Apr 7, 2021

Coinbase COIN Q1 2021 Earnings Call Transcript

Coinbase Q1 Earnings Call
RevBlogTranscriptsEarnings Call TranscriptsCoinbase COIN Q1 2021 Earnings Call Transcript

Coinbase (symbol COIN) held their Q1 2021 earnings conference call on April 6, 2021 before their IPO next week. Read the full transcript here.

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Speaker 1: (01:57)
(silence). Welcome, folks. We’ll be getting started in just a few minutes. We’re going to be broadcasting the Q1 earnings call from Coinbase and then doing a little discussion afterwards, so sit tight as we wait for the event to start and let me ping some of the other co-hosts into the room. Man, looks like the servers are struggling today on Clubhouse. This is going to be a big one. We’ll see what happens. (silence). Hey, folks. For everyone who is just joining us, we are going to be streaming the audio from the Coinbase Q1 earnings call. We’ll be having a moderated discussion afterwards to discuss the implications, what all this means. Please feel free to hit that little plus sign in the bottom right and invite anyone you know who might be interested in listening in or participating in the discussion afterwards. If you’re new to Cafe Bitcoin, click on Cafe Bitcoin at the top left and join the club. We are the most active Bitcoin club on Clubhouse. We have tons and tons of events, and we do lots of one-off events like this one as well, so thank you all for joining us today. We will be getting started, well, as soon as Coinbase gets started, so you can tune in and listen to their lovely classical music in the meantime.

Amanda: (05:07)
Hi. Q1, is it slated to start in 10 minutes?

Speaker 1: (05:24)
Yes. At 1:30 PST, so we’ll be getting started in just about 10 minutes. Maybe we should discuss things beforehand and not just sit here listening to classical music, although I do love classical music.

Amanda: (05:40)
I do. It’s actually nice. I appreciate it. If you can keep it on in the background, that’d be awesome.

Speaker 1: (05:44)
Yeah. How’s everyone doing today?

Amanda: (05:55)
Awesome. Excited to hear this call. It’ll be really interesting, especially their IPO. When is it? April 14th?

Speaker 1: (06:03)
Yep. I believe so, and it’s going to be gangbusters. That’s for sure.

Amanda: (06:13)
Chris, how’s it going? Mags, how are you?

Chris: (06:17)
It’s pretty good. How are you? I’m on the way to go pick up my son from school.

Speaker 1: (06:22)
Oh, very nice. What does he think of the Coinbase IPO?

Chris: (06:27)
He doesn’t really think about that. He has his own bag of bitcoin though, so he’s going to get happy when he gets old enough to realize what it is. He knows what it is, but he doesn’t have any idea what his future’s going to hold.

Speaker 1: (06:40)
For sure. For sure. What’s going on, JC? How you doing today?

JC: (06:50)
Hey, guys. [inaudible 00:06:52].

Speaker 1: (06:54)
Oh, no worries.

Amanda: (06:59)
Ellie for us is going to be releasing a earnings analysis today. I don’t know if anyone else noticed, but I signed up for … One of her team had posted no sign up here if you want to get her analysis, so for those that are here for the call, she [inaudible 00:07:18] on that.

Speaker 1: (07:39)
I need to listen to classical music more. It’s so calming.

Amanda: (07:40)
Yeah. Much better than voices chattering in your ears for hours and hours a day on Clubhouse.

Speaker 1: (07:47)
I’ve stepped back from clubhouse a bit. I like coming in for these events and things, but I can’t do the constant talking.

Amanda: (07:56)
Yeah. I don’t have the stamina for it anymore either.

Speaker 1: (08:04)
Chris, you excited for a Bitcoin 2021? We were just discussing some of our plans for Swan Bitcoin from the conference. I don’t think … I think we can’t even contain ourselves. That’s how excited we are.

Chris: (08:20)
Yeah, it’ll be my first conference, so I’m definitely excited. I know I missed the meeting a little earlier, but I know we’re going to have meetings. It’s still a while out, but I’m definitely excited. Everyone who’s in the [inaudible 00:08:31] group is super hyped as well.

Speaker 1: (08:33)
Oh, yeah.

Amanda: (08:35)
How many people are attending?

Speaker 1: (08:36)
I think it’s around 6,000 at least. I’m not 100% on that, but it’s definitely in the 5,000 to 6,000 range, and I think they’re trying to expand it. I think it just depends on the city, what they’ll allow. But I think somebody said that this will be the largest in-person event since not the Super Bowl. I don’t know, one of the largest in-person events of the year, that’s for sure.

Amanda: (09:01)
Crazy.

Speaker 1: (09:07)
Come on, Coinbase. What are you waiting for, Brian Armstrong? Let’s get this party started. Amanda, will you be buying shares in Coinbase?

Amanda: (09:17)
I don’t know. Actually, yeah, I guess it’s crunch time to figure out if I am or not. Would you all consider? I mean, I would consider it, but I feel like it’s going to be too high to get in at a better than Bitcoin price.

Chris: (09:32)
I’m feeling the same way.

Amanda: (09:37)
I think, because look at [inaudible 00:09:39], right? I think potentially be trading at a higher price than Bitcoin, but I know some folks have bought it specifically because it’s an ETF-like mechanism, and I don’t know. Have any of you done any analysis on whether it would have been better percentage-wise gains if you had just bought MicroStrategy over Bitcoin, because it might have performed better.

Speaker 1: (10:05)
No, I haven’t done that analysis. I did pretty well on MicroStrategy, but I guess it depends when you bought it, right?

Amanda: (10:12)
Yeah, that’s a good point. I think in the recent fall bubble, from what I recall, I think it fell much higher than Bitcoin did percentage-wise.

