Earnings season: Coinbase rides crypto volatility all the way to the bank

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Cryptocurrency exchange Coinbase sees profits surge this quarter following a period of high volatility in crypto markets.

Coinbase earnings

Coinbase’s headline stats

Q2 was a very solid quarter for Coinbase this earnings season. The current crypto market volatility played into the exchange’s hands as it record Wall Street-beating estimates.

Here are Coinbase’s key stats for this earnings season:

  • Revenue -$2.23 billion vs. $1.78 billion expected
  • Earnings – $3.45 per share vs. $2.33 expected

Note: the EPS figure excludes stock-based shareholder compensation.

Coinbase profits soared 4,900% year-on-year with net profit totalling $1.6bn. While volatility may not suit traders, it’s certainly paid off big time for Coinbase.

The exchange’s profitability and economic health essentially rely on the price of Bitcoin. The world’s most popular digital token, and the biggest by value, did have a torrid time last quarter. Prices fell 41% in that time.

Despite this, a flurry of trading took place, which explains the hefty revenues Coinbase generated. $1.9bn of its total revenues stemmed from transaction fees last quarter. A further $100m came from subscription-related services.

Bitcoin is still the most popularly traded token on the Coinbase exchange. However, volumes had dropped quarter-on-quarter. In Q1, Bitcoin made up 36% of all transactions. This had dropped to 24% as of Q2 2021.

Other coins, notably Ethereum, have started to eat into Bitcoin’s market share.

Looking to the future, Coinbase offered no formal guidance but did indicate that trading volumes are likely to be smaller in Q3.

Coinbase share price action

At the time of writing, Coinbase shares are up roughly 7%, building on the 2.1% gains made when the exchange posted its results on Tuesday afternoon.

That’s interesting. Even some of the biggest tech-related firms like Apple posted strong quarters, but still their stock price drop after reporting.

The analyst consensus appears strongly in favour of Coinbase. 78.6% give the stock a Buy rating.

Coinbase analyst recommendations

In terms of price targets, Coinbase could offer upsides of up to 38%.

Coinbase price target

Analysts would suggest the stock is undervalued. It’s currently trading at $291.5, though the price target is as high as $370.64.

Coinbase sentiment tracker

Coinbase is down about 29% since it went public in April. At that time, Coinbase opened at $381 per share. Its valuation of $100bn was a bit of a landmark in terms of cryptocurrency legitimacy.

Cryptocurrency update: Bitcoin price drop prompts trading fall

The ongoing BTC lull and previous market crash may have caused a freefall in crypto trading volumes.

Cryptocurrency update

Crypto trading volumes fall as BTC price stalls

Trading volumes on major cryptocurrency exchanges dropped over 40% in June according to CryptoCompare data.

The market researcher found that trading activity had plummeted on the largest exchanges, including Binance, Coinbase, Kraken and Bitstamp.

Bitcoin’s current price is likely behind the drop. After peaking at record highs in April, the world’s most popular token has struggled to regain value after crashing to below $29,000 in June.

China’s move to crackdown on crypto mining operations and wrest control of decentralised finance markets into the hands of the government has led to Bitcoin’s struggles. Notably, with Bitcoin miners having to move out of China, the hash rate, or the rate at which new BTC tokens are minted, has fallen. Supply may be even tighter than usual.

Other criticisms around the Bitcoin from an environment, social and governance perspective has also put a dampener on BTC performance. In an increasingly environmentally conscious world, stories of BTC mining consuming as much power annually as Sweden may have put investors off.

The regulatory framework around crypto trading in general is still being hashed out on a global scale. When it comes to Bitcoin, however, intergovernmental bodies like the Financial Action Task Force, are keeping a close eye on its network. Money laundering and using BTC to fund illegal activities is something many watchdogs are keeping a close eye on.

Other financial and institutional bodies are stepping up their efforts to safeguard retail investors against the massive volatility and uncertainty crypto trading can bring too.

Then there are other concerns around the naivety of BTC investors and traders. Many are total newcomers to these two disciplines. They may not have the capital or the experience necessary to whether a Bitcoin bear market, as they only just got in when goings are good.

Even if trading volumes have slumped in June, they are still some of the highest volumes seen in crypto trading yet. But with half the market gone, and the BTC price in the midst of a lengthy correction, it may take something big to entice investors back.

Of course, many large scale buyers with the capital to match may be using this as a period of accumulation. We’ve seen Bitcoin whales snaff up tokens left right and centre during price lulls, and this may be what we’re seeing in the here and now.

