Visa (NYSE:V) and PayPal (NASDAQ:PYPL), not Coinbase. Laura Gonzalez, an associate professor at Cal State University in Long Beach, agrees. “There is a trend globally towards developing central bank-based e-currencies,” she told InvestorPlace, that will impact what happens with crypto.
As Bitcoin and blockchain go mainstream, in other words, Coinbase is expected to lose market share. Factset expects Coinbase to have GAAP earnings of $6.91 per share this year, but $3.37 per share in 2022 and $2.68 in 2023. Even at its current price, you’re paying 12 times sales and 78 times estimated 2022 earnings for the stock.
Meanwhile PayPal and Square (NYSE:SQ) both support Bitcoin transactions. While Coinbase charges 4% on all transactions, cut to 1.49% for those using its digital wallet, PayPal charges 1.5% for any transaction over $1,000. Square bases its charge on the spread between bid and ask prices at the time of a trade. Robinhood, which is in the process of going public, has no commission on Bitcoin trades.
Just Another Bubble?
Coinbase did a direct listing with a reference price of $250 a share, but it could fall below that soon, according to Morningstar. Like SPACs, some analysts see it as a bubble that has popped. Even as prices on Dogecoin (CCC:DOGE-USD), beloved of Tesla (NASDAQ:TSLA) CEO Elon Musk, rise to all-time highs, the price of COIN stock keeps falling.
Our Will Ashworth says he still believes in Coinbase. He compares it to Tesla, dismissing its fall as based on curmudgeonly comments from Berkshire Hathaway (NYSE:BRK.A) vice chairman Charlie Munger. Yet he is not buying Coinbase stock, because of its high trading fees.
For long-term Bitcoin bulls, Coinbase is playing a long game. Going public makes it part of the financial establishment, able to undermine it from within.
Bitcoin has become an inflation hedge because the supply is limited.
But Bitcoin, and all alt-coins, are assets. They’re not currencies. A currency has a stable value, which is meaningful when used between the trading of other assets. Real currencies are means to an end. Crypto currencies are ends in themselves.
As Coinbase becomes part of the financial establishment, it also must compete with that establishment. In this world scale matters, and margins matter. Coinbase has limited scale and demands high margins.
No matter what Bitcoin or Coinbase are worth, I’d rather have real money in a real bank.
At the time of publication, Dana Blankenhorn directly owned shares in AAPL.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at firstname.lastname@example.org, tweet him at @danablankenhorn, or subscribe to his Substack newsletter.