Speaker 1: (10:31)
Potentially, yeah. All right, folks, we’ve got about five minutes left until this is supposed to start. To those of you who are just joining us, welcome. We’re going to be streaming the audio from the Coinbase Q1 earnings call that’s happening in four minutes now, and then we’re going to have a curated discussion afterwards, talk about the implications and what this means for Bitcoin and for the world. Welcome to everyone who’s up on stage. We’re going to have some more folks joining us later. Should be a interesting call to say the least. Corey, how are you doing today? Are you with us right now or just listening in?

Corey: (11:06)
I’m here. I wonder how long they’re going to go. I think they blocked off 90 minutes. Not sure how much they’ll actually have to say and if they’re … They’re so private, so I’m not sure if they actually let analysts come up and ask questions or what that’s going to look like. Do you have hand-raising turned on?

Speaker 1: (11:23)
I believe we do, yeah. Let’s see.

Corey: (11:24)
Yeah. I don’t mind having people pop up. Let’s use the wisdom of the crowd and answer some of our questions.

Speaker 1: (11:30)
Love it. All right, folks.

Corey: (11:33)
I think Jelak. Jalek, maybe if you want to pop up, you probably know more about this than all of us combined. See if she can join.

Speaker 2: (11:43)
Hey, guys. I noticed that [crosstalk 00:11:48].

Jalek: (11:51)
Sorry, guys. It’s Jalek. I actually have to get on a 15-minute call, so I’m going to pop back out and join again in a bit.

Corey: (12:00)
Awesome. Looking forward to it. Thanks, Jalek.

Jalek: (12:04)
Perfect. Thanks, Corey.

Speaker 3: (12:06)
Hey, I have a question for all you very smart people.

Speaker 1: (12:10)
Go for it. Although we have three minutes left, so let’s keep the questions brief for now. We’ll definitely have time afterwards for these guys.

Speaker 3: (12:18)
Real quick question. With Bitcoin, cryptocurrency, just curious. Does cryptocurrency, do they trade 24 hours a day, or is it like the stock market, always through only in certain hours.

Speaker 1: (12:29)
No, 24/7, my friend. Never ends.

Speaker 3: (12:32)
Okay. It’s not like after hours trading before hours?

Speaker 1: (12:39)
Oh, no. All the time

Speaker 2: (12:44)
So I think, [inaudible 00:12:44], once the audio actually starts from the Coinbase earnings call, let’s clear the stage from everyone other than the folks that we know closely, just to make sure that there’s no interruptions, and then as soon as the call is over, we’ll let people back up on stage and do the recap.

Speaker 1: (12:58)
Sounds like a plan. We’ve got two minutes left to go. For everyone who is joining us, again, we’re going to be streaming the Q1 earnings call from Coinbase. Go ahead and hit that plus sign at the bottom right and invite anyone you know who might want to listen should be an interesting call. And for anyone who’s new to Cafe Bitcoin, we are the most active Bitcoin club on clubhouse. We have rooms in all different languages. We do beginner Bitcoin Q&A on Monday evenings. We usually do a lightning room called The Lightning Lab every other Wednesday. We’re going to be doing a intro to lightning room alternating on those Wednesdays as well. I’m really excited about that. Why can’t I mute somebody right now? Sorry, Pops. I’m moving you in the audience. Don’t take it personally, but I can’t figure out how to mute you. All right, we have one minute left to go.

Speaker 4: (13:56)
Hey, just for one minute real quick for Corey. Corey, if I’m on Swan and I want to cancel or pause my plan, will I get my prepaid fees back meanwhile?

Corey: (14:10)
Guys, let’s not have any more questions. Raphael, go ahead and hit Swanbitcoin.com/support. This isn’t the venue. Thanks.

Speaker 4: (14:17)
Thank you

Speaker 1: (14:22)
All right, folks, I’m going to move some folks down to the audience real quick right as we’re getting ready. We’ll bring you back up afterwards for questions.

JC: (15:11)
Welcome to Coinbase’s first quarter 2021 estimated results and full year 2021 conference call. My name is Julianne, and I will be operating the call. I will now hand it over to Anil Gupta, Coinbase’s vice president of investor relations to begin.

Anil Gupta: (15:30)
Good afternoon, and thank you for joining us on today’s conference call to discuss Coinbase’s Q1 2021 estimated results and outlook for full year 2021. Joining me on today’s call are Brian Armstrong, co-founder and Chief Executive Officer and Alesia Haas, Chief Financial Officer. Before we get started, I’d like to remind you that during today’s call, we may make forward-looking statements. Actual results may vary materially from today’s statements. Information concerning our risks, uncertainties, and other factors that could cause results to differ from these forward-looking statements is included in our SEC filings and press release available on our investor relations.

Anil Gupta: (16:11)
Our discussion today will include Adjusted EBITDA, a non-GAAP financial measure. We believe that non-GAAP measures of financial results provide useful information to management and investors regarding certain financial and business trends relating to our financial condition and results of operations. Non-GAAP financial measures should be considered in addition to, not as a substitute for, or an isolation from, GAAP measures. You can find additional disclosures regarding Adjusted EBITDA, including a reconciliation to net income, the comparable GAAP measure, in our press release today and current report on Form 8-K which are posted on our IR website.

Anil Gupta: (16:51)
Hopefully many of you have had the opportunity to watch the series of videos we published on March 17th, as well as the Reddit Q&A session we published on March 23rd, all of which are available on our IR website. Since we have elected to pursue a direct listing, we will not be taking live questions on this call. Instead, I will be asking Brian and Alesia a series of questions that may be top of mind for many people who are on the call today. And with that, let’s get started. Brian, can you start by talking about the Coinbase mission and why you started the company?

