· Posted 05/23/2022
Relative Return Over Time
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To summarize in plain language: Coinbase is a company that has been around for almost 10 years and seems to be one of the most secure crypto exchanges. It also operates in an industry with enormous growth potential (decentralized finance) while at the same time trading at a multiple more appropriate for dying industries such as brick-and-mortar retail or traditional financial services. This combination makes it very interesting from both fundamental, technical and value perspectives.I disagree because: Coinbase is a centralized exchange, which makes it vulnerable to hacks and other attacks. Coinbase has been able to navigate the crypto winter of 2014-2016 and 2018, but there are no guarantees for the future. It's hard to predict if Coinbase will be able to continue its profitability in this market environment. I think that many of the factors mentioned above are not necessarily bad things or red flags for COIN. However, they do indicate that we should expect a long period of losses before any recovery can take place (or even if it happens at all). If you look at the current price as an opportunity cost then you have already lost money by investing in COIN instead of something else like ETH or BTC .
Are you sure about this thesis? Because: I think it's a little bit too bullish. I would say that Coinbase is still in the early stages of its growth and there are many things that could go wrong, for example:
- The recent bear market has made people very cautious about investing in crypto assets. They might not be willing to invest in an exchange when they can't even sell their holdings at a decent price (for instance).
- Coinbase is facing increasing competition from other exchanges like Binance, which have better trading tools and lower fees. Also, some countries have banned or restricted access to cryptocurrency exchanges altogether. This makes it harder for new users to get started with cryptocurrencies and will probably result in less adoption overall.
- There are also concerns regarding security issues on Coinbase itself.
From a growth perspective: Coinbase seems to be a company that is in the right place at the right time. It has been able to navigate crashes and will likely be able to do so again. The crypto winter might seem like tough times ahead, but it could also open up an opportunity for Coinbase to focus on its core business without being distracted by hype from retail investors. We believe Coinbase has a lot of potential. It is still the largest crypto exchange by volume and it seems to have a large moat as an institutional-grade cryptocurrency exchange. We also believe there are many opportunities for growth in the Web3 space, especially with regards to smart contracts and applications being built on top of Ethereum.
UPDATE: Ehrsam continues to buy COIN.
If you would like to get a critical overview of Coinbase's business and where short interest on COIN is coming from, check out this episode of Crypto Critics Corner with Jim Chanos. Main part on Coinbase starts at 13:14.
Coinbase CEO Brian Armstrong recently did a podcast with Lex Fridman.
Coinbase is partnering with BlackRock for institutional investments.
Coinbase Q2 2022 shareholder letter: https://investor.coinbase.com/financials/quarterly-results