We are excited and nervous at the same time about our short position in Coinbase Global, Inc., known as Coinbase. COIN is an American company that operates a cryptocurrency exchange platform that operates remote-first without an official physical headquarters. They recently went public in a much-publicized direct listing. I don’t think COIN could have timed the offering better. It was one of the largest ever direct listings and insiders unloaded a stunning amount of their holdings. If bitcoin is a house of cards as I believe it is, then COIN is the clarion bell on top of the house about to crumble. Even if crypto is more than a passing fad, every brokerage company, including non-brokerage companies like Paypal, Venmo, and Square are all in the process of allowing consumers to buy and sell crypto on their platform. Coinbase’s first mover advantage is ephemeral and their margins will certainly go down with the increased competition. This is a high conviction trade yet we all know the market can be irrational longer than you can be solvent.
I lifted this analysis from Coindesk, a site devoted to all things cyrpto.
IPOs raise new capital, direct listings do not. This direct listing will not fill Coinbase’s coffers with cash, but it will make it easier for Coinbase to raise capital going forward. A direct listing is a liquidity event; an IPO is a capital-raising event.
In theory, IPOs are less volatile in initial trading than direct listings, for three reasons:
- They do not count on the support of large institutions, which in an IPO would commit to buying a certain size tranche. These institutions would then have a face-saving and economic incentive to keep the price above their commitment level.
- In an IPO, existing shareholders typically have a lock-up period of six to 12 months during which they cannot dump their shares on the market. A direct listing does not have a lock-up because it is based on shareholders selling their holdings. (There are exceptions, such as Palantir, which imposed its own lock-up that limited insiders to selling 20% of their holdings. The share price slumped the day the lock-up expired.)
- The sellers of Coinbase shares in a direct listing (existing shareholders) do not have to sell their shares. Some may wait to see how trading is going before submitting their offers, which will affect the number of shares being traded and could exacerbate price swings. Coinbase has registered 114,850,769 shares eligible for sale, but we do not yet know how many shares will actually change hands Wednesday. It could be significantly less.
We have the answer to that. Look at the list of sellers below!
But what about the fact that COIN is wildly profitable. Also taking from the company’s S-1 ”
Crypto has the potential to be as revolutionary and widely adopted as the internet. The unique properties of crypto assets naturally position them as digital alternatives to store of value analogs such as gold, enable the creation of an internet-based financial system, and provide a development platform for applications that are unimaginable today. These markets and asset classes collectively represent hundreds of trillions of dollars of value today.
It’s worth noting that most of Coinbase’s revenue comes from transactions (85%) and that the majority of that revenue comes from retail investors. Institutional transaction revenue totaled just $55.9 million, a little more than 5%. Intriguingly institutional clients contributed most trading volume to the platform, driving 64%, up 86% year-over-year (YoY) from the Generalist
Coinbase is wildly profitable, an unusual characteristic of IPOs today. According to the IPO prospectus, the Company earned $322 million in profits on $1.41 Billion in revenues. Revenues grew by a mind-boggling 136%. But can this growth continue? And if so more importantly can the margins continue to improve or will they collapse with the entry of dozens of new competitors all driving transaction costs down. Is this a race to the bottom? Who will be the next company to offer completely fee-less trading of crypto? Robin Hood already does. Will it be E-trade once again now owned by Morgan Stanley that fires the first shot? If you watched the interview last week on CNBC with the founder of Interactive Brokers- there is no question in his mind that fees will plummet. They intend to be aggressive. This is just a handful of the providers now offering bitcoin purchases. The list will grow rapidly soon. Already Paypal, Venmo, and Square are all in the process of allowing consumers to buy and sell crypto on their platform.
Last but not least, Coinbase’s customer service is atrocious. I lost my password and have been trying to get into my account for over a month now, submitting my ID multiple times with no response. It’s not that I have a lot of money there or anything but the Etherium coins I had given up for worthless have tripled.