Brian Armstrong: (17:23)
Sure. Thanks, Anil. So our mission is to increase economic freedom in the world. Economic freedom is something I’ve long been passionate about and I talk more about it in the video we recently posted for investors on our IR website. I first realized in 2010 when I read the Bitcoin white paper that this breakthrough technology could create a more fair, free, and open financial system. Coinbase was founded in 2012 to pursue this mission and today we’re the category leader in the rapidly evolving cryptoeconomy. It’s helpful to think about this in terms of the internet. The internet was created as a system of decentralized protocols to enable the free transfer of information. Crypto is very similar, but for moving value. By democratizing financial services in the way the internet democratized access to information, crypto will increase economic freedom in the world.

Brian Armstrong: (18:12)
When people think of crypto, the first thing that comes to mind is Bitcoin. Bitcoin is critical to the cryptoeconomy, but it’s just the beginning. In recent years, we have expanded to be much more than a place to buy and sell Bitcoin. We are innovating and creating new products and services to get more people and institutions into the cryptoeconomy, and to help our ecosystem partners and developers grow their offerings.

Anil Gupta: (18:35)
How should investors think about the total addressable market for Coinbase?

Brian Armstrong: (18:40)
As we look to the future we see huge market opportunities ahead as more and more people are participating in the cryptoeconomy. In terms of users, we announced 56 million verified users for Q1 of 2021. We often talk about our addressable market as anyone with a smartphone, which is 3.5 billion people today and growing. Coinbase is a safe and secure on-ramp into the cryptoeconomy for people around the world. Another way to think about our opportunity is to look at the total market capitalization of crypto, which is now nearly $2 trillion. Currently that’s 55% Bitcoin.

Brian Armstrong: (19:16)
You’ll often hear the comparison of Bitcoin to “digital gold,” but crypto is bigger than just Bitcoin, and Coinbase will ultimately strive to support every legitimate cryptocurrency in the market. In Q1 alone, we added support for 18 new assets, bringing the number of unique assets supported on our platform to 108. For comparison, this is up from over 40 assets at the end of 2019 and 90 assets at the end of 2020. A good comparison for today’s stage of the cryptoeconomy might be the dawn of e-commerce in the late 90s. The initial application was powerful, but the amount of innovation over two-plus decades has transformed e-commerce relative to the traditional ways goods are bought and sold. We think as innovation continues to rapidly transform and grow the cryptoeconomy that you’ll see crypto power is a substantial proportion of economic activity over the next decade.

Anil Gupta: (20:09)
How should investors think about the product roadmap for Coinbase? What do you envision happening over the next several years?

Brian Armstrong: (20:17)
Right. So, one of our most important attributes is our track record of repeatable innovation. We want to be at the center of powering the cryptoeconomy. To do that, we need to deliver powerful, simple, and compelling product experiences. Investing was the first and still biggest use case. Crypto investing is bootstrapping a large and growing network of crypto holders, and we are rapidly seeing innovation of new and novel financial services, distributed applications and more growth on top of this network. We make it possible to use all of these products and services through Coinbase, and making it faster, cheaper, and more accessible than in the traditional economy, which is largely using infrastructure built decades ago.

Brian Armstrong: (20:55)
To that end, we are investing to broaden the types of services people can access through Coinbase. We see a lot of opportunity ahead. For example, on retail, We’ll be adding more assets, and we’ll be increasing in our marketing efforts, and giving people more access to third party applications such as DeFi or decentralized finance applications. On Institutional, we are investing in our prime brokerage product, and for our Ecosystem Partners, we recently acquired Bison Trails, which you can think about as us building Amazon Web Services for crypto. This will allow us to offer crypto infrastructure as a service to developers and companies that want to offer crypto to their customers.

Anil Gupta: (21:36)
Thanks. Can you highlight what you think are Coinbase’s key competitive advantages?

Brian Armstrong: (21:41)
Sure. Crypto is very complicated. We’ve built a lot of different technology solutions to help our platform grow and make it easy to use for our customers There are four key pieces to it. The first is powerful product experiences that make crypto easy to use. The technology is complex, but users need to be able to invest and exchange currency quickly. It needs to just work, and we’ve done that. We will continue to invest heavily in building the best product experiences and infrastructure to support a growing user base.

Brian Armstrong: (22:11)
The second layer is a compliance infrastructure that allows us to operate a regulated financial services business in over 30 countries. We’ve created software that enables us to verify users, use blockchain analytics to provide transaction monitoring, and coordinate closely with regulators and law enforcement. Third, we’ve invested heavily in cybersecurity to ensure assets and our platform are safe. Storing crypto safely is complex and we’ve created a lot of intellectual property in this area to help guard our customers against loss. And finally, we’ve built deep integrations across all of the different blockchains. Blockchains are developing rapidly, and Coinbase must always be in sync with these blockchains so that our customers’ transactions can confirm quickly, and also so developers can easily integrate with our platform and ecosystem.

Brian Armstrong: (22:57)
In other words, we run custom “nodes” for each blockchain on a 24/7 basis to support each of these networks. All of these investments support an underlying and essential goal: trust. Our customers need to have trust in Coinbase, and we think the $223 billion in assets on our platform, up from $90 billion at the end of 2020 speaks to the success we have had in building that trust. These are the key competitive advantages that we think will differentiate us.

Anil Gupta: (23:27)
Brian, crypto is becoming more and more mainstream, and lots of other companies are offering some basic functionality, so why do you think more people and institutions are choosing Coinbase?

