I have little expertise of the of likelihood of trial or congress passing new rules. Both feel meaningfully greater than zero. Look at ELON 420, the power of unlimited funds and the best private lawyers vs the SEC on display. Hard to think they don't at least have a 10 or 20% chance in court + congress.
I have little expertise of the of likelihood of trial or congress passing new rules. Both feel meaningfully greater than zero. Look at ELON 420, the power of unlimited funds and the best private lawyers vs the SEC on display. Hard to think they don't at least have a 10 or 20% chance in court + congress.
I think you underestimate the value of their consumer franchise as crypto gateway, dominance in the huge US market and how durable that can be. Also if they do win how much goodwill they will have with the community.
I think you underestimate somewhat the complexity of offering their product and how quickly competitors could be at parity. There is a reasonable amount of tech investment and risk there, it's not forever but a couple of years is even further head start.
Look at coinbase profitability during a bull cycle, expands pretty dramatically. If bull cycle emerges in a couple years --seems probable -- if they do outfox the sec they should have great market position.
Overall I think the high case (market leader in a growing market) is much higher than you paint and the risk reward in shorting good companies, market leaders in growing technology spaces is just not good, the unlimited downside is not just theoretical. You're not even protected by a bubble of pricing on your entry... You are entering at Ebitda multiples not 80x revenue of a couple years ago.
"Overall I think the high case (market leader in a growing market) is much higher than you paint and the risk reward in shorting good companies, market leaders in growing technology spaces is just not good, the unlimited downside is not just theoretical."
I would agree with this - speaking as a nocoiner who thinks crypto is largely stupid BS. The thesis has echoes of TSLA. Crypto as an asset class/industry has many fewer tailwinds and more headwinds than electric cars/green tech, but on the other hand it's all just software so the operational leverage is insane. US regulators have settled with other crypto brokerages, which does not suggest a cold determination to systematically strangle the crypto industry to death. The Blackrock ETF filing designating COIN as custodian suggests savvy insiders are seeing things quite the opposite.
It seems like you would agree with Andrew's assessment that this a great bet. You give Coinbase a 10%-20% chance of winning in court+Congress. Andrew's view is that if Coinbase loses, it's basically a 100% return for the short. So using your probabilities, it seems like an 80%-90% probability of a Coinbase legal loss which delivers close to a 100% return. Is that fair? That seems a lot better than picking up pennies in front of a steamroller as you described it, especially given Andrew's view that Coinbase winning results in competition and a lot of CB's EBITDA is aggressive add-backs and/or USDC related interest income that's facing headwinds in 2Q.
I think the 2 year high case for coin is $500. That was most people's hopeful price target after ipo before crypto slowed. I think low case is $0.
Also I didn't give it 10-20 I said hard to think of could be less than, but I am uncertain the true number, so that is the lower bound of my estimate.
There are obviously in between cases of high or low. So this is sort of garbage but if we say 30% of zero and 70% of $500 you have an EV of $350 so no, I still think it's pennies in front of a steamroller.
Think my high is too high? I lost 7 figures personally shorting tesla around $300 pre split. Worst imaginable case felt like $1000 yet it peaked at something like $2000 pre split.
Coinbase wins this outright this stick could rocket. Shorting well run companies for price or event factors is dumb imo, your mileage my vary. This is I think the only way I have lost seven figures in my life don't care to repeat it.
Whoops, flipped my %s. 70% chance of 0 plus 30% chance of $500 = $150/share EV in the simple equation, still a bad deal at current price of $53.
If you are barfing on $500, I will just say, in a boom cycle they did "net income for 2021 was $3.624B, a 1024.4% increase from 2020", if they do $4B in net income with huge growth in the next boom cycle and beat the SEC, $500 = $120B valuation = 30 P/E that's in the ballpark of where they listed, and touched again in 2021
Makes sense, thanks for sharing some of your thinking.
Peak NI was $3.0bn in 2021. Even if they reachieve similar or superior volumes, NI will probably be a lot lower because pricing has come down and opex has grown considerably. And then there is Andrew's case that CB win = increased crypto competition. So 33% growth vs prior peak plus 30x PE on that peak earnings amount seems very difficult to achieve.
Discussing this article with some very smart friends who are moderately bullish coin, some thoughts are relevant
"what I find with many bear cases on any company, they assume the corporation is static and unmoving, set in its path like those old school football games ". Sure opex is up. It can also go down. You some next bull cycle will be max the same size, why wouldn't it be 3x-10x bigger? Every last cycle was much bigger?
We are looking at the realistic high case not the expected case.
Different friend : "this uy is underestimating how long it will take other sites user experience to catch up ". I agree... IB just sells exposure to the asset and poorly. Coinbase has a propriety L2 wallet you can move your coins to and use them, this requires so much, for one thing actually buying and custodying coins. The tradfi competition is nowhere except very think exposure to asset prices. sure since author is a crypto skeptic and probably hasn't done an on chain transaction in the last month he assumes that's all that customers want because that's all he is doing is trading exposure to the aseet. But if crypto works a lot of people are doing a lot more stuff and most finance companies are years behind on building that, and the crypto native alternatives have been weakened immensely.
I feel like the author looks at coinbase and says "$53 is fully valued coinbase if not shut down but 90% they lose the suit so fair value is $6". And he sorry of uses multiples to justify $53 as fairly valued
But I look the short risk here
What if $150 is fairly valued coin if not shut down? And the market has already priced in the SEC? Seems more plausible, no?