El Salvador BTC plans may put a squeeze on the global network

El Salvador’s plan to introduce Bitcoin as legal tender continues to draw flack.

JPMorgan has warned that this would have negative ramifications for both the token and El Salvador should plans go through.

According to a report from the US megabank, such a scheme would put enormous strain on the Bitcoin blockchain network. It would severely limited Bitcoin as a method for exchange, the report said, with issues around illiquidity and the token’s trading nature causing big hurdles.

JPMorgan analysts said that Bitcoin is highly illiquid, noting that most Bitcoin trading volumes are internalized by major exchanges, with more than 90% of Bitcoin not changing hands in more than a year.

“Daily payment activity in El Salvador would represent 4% of recent on-chain transaction volume and more than 1% of the total value of tokens which have been transferred between wallets in the past year,” the report said.

JPMorgan also has worried about convertibility. A continuous imbalance of demand for conversions of Bitcoin and the United States dollar could “cannibalize onshore dollar liquidity” and eventually introduce fiscal and balance of payments risk, according to JPMorgan.

El Salvador’s government passed a bill in June that states Bitcoin would be accepted there as legal tender alongside the US dollar. Under the bill’s stipulations, merchants across El Salvador must accept BTC if offered as a method of payment.

The country also wants to be Central America’s mining hub, with an audacious plan to harness the power of volcanos to power its mining operations.

Coinbase a “tactical trade” says Goldman

Coinbase, the US’ largest crypto exchange, may be on course to beat Wall Street earnings.

The exchange’s Q2 2021 results are due soon as earnings season has begun on Wall Street. Goldman Sachs has identified the stock, which trades under the COIN ticker, as buy.

In an interesting bit of analysis, Goldman researchers say that the current parade of negative crypto headlines could actually be benefiting Coinbase. What Goldman calls “significantly higher elevated crypto asset volatility”, or the wild price action we’ve been seeing in recent months, may have led to increased pre-BTC collapse trading volumes. Coinbase can then capture this activity through its fees.

Even if BTC’s price stays low, Coinbase may be able to profit off uneasy traders looking to divest and others looking to buy in a market downturn.

Goldman acknowledged its analyst’s earnings per share estimate for Coinbase is “11% above consensus” for the year ahead – way ahead of the Wall Street consensus.

Thematic investing: cryptocurrencies

Investments

Cryptocurrencies are the focus of our latest thematic investing guide. Should you be putting your money in cryptocurrencies? What are your options? Have a read to find out.

A look at cryptocurrencies

What is a cryptocurrency?

Cryptocurrencies are digital currencies that can be exchanged online for goods and services. Another name for a crypto coin is a token. Cryptos are bought using real currency via exchanges or are tradeable via contracts for difference (CFDs).

Blockchain technology powers cryptocurrencies. Think of this a bit like a digital ledger. It manages and records crypto transactions. A blockchain is decentralised and is spread across many different computers. New tokens are generated using a process called mining. It’s essentially a complex computational algorithm that, when solved, creates a new token.

Over 10,000 different digital currencies are traded. The current total market cap, as of June 3rd, 2021, is above $1.5 trillion. While there is no such thing as the best cryptocurrency, some tokens are much more popular than other. Bitcoin is the world’s most popular and acts as a market bellwether. When its price rise, so too do other important tokens. The opposite is also true, as we’ve recently seen a big crash in Bitcoin prices.

As of June 3rd, 2021, the top five cryptocurrencies by market cap are:

  • Bitcoin – $706.1bn
  • Ether – $317.5bn
  • Binance Coin – $62.1bn
  • Tether – $61.7bn
  • Cardano – $56.4bn

Cryptocurrency prices & volatility

Cryptocurrency prices are some of the most volatile of any tradeable asset. This cannot be stressed enough. Just recently, the price of Bitcoin collapsed following outside influence. Elon Musk and Tesla’s decision to U-turn on accepting Bitcoin as payment, plus a crackdown on crypto mining in China set prices spiralling.

Bitcoin reached an all-time high in April when it broke above $64,000. Just a couple of weeks later, the world’s most popular cryptocurrency was trading below $31,000 for the first time since 2020. Its total market cap went from April’s $1.2 trillion reading to the $706bn figure mentioned above.

This kind of volatility is inherent to cryptos. There is a lot of supply and demand at play here, but digital currencies are certainly less stable than say gold or equities. Potential profits can be very high, but the losses can be huge.