Brian Armstrong: (23:37)
Right. So first of all, it’s great that more companies are starting to integrate crypto. We truly want crypto integrated into every aspect of the financial system, so we’ll start with that. Now, while some of them are offering the most basic functionality in crypto and introducing new people to crypto in the process, some of those customers will also go create a Coinbase account when it comes time to actually do something with their crypto, buy other crypto assets or do something beyond the most basic functionality. We are 100% focused on crypto, and the feature set and number of assets is expanding rapidly. There will be a long term differentiation for a company that is 100% focused on crypto, who has solved the hard challenges I mentioned in the previous answer.

Anil Gupta: (24:21)
Great. Thanks Brian. Let’s turn to Alesia for some questions. Alesia, let’s dive into the estimated results for Q1 2021 that was included in today’s press release. Can you elaborate on these results and explain what is driving the business?

Alesia Haas: (24:35)
Thanks, Anil. 2021 is off to a strong start. We have seen all-time high crypto asset prices drive elevated levels of user activity and trading volume on our platform. We started the year with Bitcoin at $29,000 and ended Q1 at $59,000, up nearly 100%. We also saw the price of Ethereum more than double in the quarter. We believe we entered into a bull run or a new crypto price cycle in Q4 of 2020, and this price cycle like all prior cycles has drawn new market entrants into the cryptoeconomy and delivered elevated activity. We saw strong growth in essentially every corner of the cryptoeconomy in Q1. Before sharing our estimated results for Q1 2021 included in our press release, I want to note that these results are being provided specifically as part of our direct listing process and are not a format we intend to replicate in future quarters.

Alesia Haas: (25:29)
Let’s start with our key business metrics. We currently expect end Q1 wit verified Users of 56 million; monthly transacting users or MTUs of 6.1 million; assets on platform of $223 billion, which represents 11.3% crypto asset market share. This includes $122 billion of assets on platform from institutions, and lastly, we had trading volume of $335 billion within the quarter. Turning to our financial performance for the first quarter, we generated total revenue of approximately $1.8 billion, net income between $730 million and $800 million, and adjusted EBITDA of approximately $1.1 billion.

Anil Gupta: (26:21)
Alesia, you mentioned all-time high crypto asset prices in Q1 of 2021. Can you contextualize where we are in the current crypto price cycle?

Alesia Haas: (26:31)
Yeah. As a reminder and as detailed in our prospectus, crypto markets have observed four major price cycles since 2010 which have typically had durations ranging from two to four years. On average, these price cycles have increased the overall crypto market capitalization significantly from the prior cycle and attracted new users into the cryptoeconomy. We believe we entered the fourth price cycle in late 2020. We do not know where we are though in the current price cycle, but we can already see that we expect to reach a peak materially higher than the last all time high. Since crypto asset prices and crypto price cycles can be highly volatile, one way we measure our performance is over price cycles. For example, our Q1 2021 MTUs of 6.1 million is approximately 2.3 times higher than our Q1 2018 MTUs of 2.7 million, which was one of the peak quarters in the last price cycle. We believe that we can create long-term value across these price cycles by bringing more people into the cryptoeconomy and serving as the primary crypto financial account for millions of users.

Anil Gupta: (27:39)
As CFO, how do you forecast revenue and plan for the future?

Alesia Haas: (27:44)
To state the obvious, our business is difficult to forecast. Our approach to sharing information with you will be consistent with how we operate the business. Due to the inherent unpredictability of our current business, our approach to planning includes assessing and planning for a wide range of outcomes. We forecast multiple revenue scenarios and we plan for expenses against that range of outcomes. Let’s shift and let’s talk about our full year 2021 outlook. We may or may not provide a detailed outlook on a go forward basis due to the inherent unpredictability of our business, but we felt it was important to share a range of possible outcomes given we are a new market entrant.

Alesia Haas: (28:22)
As we have shared with you, our revenue is highly correlated with the price of Bitcoin and crypto asset price volatility. We cannot forecast the price of bitcoin any better than you can and as a result, it is very difficult to accurately forecast our revenues. We approach this challenge by running multiple scenarios and examining the associated financial performance. We do not extrapolate the most recent quarter, nor do we think a run rate of a single month or quarter is the right way to forecast our potential financial performance. Our approach is to look at longer term averages to mute any potential effects of highs or lows.

Alesia Haas: (28:59)
Revenue from our retail users and specifically retail transaction revenues are our largest revenue stream today. We forecast our retail revenue as MTUs times Average Net Revenue per User. We are currently running MTU scenarios that help inform our potential average MTUs over the full year 2021 that we shared in the press release today. These scenarios focus on the average MTUs over the full year 2021. To be clear, these are annual averages, or a straight average of all four quarters in 2021, including our estimated results for Q1 2021. That means there could be fluctuations on a quarter to quarter basis.

Alesia Haas: (29:42)
Starting with the first scenario, our high scenario, this includes average 2021 MTUs of seven million. This scenario assumes an increase in crypto market capitalization and moderate-to-high crypto price volatility. In this scenario, we expect MTUs to continue to grow for the remainder of 2021. Our second scenario is a mid scenario, with average 2021 MTUs of 5.5 million. This scenario assumes flat crypto market capitalization and low-to-moderate crypto asset price volatility. This scenario assumes a modest decline in MTUs from Q1 2021. The third scenario is average MTUs over 2021 of four million. This scenario assumes a significant decrease in crypto market capitalization, similar to the decrease observed in 2018, and low levels of crypto asset price volatility thereafter. In this scenario, we assume MTUs will decrease in a corresponding manner and end 2021 at similar levels to Q4 2020.

