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My Coinbase Gameplan

Mar. 05, 2021 7:00 AM ETCoinbase Global, Inc. (COIN)38 Comments
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  • A review of Coinbase's operations & revenue sources.
  • I pressure test the four key pillars of the Coinbase investment case.
  • I'm not buying Coinbase on day one, but will be watching the stock closely.

This article first appeared in Front Month, my weekly newsletter on exchanges. Sign up here and get free posts like this one delivered to your inbox every Friday.

On February 25, Coinbase (COINB) dropped its detailed S-1 filing to the public, causing the same frenzied & elated reaction among the crypto community that Taylor Swift fans give to the announcement of a new world tour. Coinbase’s market debut is expected to be one of the largest of 2021, with valuations reaching as high as $100 billion in the private market. That’s more than any public exchange in existence today, including ICE, CME & Nasdaq.

As informed investors in the exchange & market data space, what are we to make of Coinbase? Should we buy into the hype & think about getting in on day 1, or stay on the sidelines and avoid a crypto exchange bubble in the making? This post serves as an organized analysis of Coinbase’s prospects & realistic future, helping to answer that very question.

Regardless of your thoughts on Coinbase & even crypto at large, this direct listing is worth your attention. beginning with CME’s demutualization & IPO in the early 2000s, all but one major exchange has outperformed the S&P 500 since going public. CBOE (CBOE) is the only exception - they began underperforming in 2018 when Volmageddon hurt the exchange’s VIX business & resulting returns. Coinbase certainly counts as a major exchange. Will they keep the streak alive?

Coinbase’s S-1 filing revealed the true size & scope of their operations, as well as their key sources of revenue. I’ll give a brief summary below:


Transaction Fees (86% of revenue): This is Coinbase’s bread & butter service and what many think of when referring to or interacting with their ecosystem. When customers trade cryptocurrencies through Coinbase’s app

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I write a weekly newsletter on exchanges.  You can subscribe here:www.joinfrontmonth.comFollow for in-depth analysis of the exchange & market data industry. Coverage includes: MKTX  TW  CBOE  CME  NDAQ  SPGI   MSCI  FDSProfile pic is of George Post, architect of the NYSE building

Analyst’s Disclosure: I am/we are long CBOE, BTC-USD, ICE, NDAQ. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (38)

When will coin options start? I'm most interested in writing decently OTM puts. Collect some premium and potentially assigned to buy coin at a lower price I'd be happy to get long at.
keremoner58 profile picture
What is your current comfort zone for entry? Is 250 a share too inflated? Will it even dip that low on the 14th? I would not be surprised if this hits $500 on the 14th but i will not touch it for anything over $300. What do you all think?
@keremoner58 Probable 500-700 i think. All crypto guys buy full margin 150BB still huge valuation
TheVillagePirate profile picture
@keremoner58 Would love to get it at 450 and then sell when it hits 800 before going to 1000 (or so) them crashes back to 600 (in the first 1 to 3 days) then slides down to 300 over the coming months as VYGVF and FTCVU (Etoro) steal their retail base with 0% commissions. Peaks at 150B valuation. Hodler on VYGVF and FTCVU and hoping to go long on COIN for a while.
alex.c profile picture
@keremoner58 I have made some calculations. Since the article was written we now now that Q1 Earnings in 2021 was $ 1.8 billion! (Earnings for the whole of 2020 was $1.1 Billion.
I we estimate the total earnings for 2021 to be $5.5 Billion (conservative), with a P/E of 15, this puts the market cap at $82.5 B.
Which implies a share price of $317.-
I feel that $ 280.- or less is my very comfy zone = ALL IN, STRONG BUY
$280.- to $300.- is still comfortable = BUY
$300.- to $330.- is my BUY a small position comfort zone

I remember missing out of FB at $47.- in the days following the IPO. I do not wish to repeat the same thing.
In fact I feel more bullish today on COINBASE, than I did then for FACEBOOK.
I believe Bitcoin, Defi, and the whole crypto sector are going to grow for years to come, inevitably increasing COINBASE'S revenues in Dollar terms.

I will be very sorry if the price goes straight to USD 500.- a share and never comes down again... In which case USD 380.- is the highest price I would pay for a very small position.

Good Luck!
TraderLawJF profile picture
Has today’s earnings news changed your opinion on entering on day 1???
@TraderLawJF Yes moon!!!
I ended up switching my Coinbase to Coinbase Pro due to the lower fees on CBP. I do miss the ability to flip between crypto that CB allowed.

I’m curious of other readers thoughts on the CB direct listing and if any will grab and go, or sit and watch?
Kyle Fishman profile picture
What do you all think about the recent news that the world's largest crypto exchange Binance is now facing a CFTC probe?

Could this spell trouble for the crypto industry?

and how does this affect Coinbase? (are they competitors or allies?)

I recall Mt Gox was once the largest bitcoin exchange in the world,
they got shut down in like 2014,
and bitcoin crashed.....before reaching new highs.