Always do your research before you commit any capital. Trading and investing is inherently risky, but more so with cryptocurrencies.  Only invest or trade if you are comfortable taking any potential loss.

Investing or trading cryptocurrency

A couple of options are available to you.

Firstly, there is physically buying the tokens to store in a digital wallet in the hope they grow in value. Many investors are turning to cryptocurrency as a store of value, turning away from traditional assets like gold.

You must be very careful with this approach. Crypto investing can be a rollercoaster ride. One minute prices are nudging all time highs; the next billions have been wiped off open crypto positions.

If you do not wish to own any coins, but still want to trade cryptocurrencies, you may wish to look at contracts for difference. CFDs allow you to trade cryptocurrencies without owning any underlying assets. You instead trade on margin. This can allow you to open a position for a fraction of its total value – but you would be susceptible to higher losses.

You may also want to look at stocks based around the crypto industry as well. For instance, Coinbase went live with its initial public offering in April. Coinbase is the largest US cryptocurrency exchange, where users buy and sell bitcoins in a similar fashion to stocks listed on various global exchanges.

Volatility has struck again here, though. Because Coinbase is so tied in with the performance of cryptos, and especially Bitcoin, its share price rises and falls in line with the wider cryptocurrency market.

For example, when it went public, Coinbase’s initial share price was above $400. It’s currently trading at around $235. Despite this, according to Marketsx’s in-platform sanalyst tool, Coinbase is still considered a “buy”. It has a lot of potential to gain value alongside a recovery in cryptocurrency prices.

There is no best cryptocurrency. There are no best cryptocurrency stocks. What is a good or bad choice for your portfolio depends on your individual capital and your attitude to risk.

Remember: cryptocurrency prices are subject to high volatility, so only invest or trade if you can afford any potential losses.

Biden tax plan weighs on stocks, Bitcoin tumbles

Morning Note

European equity indices opened a tad lower on Friday morning after stocks fell on Wall Street on reports Joe Biden is planning to slap much higher capital gains taxes on the wealthy. This was always part of the equation when we looked at the implications of a Biden presidency, but markets have been pepped up on a mix of fiscal stimulus, the Fed’s extraordinarily accommodative stance, a strong cyclical impulse from the vaccine-led reopening and a bounce back in earnings. The major averages fell in lockstep, dropping by almost 1% , though the Russell 2000 ended the session flat as the selling was led chiefly by the longer-term growth names like Tesla and Amazon. The Dow Jones finished the day at 33,815, a decline of more than 300 pts. The S&P 500 closed down 0.92% at 4,134 and the Nasdaq Composite notched a similar decline to finish at 13,818. The FTSE 100 opened lower and is heading for a decline of more than 1% for the week. As of send time the CAC 40 had inched into the green. I would not describe risk as being offered as such; it’s been a pretty choppy week and I would be equally unsurprised if stocks turned around this afternoon and ended the week higher as I would if Wall Street led a sharp decline into the weekend.

The Biden administration is looking to raise the top marginal income tax rate to 39.6% from 37%, whilst also doubling capital gains tax to 39.6% for people earning more than $1 million. Tax the rich, hand it out to the poor. Sounds like furlough, but on a permanent basis. The big problem (one of many) in all this is the Senate – it would require support of all the Democrats in the upper chamber and this is far from assured. Stocks would probably be a lot lower if investors were really worried, and I think markets can overcome this move, even if it manages to pass through the Senate, which I don’t think it will. Nevertheless, coming off record highs and a good run up through the start of the year, the macro picture not really changing, rising Covid cases globally, strong earnings and other supportive factors largely priced in and the extent to which investors are ‘all in’ equities, we could be set for a downwards move in equities over the coming weeks. Beware seasonal factors (I dare not say ‘sell in May’…)

The economic picture continues to improve in the US. Initial claims for unemployment insurance fell to 547,000 last week, down from 576,000 the prior week and below the roughly 600,000 estimated. The number of continuing claims also fell.

Likewise, UK retail sales numbers were very positive in March as consumers opened their wallets ahead of the reopening of non-essential shops. Sales rose by 5.4% from February, well ahead of the 1.5% expected. Clothes, gardening goodies and specialist food items from bakers and butchers were in vogue.