Anil Gupta: (30:53)
Thanks, Alesia. You’ve talked about monthly transacting users, but how should investors think about average net revenue per user, or ARPU, for the remainder of 2021?

Speaker 5: (31:02)
Per user or ARPU for the remainder of 2021.

Alicia: (31:04)
Average net revenue preserved varied period to period due to fluctuations in crypto asset prices and trading volume. Given the short term volatility, we focus on annual averages. Over the last two years, we’ve seen average annual net revenue per NTU range between $34 and $45 per month, with the low end of this range occurring in 2019, a period of low bitcoin price and low crypto asset price volatility, and the high end of the range occurring in 2020, a period of rising bitcoin price. Given the strong performance of Q1 2021, it is likely that the annual average net revenue per user will exceed this historical range.

Speaker 5: (31:47)
Coinbase disclosed that assets on platform are $223 billion in Q1 of 2021, of which $122 billion are institutional. Assets on platform from institutions is up significantly compared to December 31st, 2020. At a high level, what’s driving the institutional business?

Alicia: (32:06)
Our institutional business is still in its early days, but we are pleased with the strong growth we continue to see. With [inaudible 00:32:12] platform growing to $122 billion in Q1 2021 from $45 billion at the end of 2020.

Alicia: (32:19)
We are seeing a wide variety of institutional clients, ranging from hedge funds and corporate treasuries to pension funds and insurance companies. Many of them are entering the asset class for the first time. We think our combination of best-in-class custody, advanced execution tools, and [inaudible 00:32:34] exchange liquidity are leading institutional clients to choose Coinbase.

Alicia: (32:38)
Looking ahead, we see the opportunity to provide sub-custody and execution as a growth opportunity. These opportunities have longer sales cycles, and therefore are hard to predict in terms of precise timing.

Speaker 5: (32:51)
Okay, so we’ve talked about revenue. The other side of the income statement is obviously expenses. At a high level, can you help investors understand how Coinbase will approach expenses, particularly through periods of volatility?

Alicia: (33:03)
We are in the early stages of development in the crypto economy, and we are investing here at Coinbase for long-term growth. As Brian shared in his founder letter, we seek to roughly break even in terms of profitability over time. This means we may earn a profit during periods of strong crypto asset price when our revenues are high, and we may lose money during crypto winters when revenues are low.

Alicia: (33:23)
For example, the first quarter of 2021 that we just reviewed, we saw high revenue [inaudible 00:33:28] a meaningful amount of net income in adjusted EBITDA. We clearly did not spend to the level of revenue growth in Q1. Instead, we plan our investments over a longer-term, taking historical financial performance and our projected revenue scenarios into consideration.

Alicia: (33:43)
We plan to invest in growth even in periods where crypto prices are low in order to capitalize on the many opportunities we see ahead and make progress on our mission. We use periods of profitability to build our balance sheet, which we then use to continue to fund our business in growth investments if we enter a crypto winter, such as in 2019, when the price of bitcoin had declined significantly year over year and volatility was low. Over time, for example, over a price cycle, we seek to roughly break even in terms of profitability.

Alicia: (34:13)
We plan our expense investments to drive our product [inaudible 00:34:16] map, geographic expansion, and to build infrastructure capacity, to support the next price cycle, which we have learned drives higher volumes and traffic to our platform.

Speaker 5: (34:27)
So let’s dive into the specific expense line items. Can you elaborate on each line and what the key drivers are?

Alicia: (34:34)
The primary driver of Coinbase’s cost structure is people, who [inaudible 00:34:38] both our technology and development, and our general and administrative expenses. In 2020, personnel-related costs were our largest expense, and comprised approximately 50% of our non-transaction expenses. Transaction expenses will vary with revenue, and include verification fees, blockchain network fees, [inaudible 00:34:57], and wallet fees. Lastly, our sales and marketing expenses primarily include costs related to consumer acquisition, advertising and marketing programs, and personnel-related expenses that are associated with these functions.

Speaker 5: (35:11)
So Alicia, can you elaborate on the company’s 2021 expense outlook that was provided in today’s press release?

Alicia: (35:18)
To scale our operations and to continue to drive product innovation, we expect our technology and development expenses and our general administrations expense combined to be between $1.3 billion to $[inaudible 00:04: 31] billion, excluding stock-based compensation in 2021. The majority of this growth will be driven by additional head count as we continue to scale the business.

Alicia: (35:42)
We plan to augment our historically strong organic growth with customer acquisition and engagement by meaningfully increasing our investment in sales and marketing. We plan for sales and marketing to be between 12% and 15% of net revenue in 2021.

Alicia: (35:59)
In terms of transaction expenses, on average, we have historically been in the low to mid teens as a percentage of net revenue. We occasionally see transaction expenses outside of this range, driven by a number of factors. For example, higher activity on the blockchain can increase blockchain network fees, or we have months with very low or very high [inaudible 00:36:19] events. We currently anticipate transaction expenses will be in the low to mid teens as a percent of net revenue in 2021.

Alicia: (36:27)
Lastly, in the second quarter of this year, we expect a one-time expense of approximately $35 million related to our direct hosting.

Speaker 5: (36:37)
Great. Well, thank you both, Brian and Alicia. Are there any closing comments you’d like to share?

Brian Armstrong: (36:43)
In closing, we are excited to begin the journey as a public company, and appreciate the opportunity to share a view of Q1 and how we’re thinking about performance moving forward. Thank you everyone.

Speaker 5: (36:53)
Great. Well, thank you everyone for joining us today, and we look forward to speaking with you on our next call.

Speaker 6: (36:58)
This concludes today’s conference call. You may now disconnect.