I have little expertise of the of likelihood of trial or congress passing new rules. Both feel meaningfully greater than zero. Look at ELON 420, the power of unlimited funds and the best private lawyers vs the SEC on display. Hard to think they don't at least have a 10 or 20% chance in court + congress.
I think you underestimate the value of their consumer franchise as crypto gateway, dominance in the huge US market and how durable that can be. Also if they do win how much goodwill they will have with the community.
I think you underestimate somewhat the complexity of offering their product and how quickly competitors could be at parity. There is a reasonable amount of tech investment and risk there, it's not forever but a couple of years is even further head start.
Look at coinbase profitability during a bull cycle, expands pretty dramatically. If bull cycle emerges in a couple years --seems probable -- if they do outfox the sec they should have great market position.
Overall I think the high case (market leader in a growing market) is much higher than you paint and the risk reward in shorting good companies, market leaders in growing technology spaces is just not good, the unlimited downside is not just theoretical. You're not even protected by a bubble of pricing on your entry... You are entering at Ebitda multiples not 80x revenue of a couple years ago.
Feels like pennies in front of a steamroller.
"Overall I think the high case (market leader in a growing market) is much higher than you paint and the risk reward in shorting good companies, market leaders in growing technology spaces is just not good, the unlimited downside is not just theoretical."
I would agree with this - speaking as a nocoiner who thinks crypto is largely stupid BS. The thesis has echoes of TSLA. Crypto as an asset class/industry has many fewer tailwinds and more headwinds than electric cars/green tech, but on the other hand it's all just software so the operational leverage is insane. US regulators have settled with other crypto brokerages, which does not suggest a cold determination to systematically strangle the crypto industry to death. The Blackrock ETF filing designating COIN as custodian suggests savvy insiders are seeing things quite the opposite.
It seems like you would agree with Andrew's assessment that this a great bet. You give Coinbase a 10%-20% chance of winning in court+Congress. Andrew's view is that if Coinbase loses, it's basically a 100% return for the short. So using your probabilities, it seems like an 80%-90% probability of a Coinbase legal loss which delivers close to a 100% return. Is that fair? That seems a lot better than picking up pennies in front of a steamroller as you described it, especially given Andrew's view that Coinbase winning results in competition and a lot of CB's EBITDA is aggressive add-backs and/or USDC related interest income that's facing headwinds in 2Q.
Let me think this through
I think the 2 year high case for coin is $500. That was most people's hopeful price target after ipo before crypto slowed. I think low case is $0.
Also I didn't give it 10-20 I said hard to think of could be less than, but I am uncertain the true number, so that is the lower bound of my estimate.
There are obviously in between cases of high or low. So this is sort of garbage but if we say 30% of zero and 70% of $500 you have an EV of $350 so no, I still think it's pennies in front of a steamroller.
Think my high is too high? I lost 7 figures personally shorting tesla around $300 pre split. Worst imaginable case felt like $1000 yet it peaked at something like $2000 pre split.
Coinbase wins this outright this stick could rocket. Shorting well run companies for price or event factors is dumb imo, your mileage my vary. This is I think the only way I have lost seven figures in my life don't care to repeat it.
Whoops, flipped my %s. 70% chance of 0 plus 30% chance of $500 = $150/share EV in the simple equation, still a bad deal at current price of $53.
If you are barfing on $500, I will just say, in a boom cycle they did "net income for 2021 was $3.624B, a 1024.4% increase from 2020", if they do $4B in net income with huge growth in the next boom cycle and beat the SEC, $500 = $120B valuation = 30 P/E that's in the ballpark of where they listed, and touched again in 2021
Makes sense, thanks for sharing some of your thinking.
Peak NI was $3.0bn in 2021. Even if they reachieve similar or superior volumes, NI will probably be a lot lower because pricing has come down and opex has grown considerably. And then there is Andrew's case that CB win = increased crypto competition. So 33% growth vs prior peak plus 30x PE on that peak earnings amount seems very difficult to achieve.
Will be an interesting one to see unfold.
Many thanks for the good comment.
You could be right.
Discussing this article with some very smart friends who are moderately bullish coin, some thoughts are relevant
"what I find with many bear cases on any company, they assume the corporation is static and unmoving, set in its path like those old school football games ". Sure opex is up. It can also go down. You some next bull cycle will be max the same size, why wouldn't it be 3x-10x bigger? Every last cycle was much bigger?
We are looking at the realistic high case not the expected case.
Different friend : "this uy is underestimating how long it will take other sites user experience to catch up ". I agree... IB just sells exposure to the asset and poorly. Coinbase has a propriety L2 wallet you can move your coins to and use them, this requires so much, for one thing actually buying and custodying coins. The tradfi competition is nowhere except very think exposure to asset prices. sure since author is a crypto skeptic and probably hasn't done an on chain transaction in the last month he assumes that's all that customers want because that's all he is doing is trading exposure to the aseet. But if crypto works a lot of people are doing a lot more stuff and most finance companies are years behind on building that, and the crypto native alternatives have been weakened immensely.
I feel like the author looks at coinbase and says "$53 is fully valued coinbase if not shut down but 90% they lose the suit so fair value is $6". And he sorry of uses multiples to justify $53 as fairly valued
But I look the short risk here
What if $150 is fairly valued coin if not shut down? And the market has already priced in the SEC? Seems more plausible, no?