Even Europe is showing immense resilience in the face of lockdowns – France’s Services PMI came in at 50.4 against 46.7 forecast, whilst the manufacturing survey surged to 59.12. The composite PMI rose to 51.7 from 50 previously, with the outperformance in services meaning it easily beat the 49.4 expected. Germany’s composite PMI came in at 56, still in expansion territory, but short of the 57 expected and down from the 57.3 in March.

The dollar is offered in early trade, with EURUSD jumping to 1.2050, Yesterday’s ECB presser high of 1.2070 is the main target for bulls. GBPUSD also tried to sustain a rally to 1.39 but hit resistance at 1.3890 and reversed a touch.

The euro remains steady following yesterday’s ECB meeting, which left markets on an even keel as the central bank managed to maintain its dovish stance and fend off chatter about wrapping up its emergency bond buying programme. Christine Lagarde played down any taper talk, saying this was ‘premature’ and that the recovery still has a long way to go. The yield on 10-year German bunds moved lower.

Bitcoin prices have tumbled. Spot trades under $48k this morning, meaning it’s down 25% from last week’s all-time high. The low tested several times in Feb at $44k is the big support. Basically, it seems to have been bid up on a lot of speculation (even more than usual) ahead of the Coinbase IPO and all this froth has evaporated like a lot of hot air. There has also been a cluster of regulatory reports and rumours that point to a clampdown and tighter regulation. JPMorgan analysts led by the closely-followed Nikalous Panigirtzoglou say the rollover in prices has been led by a steep liquidation in speculative futures positions. “Momentum signals will naturally decay from here for several months, given their still elevated level,” he says.

Shares in Coinbase are in for a hit should cryptos go further south. Also, Cathie Wood’s ARK Innovation ETF is still loading up on COIN – watch this one ,too. The Coinbase listing – the ultimate poacher-turned-gamekeeper moment – might have been the high watermark for Bitcoin.

I refer to two points we highlighted when Coinbase registered to go public:

1. Earnings are inextricably tied to crypto prices. This may be obvious, but it is interesting to see in black and white. “Our total revenue is substantially dependent on the prices of crypto assets and volume of transactions conducted on our platform. If such price or volume declines, our business, operating results, and financial condition would be adversely affected.”

2. More than anything it’s highly dependent on Bitcoin. A majority of Coinbase’s net revenue is from transactions in just two crypto assets: Bitcoin and Ethereum. For the year ended December 31, 2020, Bitcoin, Ethereum, and other crypto assets represented 70%, 13%, and 13% of assets on the platform respectively. “If demand for these crypto assets declines and is not replaced by new demand for crypto assets, our business, operating results, and financial condition could be adversely affected” says the filing.

Caveat emptor and all that.

Cryptocurrency update: Coinbase delay, China power play & BTC whales stay

This week’s cryptocurrency update sees an interesting move from the CCP, Coinbase delay its IPO, and BTC whales hoarding their tokens.

Cryptocurrency update

Coinbase delays direct listing

The Coinbase IPO, one of the most hotly anticipated public offerings of the year so far, has been pushed back to April.

No reason was given for the date change, according to Bloomberg, but it has been reported that the US Securities Exchange Commission (SEC) has been reviewing Coinbase’s direct listing plans. The San Francisco-based company is the world’s most popular crypto exchange, and it is believed that the success of Coinbase’s IPO will have a big effect on both digital currency legitimacy and their prices.

Coinbase announced its intentions to go public back in January. In the past week, it had registered for as many as 114.9m shares to be sold on the NASDAQ. Once its direct listing is available, Coinbase Class A shares will debut on the NASDAQ Global Select Market under the COIN ticker.

Alongside the skyrocketing popularity and prices of cryptos, Coinbase revenues have been growing at a rapid rate too. Total revenues rose to $1.3bn in 2020 from $533k in 2019, while net income rose to +$322k last year vs a loss of $30k in the prior year. The number of users has risen to 43m.

However, the news that Coinbase will have to settle with the Commodities Futures Trading Commission (CFTC) for $6.5m might have been one of the reasons behind the delay.

It was announced on Friday 19th March that Coinbase will pay $6.5 million in a settlement with the Commodity Futures Trading Commission (CFTC) over allegations the exchange “self-traded” digital assets between 2015 and 2018.

China eyes potential crypto powerplay

This week, China begins rolling out testing of blockchain and cryptocurrency technology in its key financial centres: Beijing, Shanghai and Shenzhen.

Trials of ‘e-renminbi’ (eCNY) position the People’s Bank of China as a global leader in moves towards implementing Central Bank Digital Currencies (CBDCs), reports Investor Chronicle.