Compare Providers
| EXCHANGE | WHY WE CHOSE IT | TRADE FEE |
|---|---|---|
| Coinbase | Secure, reputable, and easy to get started | Transaction fee of $0.99 to $2.99. Other fees may apply. |
| eToro | Virtual account and CopyTrader allow you to learn with less risk | Spread-based pricing – 0.75% for Bitcoin |
| Robinhood | Commission-free bitcoin trades | No commissions or fees |
| Coinmama | Instant purchases with a credit or debit card | Commissions up to 3.90%. Other fees may apply. |
| BlockFi | Ability to earn interest and use bitcoin as loan collateral | No added commissions or fees |
| Bisq | High-privacy decentralized exchange | Up to 0.70% |
So it’s a logical conclusion that Coinbase’s largely retail client base is going to pressure the company to lower transaction fees. Can volume outpace margin compression as it does at the Google juggernaut? That all depends if Coinbase can maintain its stranglehold on the crypto world as Google does on online advertising. That my friend is the entirety of the bet. Based on the rapacious and ravenous unloading of stock by key employees and investors, I would say they have already placed their bets. Now it’s your turn. Slowly add into this trade as COIN has been down every day since the listing and is due for a bounce. Long investors, or bag holders- tail out of this mistake on any rebound.
If COIN does appear to be the dominant player, the rash of new competitors never gain traction, and COIN expands into all kinds of digital transactions, joining the metaverse game players, dominating the crypto collectible and the brand new NFT market, then this short will be a painful experience. For now, though, there seems to be some momentum to the downside.
| Transaction Date  |
Reported DateTime |
Company |
Symbol |
Insider Relationship |
Shares Traded |
Average Price |
Total Amount |
Shares Owned |
Filing |
| 2021-04-20 Sale |
2021-04-22 8:06 pm |
Coinbase Global Inc. | COIN | Ehrsam Frederick Ernest III Director |
135,000 | $319.72 | $43,161,756 | 2,085,875 (Indirect) |
View |
| 2021-04-16 Sale |
2021-04-20 9:40 pm |
Coinbase Global Inc. | COIN | Ehrsam Frederick Ernest III Director |
770 | $339.02 | $261,048 | 2,220,875 (Indirect) |
View |
| 2021-04-16 Sale |
2021-04-20 9:40 pm |
Coinbase Global Inc. | COIN | Ehrsam Frederick Ernest III Director |
128,730 | $335.05 | $43,131,355 | 2,221,645 (Indirect) |
View |
| 2021-04-15 Sale |
2021-04-19 9:38 pm |
Coinbase Global Inc. | COIN | Andreessen Marc L Director 10% Owner |
19,249 | $329.7 | $6,346,474 | 103,075 (Indirect) |
View |
| 2021-04-15 Sale |
2021-04-19 9:37 pm |
Coinbase Global Inc. | COIN | AH Equity Partners III (Parallel) L.L.C. AH Capital Management L.L.C. HOROWITZ BENJAMIN A 10% Owner |
19,249 | $329.7 | $6,346,474 | 103,075 (Indirect) |
View |
| 2021-04-15 Sale |
2021-04-19 9:36 pm |
Coinbase Global Inc. | COIN | Andreessen Horowitz LSV Fund I L.P. Andreessen Horowitz LSV Fund I-B L.P. Andreessen Horowitz LSV Fund I-Q L.P. CNK Fund I L.P. CNK Fund I-B L.P. CNK Fund I-Q L.P. CNK Equity Partners I L.L.C. AH Equity Partners LSV I L.L.C. 10% Owner |
19,249 | $329.7 | $6,346,474 | 103,075 (Indirect) |
View |
| 2021-04-15 Sale |
2021-04-19 9:35 pm |