Speaker 7: (37:01)
Short and sweet, eh?

Speaker 8: (37:21)
It was so disgusting to me, man.

Speaker 9: (37:23)
Yeah, wow.

Speaker 7: (37:24)
Okay. I think before we add commentary, let’s just roll back through what we heard. I am taking some notes and luckily Larry from… Forget where he is, he’s probably at the block, right, to the nice little thread.

Speaker 7: (37:41)
So, what we heard was $1.8 billion revenue in Q1, adjusted EBITDA of $1.1 billion, net income $730 to $800 million. They’re up to 56 million verified users now, and that was 43, I think, at the end of Q4, so up 13 million. Monthly transacting users is 6.1 million. That’s up more than double from the end of Q4. So crazy growth there.

Speaker 7: (38:15)
What else? That’s the interesting stuff, honestly. I don’t know why they didn’t bother to say do the math because anybody can do the math, but I did the math. It was $100 per month per monthly transacting user in Q1, if you take the $1.8 billion and divide by three, and then divide by the 6.1 million users, that’s ballpark what you get. So, that’s up a lot. Historically they’ve been in the $34 to $45 range, so I think that’s why they’re feeling really good.

Speaker 7: (38:48)
So yeah, this timing for them going listing on the 14th on the heels of this if they also get bitcoin blowing through 60k, and stacking on top of this earnings report, this could be pretty bananas. All right, I’m done.

Speaker 10: (39:11)
It is interesting how short it was. I feel like they were just keeping it short and sweet for April 14th. It’s better. Less is more on these sometimes.

Speaker 7: (39:22)
Yeah. I mean, scripted questions, scripted and read answers from both people, just definitely bare minimum, don’t fuck up was the goal.

Speaker 10: (39:33)
Very much like how politicians do it. No, I used to [inaudible 00:39:39] what politicians would say. But it’s interesting. So they’re 55% now, [inaudible 00:39:45] from institutional based on the numbers, Larry pointed to. Do you guys remember what the last number, what the percentage was? Because they had a chart recently, before this one, on institutional versus retail.

Speaker 11: (39:57)
No, I don’t remember that. Just real quick I wanted to welcome a few folks up to the stage. We’ve got some great minds here. Andy Edstrom, welcome, buddy. I feel like you definitely have some thoughts on this. I’d love to hear them.

Andy Edstrom: (40:16)
Oh, thanks, [inaudible 00:40:17], yeah. The thing that caught my attention was I think Brian’s comment that he’s going to manage to… I don’t remember if it was zero profit or zero cashflow, but it sounded like basically going to reinvest everything into the business in the longterm. Historically, of course, as we know, exchanges have been far and away the highest cash flowing business model in the whole industry, and I don’t know if that’s going to change.

Andy Edstrom: (40:46)
But I guess watch out for the ambition of Brian Armstrong and crew. It sounds like they intend to reinvest every dollar of profit that they squeeze out of this beast. And they’ve already got quite significant market share, obviously. But sounds like they’re going to seek to take as much as they possibly can.

Speaker 7: (41:29)
Jimmy, what’s your take? Tina, you’re in the house. Did you listen?

Jimmy: (41:34)
I only caught the tail end of it.

Speaker 12: (41:36)
Yeah, I only caught a small amount, but I was surprised that they have like 53 million customers or something? That’s [crosstalk 00:41:43]-

Jimmy: (41:42)
That’s [crosstalk 00:41:45] every American.

Speaker 7: (41:48)
Yeah, that’s KYC users globally. They do have a lot of internationals too, don’t forget. But yeah, it’s a big number.

Andy Edstrom: (42:01)
It helps to be relatively early in that regard. I don’t think we have data, but I’m sure included in those verified users are 2014, 2015, 2016 vintage accounts. Not that there were that many of them. But probably quite a few 2017 vintage accounts that may or may not be currently active.

Speaker 7: (42:23)
It means literally everyone that hasn’t turned their account off and forced them to delete them is in that number, obviously.

Andy Edstrom: (42:28)
Good point.

Speaker 7: (42:29)
But I think the monthly transacting users, that’s how we think about our business at Swan as well, so I think that’s a good metric. And they’re at 6.1 of the close of the quarter, which is pretty impressive from 2.8 in December.

Speaker 7: (42:42)
I mean, that’s insane. They more than doubled their monthly transacting users in a quarter, for a company that’s been around since like 2012.

Speaker 7: (42:59)
We turned hand raising on, by the way, so anybody wants to come up, share some thoughts, what does this mean for bitcoin? What’s going to happen here? Feel free to raise your hand.

Speaker 13: (43:12)
[inaudible 00:43:12]-

Speaker 7: (43:12)
Make sure you mute yourself when you come up.

Speaker 13: (43:14)
[inaudible 00:43:14]-

Speaker 14: (43:14)
[inaudible 00:43:14] institution represent, and I calculated at 54%, so whoever asked that question. So there’s some whales.

Speaker 15: (43:30)
Given the revenue is $100 dollars bearish valuation [inaudible 00:43:35].

Speaker 16: (43:34)
$100 billion is not bearish. This is very bullish for bitcoin. This is incredibly bullish. It offers a huge area. In fact, you’ve got a major company coming into the legacy space in terms of the stock market is huge protection for bitcoin, because you now have an institution that has a big market cap. This is a net massive positive for bitcoin. There’s no two ways about it.

Speaker 7: (44:10)
I’m just [inaudible 00:44:11] price on FTX real quick. I’ll bet you it goes higher than Goldman right now. Goldman’s at $112.

Speaker 16: (44:18)
I’m just wondering if from those 56 million users, how many of those are institutions?