While blockchain transparency has been good for consumers, it does give central banks the shakes somewhat. After all, digital currencies and blockchain are part of the decentralised finance movement. Central banks don’t really figure into that – but they do need to move with the times in order to stay relevant.

In China’s case, though, it’s more than that. Some commentators have said its move towards blockchain and digital currencies isn’t so much driven by market headwinds as by political control. The ease at which the CCP could monitor and track blockchain transactions may help it crack down on businesses and individuals who refuse to toe the party line.

By embedding eCNY in the country’s financial system, China can use technology that is nominally all about decentralising financial control to implement even more scrutiny. If its banks begin using its eCNY, then they will have to adhere to China’s regulatory systems.

China crypto exchanges like Binance are becoming busier and busier, though for retail clients rather than institutions like the banks. However, trading is done either using crypto pairs tied to USD.

But China’s latest experiment with cryptocurrencies is an interesting one. In a sector that is about democratising and decentralising financial control, it’s interesting to see a different side of digital coin.

Bitcoin whales aren’t selling

Like digital Smaugs, sleeping atop glittering blockchains and wallets stuffed with digital gold, glittering in cyberspace, Bitcoin whales are hoarding their tokens. According to Finance data published by crypto analytics firm Glassnode, BTC’s liquid supply is plunging during the latest bull runs.

Whales aren’t selling. Glassnode reports that in previous highs, up to 50% of BTC tokens would be sold and released back onto exchanges.

Bitcoin whales are known for their large transfers. In the last few months, however, BTC whales have reduced the selling of Bitcoin tokens significantly. This supply squeeze has, allegedly, helped fuel a lot towards the recent BTC surge. Bitcoin hit an all-time high on March 14th, reaching over $61,000.

Consequently, BTC investors are holding their cryptocurrency assets for larger gains in the future.

“In bull markets, old coins tend to move more. This increases the relative supply of younger coins in the network. In previous BTC tops, around 50% of the Bitcoin supply was younger than 6 months. We are currently significantly below this level (36%),” Glassnode said.

BTC is not the only cryptocurrency suffering from the supply crisis. According to the data published by Santiment, Ethereum’s token supply on leading digital exchanges has hit the lowest level in 28 months.

Cryptocurrency update: Coinbase goes public, Bitcoin back down to earth, Cardano rallies

Coinbase is about to go public, while Bitcoin comes crashing down. Elsewhere in these week’s crypto update, Cardano looks like it could be about to jump.

Cryptocurrency update

Coinbase IPO is coming soon

Coinbase, the world’s largest crypto exchange, has made its SEC filing which means an IPO is coming very soon. Is this another step on the road to complete legitimacy for digital currencies? Very possibly.

As our Chief Markets Analyst Neil Wilson pointed out last Thursday, we’ve learned some interesting titbits ahead of Coinbase’s full public launch.

Firstly, because the exchange is based around a volatile asset, Coinbase earnings are volatile themselves.

“All of our sources of revenue are dependent on crypto assets and the broader cryptoeconomy. Due to the highly volatile nature of the cryptoeconomy and the prices of crypto assets, our operating results have, and will continue to, fluctuate significantly from quarter to quarter in accordance with market sentiments and movements in the broader cryptoeconomy,” the filing states.

Coinbase’ value is also completely tied in with Bitcoin prices. 70% of its revenue comes from BTC trades, with 13% coming from Ethereum.

“If demand for these crypto assets declines and is not replaced by new demand for crypto assets, our business, operating results, and financial condition could be adversely affected,” says the filing.

The filing went on to say: “More recently, we have experienced significant growth in the number of institutions on our platform, increasing from over 1,000 as of December 31, 2017, to 7,000 as of December 31, 2020.”

We’ve seen plenty of institutions and even corporations invest in cryptos and related digital economy infrastructure in recent times. The Coinbase IPO looks like it could be another important part of the puzzle.

Bitcoin tumbles but new all-time highs forecast

Newton’s Third Law of Motion states “what goes up must come down”. Maybe we could readapt it for Bitcoin to something more like “what goes up must come down but will very probably shoot back up again.”

Every time Bitcoin shoots up, it falls back down again as a serious market correction applies the breaks and momentum cools. Last week, the token shot to above $59,000, before higher yields and a pithy one-tweet analysis from the ever-present Elon Musk, dragged prices down to around $43,000. At the time of writing, BTC was above $48,000.

