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Cryptocurrency Finance

Inside the Coinbase Direct Listing

This piece originally appeared in FIN, James Ledbetter’s fintech newsletter.

There are very few people not employed by the cryptocurrency exchange platform Coinbase who know more about the company than Jeff John Roberts, executive editor at Decrypt, and author of the recently published history of Coinbase The Kings of Crypto. Coinbase, which has approximately 43 million verified users, describes itself as “building the cryptoeconomy – a more fair, accessible, efficient, and transparent financial system enabled by crypto.” So even before Coinbase’s hugely anticipated S-1 filing for a direct Nasdaq listing became public a few days ago—which should make Coinbase the highest valued public debut since Facebook—FIN knew Roberts would be a must-get interview. Below is an edited transcript of our conversation:

FIN: What does the Coinbase S-1 tell us about the state of the crypto industry?

JJR: It’s booming unbelievably; obviously [Coinbase’s] timing is excellent. This is going to be an important yardstick to the rest of the industry, because we know what a handful of venture capitalists think it should be worth, but we’re going to find out what the broader market thinks it’s worth. It’s profitable. I mean, it’s making money hand over fist and if you watch the IPO scene last few years, you know, that’s almost a heresy.

You’ve followed Coinbase very closely for years, what did you see in the S-1 that surprised you the most?

One red flag and a surprise was 96% of the revenue is from trading. For years, you know, they’ve been talking up to me how they’re branching into other products, like lending and all these other things. But they’re kind of a one-trick pony still, and come the next downturn, asking for trouble, especially with the scrutiny of public markets on them.

In a way it didn’t surprise me, because you talked about it in the book. From the very beginning, they were looking to get other revenue sources, but every time they tried, it either distracted them from their core mission or they just couldn’t execute.

To be fair to them, it’s easier said than done to find new revenue streams. Put them up against the tech giants—look at Facebook’s forays into mobile phones and stuff like that. It’s just hard to do. I’m sure they’ll find something; it might be kind of dull, like back-end white labeling for banks and consulting and like that.

The S-1 shows that they’re sitting on a billion dollars or so of cash. Do you interpret that as meaning that the direct listing strategy was the right one?

I think so, yeah. You saw the SEC change rules this year: you can float new shares in a direct list if you want to. And they chose not to, which shows the direct listing made a ton of sense for them.

How do you think being a public company will change Coinbase, both in terms of its business priorities and as a culture?

I think it’s going to be a reality check, because a lot of crypto people like to live in this fantasy world of “we’re beyond the state” and stuff like this. So I think having to file those quarterly reports will change them. And then also the outside pressure when they shit the bed, which they will sooner or later. They’re going to get out to a good start, they’re going to blow the doors off with their first report. But it’s going to be really interesting when another crypto winter comes, and it will; I’ve been trying to think of another company that’s as cyclical. So how is the public market going to react when they see the one basis of revenue fall 70%?

Because despite what people might say about Bitcoin and cryptocurrency as a store of value, what you tend to see is higher trading volumes when the price is going up and not so much when the price is going down.

Exactly. Yeah.

In the book, you note that when Coinbase first started, a lot of crypto purists actually hated them, resented them for going against the spirit of the project. Is that tension still there?

They’re still there, as self-righteous as ever. But now there’s like 10X or 100X other people getting rich, so it’s not as ideological as it used to be.

Do you still think Nick Szabo is Satoshi?

I do. Just Occam’s Razor, if not him who else is it? It’s either him or it’s like a mysterious cabal who’ve vanished into the ether, and the world doesn’t usually work that way.


Another super-useful take is this long blog post from The Fintech Blueprint. It gives a justification for valuing the company at $100 billion. But it also offers some data that underscore Roberts’ point that the company is highly cyclical, which public investors might not like when a new crypto bust hits. Read the whole thing, but this chart (which Blueprint put out after the S-1 dropped) really makes the point:

This piece originally appeared in FIN, James Ledbetter’s fintech newsletter. Ledbetter is Chief Content Officer of Clarim Media, which owns Techonomy.

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