Speaker 7: (44:30)
A tiny percentage would be institutions. Most of those are going to be individuals, obviously. But as far as volumes, they do much higher numbers.

Speaker 15: (44:40)
I think they released some data. I think it’s around 70% of revenue is from institutions recently. I don’t know if that’s a hundred percent.

Speaker 16: (44:49)
I didn’t hear the call. Did they say those are active users? Because so many of those could be dead accounts from like 2013, 2014, 2015.

Speaker 17: (45:01)
Something that seemed kind of interesting to me was when they started talking about almost the having cycles, and the price of bitcoin and their revenues [inaudible 00:45:11] that they almost want to compare the having date revenue to the next date and the peak date to the next peak date, which means they’re almost telling Wall Street that they’re expecting bitcoin to hit these price highs and then these price lows and these higher floors, and they almost expect it to be continually on this cycle in some of these rooms.

Speaker 17: (45:40)
People we’ve been talking about, maybe we won’t see that again because of what’s happening with the U.S. dollar, but is that what they were telling Wall Street? Is that what you guys took off of that?

Speaker 18: (45:52)
What I heard is that because of the cyclical nature of [inaudible 00:45:56], they will find inferior products to keep their quarterly earnings high. I mean, that’s just the impression I got. Did anybody else get that impression? Like they’re going to have to pump other coins to keep their margins good?

Speaker 11: (46:16)
I mean, that’s what it sounded like to me. Par for the course for Coinbase.

Speaker 7: (46:20)
And their business model requires people to trade a lot. And so trying to get them to care about all coins is endemic to the business model. $ 486 right now, by the way, and if I’m not mistaken, that contract is you multiply by 250. So yeah, I think that it’s $121 billion is what it’s trading at on FTX right now. So, about $9 billion more than Goldman Sachs’ market cap.

Speaker 19: (46:51)
Another really interesting number I think is the assets on the platform. They have $223 billion and in the report it says that that represents over 10%, 11.3% of all of the entire crypto market is held on their platform. I think it’s a pretty astonishing amount of assets to be holding.

Speaker 11: (47:08)
And amazing that most of it isn’t theirs. You’d think they would have more.

Speaker 20: (47:14)
Yeah, I’m surprised it’s not higher.

Speaker 15: (47:19)
Did they make [crosstalk 00:47:21] of bitcoins they hold, or just the fiat value?

Speaker 17: (47:27)
Not sure, but another number that someone was-

Speaker 15: (47:29)
[crosstalk 00:47:29] that. I think it was $ 150 million. They announced a few weeks ago that they had $150 million of bitcoin, right?

Speaker 11: (47:35)
Something like 4,000 coins, if I remember correctly.

Speaker 19: (47:39)
Someone was asking about institutions, and it says that $122 billion of what they’re holding is owned by institutions. I believe I’m reading that correctly.

Andy Edstrom: (47:52)
I think one way to look at the market share, quote unquote, if you want to call it, if you want to talk about the crypto market, is yeah, Coinbase has over 10% of this market. On the other hand, it’s the dominant [inaudible 00:48:07] compliant exchange in the world, and it’s only got, whatever, 11%. And bitcoin is so young, and the industry is so young. So, it’s a reminder that even the largest, most dominant, best branded or best known exchange on-ramp in the world, even that entity only has roughly a tenth share, which is just a reminder of how no single entity, no single party, even a large company, really can dominate bitcoin, or the network.

Speaker 16: (48:50)
Decentralization.

Speaker 17: (48:55)
How much bitcoin is just lost forever, though?

Speaker 11: (49:03)
There’s no way to know. There are estimates that upwards of a million coins, and if you factor in Satoshi’s wallets, too. But there’s no-

Speaker 21: (49:10)
Yeah, there are estimates of up to [inaudible 00:49:14]. That’s the high end estimate. And that’s coins that haven’t moved in I think more than five years. It’s something like-

Speaker 22: (49:22)
Yeah, I’ve always heard like 15 to 20%, somewhere in that range.

Speaker 16: (49:27)
Sure, but that’s a significant chunk that… As the applied valuation of bitcoin, and that might be deflating the percentage that is on Coinbase.

Andy Edstrom: (49:39)
I’m going to back up, [inaudible 00:49:40], on this one, partly because I’m lazy when I think about the number of bitcoins. 20 million. 20 million is the number I use. I assume a million are lost. Yeah, it would be great if more were lost. I mean, more for the rest of the toddlers. But just to be on the conservative side I assume that it’s a million [inaudible 00:49:58].

Speaker 23: (49:59)
Something to keep in mind when we’re talking about total market [inaudible 00:50:02] market is that a lot of that are really [inaudible 00:50:06] evaluations for not very liquid crypto assets. So, it’s not just bitcoin you’re counting, you’re counting a lot of other things which are not necessarily as indicative of what’s really there in terms of value.

Speaker 24: (50:28)
Okay, but other than Etherium, what other crypto assets have a total market cap that’s going to really move the needle? I agree that there are probably a lot of shit coins that are individually overvalued. But bitcoin is so big compared to most of these other coins.

Speaker 25: (50:48)
Sure, if we’re talking about 45% other. So, talking about 55% of the market is bitcoin. So collectively those are 45% of whatever else is there.

Speaker 19: (51:02)
So I’m reading this report, and someone was asking about the 56 million verified users and what exactly does that mean? It’s pretty loose what it means. So it’s a retail user, an institution ecosystem partner, blah, blah, blah. They go on and talk a lot, and then say that basically, you just have to verify an email or a phone number to be considered a verified user. You don’t even have to spend money. It’s at the very top of the funnel for them. It’s not a monthly active user at all. And that even if they go as far to say it’s verified users. And they overstate the number of unique customers who have registered an account on our platform, as one customer main register for and use multiple accounts with different email addresses, phone numbers, or usernames. So that number is probably astronomically way bigger than it really should be. They shouldn’t even be reporting that number.