Are new all-time highs on their way? At the more optimistic end, Anthony Pompliano, partner at digital asset hedge fund Morgan Creek Digital, told Forbes he has set a BTC target price of $100,000 by the year’s end.

Some big names are urging caution though. Bill Gates is one of them. In an interview with Bloomberg, the Microsoft founder warned that, unless you have pockets as deep as Elon Musk, you should probably exercise restraint when looking into BTC.

“Elon has tons of money and he’s very sophisticated, so I don’t worry that his bitcoin will sort of randomly go up or down,” Gates said. “I do think people get bought into these manias who may not have as much money to spare. My general thought would be that if you have less money than Elon, you should probably watch out.”

More than $100bn was scrubbed off Bitcoin’s value on the latest price collapse, although subsequent gains will have gone a little way towards redressing those losses. As it stands, the world’s most popular crypto is up 50% this year.

In the world of Bitcoin, anything is possible, and it could start shooting back up at a moment’s notice. Volatility is never far away, so it might be best to heed Bill Gates’ warnings if your bank account doesn’t run into the billions.

Cardano has a busy week ahead

Cardano has been quietly soaring in recent weeks. The third-largest crypto currency in the world by market cap recently hit a new all-time high of $1.48 on Saturday but has pulled back to $1.28 at the time of writing.

Over the past twelve months, however, Cardano has been gaining value at a blistering pace. Across the year, it has gained 2000%, rising another 300% in February alone. Its market cap is now bobbing around at the $40bn level.

A fresh rally and new highs could be on their way too. Its developers are preparing a fresh update to the block-chain, preparing to turn it into an Ethereum-rivalling multi-asset network.

“We can today confirm that the ‘Mary’ Cardano protocol update is now fully confirmed for March 1,” the Cardano core development team, Input Output HK (IOHK), announced on Twitter last week. “The update introduces native tokens and multi-asset support, bringing exciting new use cases for Cardano.”

The update will allow Cardano to support stablecoins, digital tokens pegged to traditional currencies, as well as letting users create non-fungible tokens (NFTs). NFTs are a way to prove ownership and authentication of everything from social media posts to digital art using public blockchains—which have exploded in popularity in recent weeks.

Kiss bassist Gene Simmons has hopped aboard the Cardona train, buying $300,000 worth of the crypto. A sign of things to come? Possibly, but Cardona is one to watch across the next week at least.

Markets sell off on bond rout + Coinbase IPO

Morning Note

IPO filings used to be less interesting. It’s been rather fun to record how some (not so fast-growing, it turns out) tech unicorns have explained their businesses (it’s about people), the risks to growth (we have never made a profit and may never do so), and how they plan to structure voting rights (you don’t get any). So imagine just how much fun various analysts and reporters have had poring over the S-1 filing from Coinbase, the crypto exchange which is about to list on the Nasdaq.  

 

It’s fair to say the listing document is not short on eyebrow-raising information. We have for instance a Borrow & Lend scheme that lets US retail customers borrow against and lend their crypto asset portfolios. “Our first product is a portfolio-backed loan: a flexible, non-purpose 12-month term loan that allows retail users to borrow US dollars using their crypto assets as collateral. Secured by their investment portfolio, customers can use the line of credit to access U.S. dollars while maintaining a “hodl” investing strategy. Over time, we plan to offer our retail users the ability to opt into lending their crypto assets to earn a passive return on their long term investments,” the statement explains. Now this is where it gets really interesting from an institutional point of view as you can harvest yield on crypto assets as a basis trade. The filing also shows that Coinbase earns interest on customer deposits.

 

The company has no address – nowhere to forward strongly-worded letters when the coins are lost or hacked – for Coinbase is a “remote-first company”. Nice touch for the new normal, post-pandemic work from home world. Less good if you are say, an underwriter for the listing. Maybe one reason why it’s gone the direct route. There are several legal proceedings on the go, including a CFTC investigation commenced in July 2017 that has covered topics including a 2017 Ethereum market event, trades made in 2017 by one of Coinbase’s then-current employees, the listing of Bitcoin Cash on its platform, and the design and operation of certain algorithmic functions related to liquidity management on the platform. “During the course of its investigation, the CFTC has issued subpoenas to us and certain of our directors, executive officers, and former employees, including testimony subpoenas, and other requests for information. We are cooperating fully with the investigation,” Coinbase explains.  