Not sure how valid a comparison is between Mt Gox and Binance though.
It's kind of a different world today, but they have some similarities.
alex.c profile picture
@Kyle Fishman I had actually purchased 10 Bitcoins at $110.-/coin in 2014. While i was trying to figure out my crypto wallet, I left those coins in my bitcoin wallet on Mt-Gox.
At which point Mt-Gox was hacked (it was not a probe), and most USD and BTC held in Mt-Gox wallets was stollen.
I was working hard at the time and did not follow the procedure to try to get them back. Since then I have lost my private keys too...

In 2017-8 I entered Bitcoin and Crypto again, using Coinbase, Binance and KuCoin mostly. In 2018 I converted all my crypto back to Dollars (or so I thought).
A few weeks back I logged into my old Binance account, only to find that I still had some coins there since 2018.
In particular, there were 84 Binance coins (BNB) purchased at $3.47 that were worth $340.- when I found them, and have since gone up to USD 600.- per coin. (I basically accidentally made a 100x and more) worth about USD 50'000.- today.

It's a good crypto story, but it also tells me, that unlike Mt-Gox, BINANCE must be pretty good at protecting their customer's wallets online!

good luck to all!
Deebeeng profile picture
I have Coinbase, Binance, KuCoin and voyager accounts and the only one I don’t hate using is voyager. Voyager is already public and only valued at about 2billion so that’s where I’d put my money in this space.
@Deebeeng How much you have it to pump it every comment section?Is it some pump and dump chatroom lol. We are talking about COIN pricing
@Deebeeng COIN had about $1 Billion in revenue last year. We're hearing they will debut with about a $100 Billion valuation. Let's say that doubles on the first day to $200 Billion. That would put their P/S at 200. Right now Yahoo! Finance has VYGVF with a P/S of 233. So it looks like they're even more overvalued than COIN.
Deebeeng profile picture
@andrianov just to offset folks like you knocking it down. They are competitors so it’s quite relevant to the overall story.
maddaj19 profile picture
Buying the casino is always a good bet. ICE, CME, CBOE, and NDAQ all prove this. But I think Bitcoin mania will leave many chasing a share price that is too high. I think the best time to buy Coinbase (for the long term) will be in the doldrums of the next extended BTC bear market in 2 to 3 years. Could be a very good trading position before then, but the initial P/E will be approaching 270. The market has a high taste for these crazy valuations for now.
SlowHandLuke profile picture
@maddaj19 Thanks for the P/E estimate, I have been wondering about that. Way to high for this cowboy, I will wait for this "little doggie" to slow down a bit before I rope it. ;-)
Enter at the right price. But not day one, so what is the right price?

It seems like most of these IPO tanks like 20-30% within first 3 month, and then slowly pick itself back up.

My guess on good point of entry is 25% below IPO. But if I miss the boat and it goes to the moon from day 1, oh well....
keremoner58 profile picture
@steak5959 hype with this one is too much. Try getting in at market as soon as it opens. Will probably pay around $500 if lucky. Could hit 1000 by close of trading. If it does, sell and wait for a dip to buy back. That's my game plan.
tallcupofcoffee profile picture
It seems to me that, along a long enough time line, decentralized crypto exchanges will be the dominant players.
How much business does Coin Base have now with companies who are in the cryptocurrency /Bit Coin Market ?
An interesting addition to ones long term portfolio indeed, but at a lower pps after the initial debut is agreed upon. I'll be watching for my entry point as well.
TheVillagePirate profile picture
VYGVF has a better business model as a No Fee broker and will clean COINB's clock once word gets out. Their account numbers and AUM are skyrocketing also, albeit from a much lower base. COINB will get the Institutional clients, VYGVF will get the retail market.
@TheVillagePirate Yes, Voyager should be mentioned in this article when bringing up other competing exchanges. I’m not the only one who transferred all coins I could off of Coinbase and on to Voyager (no commissions, earning interest, VGX rewards, etc.). I also hold their stock VYGVF which has been crushing it!
SlowHandLuke profile picture
I agree that $100B is too high, and I'm planning to wait as well. It is the big dog in US exchanges, and size matters in a crypto exchange. I have been in crypto for ten years and have seen many exchanges fail, scam customers, crash, get hacked, etc. Coinbase has survived all of that, and established a good reputation for security and stability. I get the impression that it is the go-to exchange for companies and funds, but who really knows. Also it's a cash cow. As a side note, I think their "first tier" fees are too high, but should come down with competition, which will affect their profits. Disclaimer: I use it for trades.
Until the market corrects and retail loses 60+%
U want to buy COIN, but under100B? People thought about same buying ABNB at price 30 or 25B valuation. Ended as always over 100B valuations bigger than BKNG! Retail just explodes that stock
TheVillagePirate profile picture
@andrianov My call is COIN goes to 150B, then sags.
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