![]() To get a sense of just how untenable Coinbase’s competitive position is, Coinbase’s estimated transaction revenue as a percent of trading volume in the first quarter was 46 times higher than Intercontinental Exchange, which runs the New York Stock Exchange (among others) and Nasdaq Inc., which runs the Nasdaq. ![]() Similarly, if traditional brokerages begin offering the ability to trade cryptocurrencies, they will most certainly cut down on the unnaturally wide spreads in the immature cryptocurrency market.įor example, if Coinbase’s revenue share of trading volume fell to 0.01%, equal to traditional stock exchanges, its estimated transaction revenue in the first quarter would have been just $35 million instead of an estimated $1.5 billion. Competitors such as Gemini, Bitstamp, Kraken, Binance, and others will likely offer lower or zero trading fees as a strategy to take market share, which would start the same “race to the bottom” that we saw with stock trading fees in late 2019. For example, if stock trading fees are any indicator for crypto trading fees, we should expect them to quickly go lower if not to zero. Read: Coinbase says first-quarter sales topped $1 billionĪs the cryptocurrency market matures and more firms inevitably pursue Coinbase’s high margins, the firm’s competitive position will inevitably deteriorate. ![]() If we assume a similar breakdown of Coinbase’s reported $1.8 billion in total revenue in the first quarter of this year, trading fees would equal around $1.5 billion on $335 billion in trading volume, or about 0.46% of every transaction. These trading fees made up 86% of revenue in 2020. In 2020, Coinbase collected about 0.57% of every transaction in fees, which totaled $1.1 billion in trading revenue on $193 billion in trading volume. Read: ‘You can’t ignore’ bitcoin anymore, warns Morgan Creek’s Mark Yusko A mature market could crush profitability by 98%Īs a leading cryptocurrency exchange and brokerage firm in a nascent market, Coinbase charges a large spread on each trade and a trading fee (the greater of a flat fee or a variable percentage fee based on region, product feature and payment type) - both of which are unsustainably high. For reference, Pew Research Center estimates 90% of U.S. adults are “not interested in” crypto and 18% have “never heard of it.” Similarly, CivicScience finds that while the number of people investing in cryptocurrencies is rising quickly, it still remains low at just 9% of U.S. In its S-1 filing, Coinbase notes “crypto has the potential to be as revolutionary and widely adopted as the internet.” While such a statement can lead to lofty valuations based on a “growth story”, the reality is the cryptocurrency market remains far from “mainstream”.Īccording to data analytics firm CivicScience, 66% of U.S. This rest of this report aims to help investors sort through Coinbase’s financial filings to understand the fundamentals, using more reliable fundamental data, and valuation of this upcoming direct listing. Our calculations suggest Coinbase’s valuation should be closer to $18.9 billion - an 81% decrease from the $100 billion expected valuation. The parent company of the New York Stock Exchange. We expect Coinbase competitors to cut their trading fees to zero in an effort to increase market share.Ĭoinbase’s expected valuation of $100 billion implies that its revenue will be 1.5 times the combined 2020 revenues of two of the most established exchanges in the marketplace, Nasdaq Inc. The race-to-zero phenomenon that took place in late 2019 with stock trading fees will likely make its way to the crypto trading space.
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