 

Then you have the various risks, one of which is the CEO taking his eye off the ball with other ‘cryptoeconomy’ projects. George Osborne would approve. In a nice little dig at the established financial system (Coinbase let’s not forget sees itself as being at the vanguard of creating an ‘open financial system’), it even called out the Federal Reserve as a potential risk to its business, citing the 2-hour outage to the central bank’s payment network this week. Trolling the Fed will appeal to its customers – who will of course want to be shareholders.

 

Hacks – customers losing all their Bitcoins – are in there, naturellement. But they are not so high up as the volatility of crypto prices. In fact earnings are inextricably tied to crypto prices, the filing makes plain. This is not the case with listed exchanges trading equities. The price of Unilever shares doesn’t really matter to the LSE. This link to pricing, rather than just volume, may be obvious in this case since prices and volumes are correlated in cryptos, but it interesting to see in black and white: “Our total revenue is substantially dependent on the prices of crypto assets and volume of transactions conducted on our platform. If such price or volume declines, our business, operating results, and financial condition would be adversely affected.” 

 

More than anything it’s highly dependent on Bitcoin. A majority of Coinbase’s net revenue is from transactions in just two crypto assets: Bitcoin and Ethereum. For year ended December 31, 2020, Bitcoin, Ethereum, and other crypto assets represented 70%, 13%, and 13% of assets on platform respectively. “If demand for these crypto assets declines and is not replaced by new demand for crypto assets, our business, operating results, and financial condition could be adversely affected” says the filing. 

 

Institutional interest is rising. Whilst we know this is the direction of travel – we have seen Square, Tesla and MicroStrategy invest in Bitcoin and the likes of PayPal and Mastercard announce plans to support crypto payments, the filing further underscores growing institutional interest. “More recently, we have experienced significant growth in the number of institutions on our platform, increasing from over 1,000 as of December 31, 2017 to 7,000 as of December 31, 2020,” the filing says. 

 

Finally – what’s the scoop on its outlook? Let’s not stress about valuations for now. I’d say the margins look handsome with revenues of more than $1.1bn from $193bn in transaction volumes, which puts in a nice place to take advantage of soaring interest in cryptocurrencies. A listing gives it Wall Street status in a world that is only starting to see the first railroads and barbed wire fences erected. And despite any investigation (or rather, let’s park those for now as we don’t know enough about their material impact and I can’t believe they are anything scarier than other exchanges), a Nasdaq listing will make Coinbase appear like its sheets are the cleanest. It also has 46m users, many of whom will want to own stock.

Stocks slide as bond yields surge

Stock markets are in retreat as bond yields advance. Yields are rising across the globe, prompting investors to ditch stocks, especially richly valued growth names. The tech-heavy Nasdaq fell 3.5%, with the broader S&P 500 down 2.5%. Tesla declined another 8%, while Apple and Amazon tracked about 3% lower. Asian markets sold off by the most in 11 months with shares in Tokyo down 4%, while the Hong Kong market dipped over 3.5%. European stocks followed suit with broad-based selling in early trade on Friday, but early losses of more than 1% were pared as the buy-the-dip mentality lives on. The FTSE 100 should be more insulated to rising rates since it’s a) nowhere near all-time highs and b) is well exposed to global cyclical growth. 

 

The yield on the 10-year US Treasury note briefly spiked above 1.6% for the first time in over a year yesterday, as markets bet on higher inflation, before retreating back under 1.5%. This despite Fed speakers offering soothing words about inflation to the market this week. You could argue there is a communication problem, or you could simply call it tantrum. Actually, it’s a global phenomenon as investors across the world sell rates in the expectation of a strong economic rebound and higher inflation. Markets are now starting to price for rate hikes far sooner than the Fed is indicating it will act. It’s not that rates are particularly high, it’s more the pace of the move taking frothy equity markets off guard. Valuations are stretched, so richly valued stocks are easily moved by these kinds of gyrations in the bond market. Whilst investors had been reasonably comfortable with a rising tide for rates, this sudden lurch higher requires repricing. Gold broke down at the key Nov low at $1763 as real rates continue to climb. Three days after the 30-year TIPS yield turned positive, the 20-year is close to flipping positive too. 

 

The dollar has risen as yields go up and stocks sold off. The risk-on pound fell amid the risk-off mood. GBPUSD, which had maybe exhausted itself, has retreated back under 1.40 after running out of steam at 1.42, the 3-year high. EURGBP rallied back above 0.87, having tested 0.8540 on Wednesday. 