Coinbase Global Inc. | COIN | a16z Seed-III LLC Andreessen Horowitz Fund III L.P. Andreessen Horowitz Fund III-A L.P. Andreessen Horowitz Fund III-B L.P. Andreessen Horowitz Fund III-Q L.P. AH Parallel Fund III L.P. AH Parallel Fund III-A L.P. AH Parallel Fund III-B L.P. AH Parallel Fund III-Q L.P. AH Equity Partners III L.L.C. 10% Owner |
19,249 | $329.7 | $6,346,474 | 103,075 (Indirect) |
View |
| 2021-04-14 Sale |
2021-04-16 9:45 pm |
Coinbase Global Inc. | COIN | WILSON FREDERICK R Director 10% Owner |
4,702,324 | $386.36 | $1,816,768,380 | 0 (Indirect) |
View |
| 2021-04-14 Sale |
2021-04-16 9:45 pm |
Coinbase Global Inc. | COIN | Union Square Ventures 2012 Fund L.P. Union Square 2012 GP L.L.C. USV Investors 2012 Fund L.P. USV Opportunity 2014 GP LLC USV Opportunity 2014 LP USV Opportunity Investors 2014 LP Weissman Andy Wenger Albert Burnham Brad Buttrick John 10% Owner |
4,702,324 | $386.36 | $1,816,768,380 | 0 (Indirect Direct) |
View |
| 2021-04-14 Sale |
2021-04-16 9:44 pm |
Coinbase Global Inc. | COIN | Jones Jennifer N. CAO |
110,000 | $394.86 | $43,435,000 | 18,483 (Direct) |
View |
| 2021-04-14 Sale |
2021-04-16 9:44 pm |
Coinbase Global Inc. | COIN | Haun Kathryn Director |
204,885 | $358.83 | $73,517,984 | 860,868 (Indirect Direct) |
View |
| 2021-04-14 Sale |
2021-04-16 9:43 pm |
Coinbase Global Inc. | COIN | HAAS ALESIA J CFO |
255,500 | $388.73 | $99,320,789 | 0 (Direct) |
View |
| 2021-04-14 Sale |
2021-04-16 9:42 pm |
Coinbase Global Inc. | COIN | Ehrsam Frederick Ernest III Director |
60,997 | $334.75 | $20,418,669 | 2,350,375 (Indirect) |
View |
| 2021-04-14 Sale |
2021-04-16 9:42 pm |
Coinbase Global Inc. | COIN | Ehrsam Frederick Ernest III Director |
86,933 | $398.65 | $34,655,590 | 2,411,372 (Indirect) |
View |
| 2021-04-14 Sale |
2021-04-16 9:41 pm |
Coinbase Global Inc. | COIN | Ehrsam Frederick Ernest III Director |
150,859 | $377.24 | $56,909,397 | 2,472,383 (Indirect) |
View |
| 2021-04-14 Sale |
2021-04-16 9:41 pm |
Coinbase Global Inc. | COIN | Choi Emilie President |
299,248 | $403.92 | $120,871,660 | 74,155 (Indirect Direct) |
View |
| 2021-04-14 Sale |
2021-04-16 9:40 pm |
Coinbase Global Inc. | COIN | Choi Emilie President |
302,910 | $326.51 | $98,903,789 | 288,688 (Direct) |
View |
| 2021-04-14 Sale |
2021-04-16 9:39 pm |
Coinbase Global Inc. | COIN | Chatterjee Surojit Chief Product Officer |
160,000 | $386.78 | $61,885,000 | 5,344 (Direct) |
View |
| 2021-04-14 Sale |
2021-04-16 9:39 pm |
Coinbase Global Inc. | COIN | Armstrong Brian Brian Armstrong Living Trust CEO Chairman 10% Owner |
749,999 | $389.1 | $291,827,965 | 300,001 (Indirect) |
View |
| 2021-04-14 Sale |
2021-04-16 9:35 pm |
Coinbase Global Inc. | COIN | Andreessen Marc L Director 10% Owner |
294,775 | $381 | $112,309,275 | 103,075 (Indirect) |
View |
| 2021-04-14 Sale |
2021-04-16 9:34 pm |
Coinbase Global Inc. | COIN | AH Equity Partners III (Parallel) L.L.C. AH Capital Management L.L.C. HOROWITZ BENJAMIN A 10% Owner |
294,775 | $381 | $112,309,275 | 103,075 (Indirect) |
View |
| 2021-04-14 Sale |
2021-04-16 9:33 pm |
Coinbase Global Inc. | COIN | Andreessen Horowitz LSV Fund I L.P. Andreessen Horowitz LSV Fund I-B L.P. CNK Fund I L.P. CNK Fund I-B L.P. CNK Fund I-Q L.P. CNK Equity Partners I L.L.C. AH Equity Partners LSV I L.L.C. Andreessen Horowitz LSV Fund I-Q L.P. 10% Owner |
294,775 | $381 | $112,309,275 | 103,075 |