 

Airbnb earnings held up better than expected and much better than peers. Q4 revenues declined 22% to $859m. Expedia reported a drop in revenues of 67% over the same period. Losses for Airbnb swelled to $3.9bn, with management saying this was impacted by charges related to IPO, including and included $2.8bn of stock-based compensation expenses. 

Coinbase IPO: 5 things we have learned from the cryptocurrency exchange’s SEC filing

Equities
Investments

Coinbase has filed its SEC filing, the first steps in launching its IPO. Here’s what we’ve learned from the filing so far.

1. Revenues and earnings are growing fast

Total revenues rose to $1.3bn in 2020 from $533k in 2019, while net income rose to +$322k last year vs a loss of $30k in the prior year. The number of users has risen to 43m.

2. Earnings are volatile

The company says that revenues have and will significantly fluctuate due to the highly volatile nature of crypto and what it calls the ‘cryptoeconomy’. “All of our sources of revenue are dependent on crypto assets and the broader cryptoeconomy. Due to the highly volatile nature of the cryptoeconomy and the prices of crypto assets, our operating results have, and will continue to, fluctuate significantly from quarter to quarter in accordance with market sentiments and movements in the broader cryptoeconomy,” the filing states. For example, the average three-month Crypto Asset Volatility increased by 73% from the fourth quarter of 2019 to the first quarter of 2020, before decreasing by 36% from the first quarter of 2020 to the second quarter of 2020.

3. Earnings are inextricably tied to crypto prices.

This may be obvious, but it interesting to see in black and white. “Our total revenue is substantially dependent on the prices of crypto assets and volume of transactions conducted on our platform. If such price or volume declines, our business, operating results, and financial condition would be adversely affected.”

4. More than anything it’s highly dependent on Bitcoin.

A majority of Coinbase’s net revenue is from transactions in just two crypto assets: Bitcoin and Ethereum. For year ended December 31, 2020, Bitcoin, Ethereum, and other crypto assets represented 70%, 13%, and 13% of assets on the platform respectively. “If demand for these crypto assets declines and is not replaced by new demand for crypto assets, our business, operating results, and financial condition could be adversely affected,” says the filing.

5. Institutional interest is rising.

Whilst we know this is the direction of travel – we have seen Square, Tesla and MicroStrategy invest in Bitcoin and the likes of PayPal and Mastercard announce plans to support crypto payments, the filing further underscores growing institutional interest. “More recently, we have experienced significant growth in the number of institutions on our platform, increasing from over 1,000 as of December 31, 2017, to 7,000 as of December 31, 2020,” the filing says.

Coinbase IPO: what you need to know

Equities

Coinbase, the largest cryptocurrency exchange in the world, is set to go public soon. It announced its intentions to go public in December 2020, but it won’t be pursuing the usual IPO process. Instead, following in the footsteps of Palantir and Spotify, Coinbase is going direct to market with a direct listing instead. 

We don’t know exactly when Coinbase will make its direct listing, but rumours indicate it’ll take place at the end of February or in early March 2021. 

Direct listing is non-traditional, but it’s in non-traditional spaces that Coinbase thrives. Cryptocurrency itself isn’t exactly traditional, and Coinbase has done its bit to aid growth of this so far non-establishment currency sector. 

“We believe a direct listing more closely follows the ethos of crypto and Coinbase because it democratizes access and opportunities for all investors,” wrote CFO Alesia Haas in the memo sent to employees, as reported by Fortune. 

Placing a valuation on Coinbase is a bit tricky at present, but it appears to have grown considerably alongside the massive price increases we’ve seen in cryptocurrencies recently. In 2018, when Coinbase held a Series E funding round, it was worth about $8bn. When it goes public, it could be worth as much as $75bn. Other estimates put Coinbase’s market cap at $50bn, with shares selling on Nasdaq’s private exchange for $200. 

Coinbase’s decision to pursue an IPO is a bit of a crypto milestone. Pro-crypto commentators believe it’ll help make the digital finance sector gain further legitimacy and help quieten skeptics, helping converge the increasingly related worlds of crypto and conventional finance. 

The IPO may also have a big impact on crypto prices, especially market leader Bitcoin. Its value continues to skyrocket but also pair back, substantially, as cryptos are inherently volatile. But institutional legitimacy and backing from such organisations as Deutsche Bank and BNY Mellon has historically helped push Bitcoin further. An IPO listing for Coinbase may had to the legitimacy institutional backing confers on digital currencies. 

Open an account to begin trading Coinbase CFDs as soon as they become available 

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