Speaker 20: (51:52)
They’re trying to generate as much buzz as possible for the [inaudible 00:51:55].

Speaker 21: (51:59)
I’m not sure if the $122 billion, or I should say the 11.3% crypto asset market share is meaningful at all. Because I mean, all they’re doing is the assets obviously on their platform divided by the total market cap of all of crypto. But a more meaningful number would be, and this obviously doesn’t account for anything that maybe was purchased through Coinbase but then moved off into a private wallet, off the exchange. So I think we don’t have it, but percentage of market value that was purchased through Coinbase would be more valuable. I guess the 11.3% number could be anything just based on where people are moving their funds.

Speaker 24: (52:45)
I think that’s a really good point about if you were talking about percentage on-ramp, that probably is a huge number. But probably that also gets distorted by when they were the game in town when all these assets were worth less. Now there are more options. And so that might be misleading in a different way, although it’d be great to have that number.

Speaker 21: (53:05)
Agreed.

Speaker 16: (53:16)
What do you guys think about the MTUs going forward? They said it was 6.1 million, and their scenario for the rest of the year, the high scenario is seven, which isn’t that much higher than what it is today.

Speaker 17: (53:39)
What’s that do for the valuation of Swan bitcoin?

Speaker 19: (53:43)
I think it’s big for Swan. I think it’s huge for bitcoin. I’m actually surprised by the tone of this room. I’ve been listening while on a bike ride and I know yeah, crypto this and crypto that and the call, but man, this is massive for bitcoin. To have that type of institutional holdings tells me that institutions are trusting Coinbase with custody. That’s kind of a big deal everyone should be happy about, especially Corey.

Speaker 20: (54:08)
Oh yeah, this is a great [inaudible 00:54:10].

Speaker 7: (54:13)
It’s a great day for former Microsofties and current Microsofties, we all appreciate that. But yeah, I think this is good for everybody. This is good for anybody raising this year. This is good for anybody else looking to go public across the board. This is good for Kraken and their private round going on. This is good for BlockFi trying to get out. [inaudible 00:54:32] back later this year. It’s good for us and our path. It’s good for everybody, really.

Speaker 11: (54:37)
Hey, we’ve got Ben Davenport here. I don’t want to put you on the spot, but if you have any thoughts you’d like to share, I’d love to hear them.

Ben Davenport: (54:46)
Yeah, nothing too specific. I mean, I think the [inaudible 00:54:51]… VJ just tweeted about this. I was talking to him and he tweeted out, just talking about how surprising it is the tiny amount of bitcoin that they actually hold on the balance sheet. Given clearly they’ve collected a lot of bitcoin in fees over the years, and so they must have been a net seller. Well, maybe not a completely net seller, but they sold a lot in order to only have about 4,500 bitcoin on the balance sheet. They didn’t give a Q1 update. That was the December 31st number.

Ben Davenport: (55:24)
But it’s interesting, given their $120 billion valuation, they have only a few hundred million of all crypto on the balance sheet. Kind of surprising. And disappointing.

Speaker 26: (55:42)
Another thing that just came to my mind is the altcoins have really been on a rally over the past couple of weeks, and I wonder what kind of insider buying could have led to a lot of that inflation. And if I’m Coinbase, I feel a lot more bullish about my IPO price if I can say I had double digits, if I have 11%. But it doesn’t take too much of a rally in the altcoins to go from having 9.1 or 8.5% of the market to then having 12%, right? Just a small uptick can get you to that. It’s just a thought that popped in my head, though.

Ben Davenport: (56:19)
That’s a good point.

Speaker 27: (56:24)
Bitcoin will be back to 70% dominance within months.

Speaker 26: (56:27)
Exactly.

Speaker 17: (56:29)
Dominance without accounting for volume is a very stupid metric in my opinion. Because we can start a clubhouse token with a billion tokens right now and add a billion dollars to the market cap dominance, right? So we’d only have to sell one of those tokens to add a billion dollars to the overall market cap. But if you don’t account for volume, it’s pretty useless.

Speaker 26: (56:56)
And then we can get into a bidding war and take it up to two or three billion.

Speaker 21: (57:01)
I think there’s too much emphasis being put on the fact that they don’t own a lot of bitcoin themselves. And I just say that because, just as an investor, and any investor, whether it be a hedge fund, mutual fund, individual investor, they’re just allocating capital. And this year, there will most likely be an ETF where that individual can allocate a percentage of their portfolio to bitcoin directly, and therefore, if you’re investing in Coinbase, you’d rather invest in a pure exchange, because it’s very easy to get a pure bitcoin play, whether you own an ETF or you just own bitcoin directly.

Speaker 21: (57:47)
So I just don’t think it matters as much. And again, they’re a startup, and they’re reinvesting all of their capital to grow the business, to be the market share leader, and to maintain that position where, given their position right now, it is the smartest thing to do. So if that requires them to sell bitcoin to grow the business before everyone else does to make sure they ensure they have the highest market share five years out, then I think that’s in everyone’s best interest.

Speaker 11: (58:16)
I mean, it’s more like showing where their priorities are and what they believe in. Had they held onto more bitcoin, they’d be in a much better position than they are now to do exactly what you’re talking about.

Speaker 28: (58:28)
Yeah, that’s right. But they have, compared to basically any company in the universe, the most indirect exposure to bitcoin. It’d be nice if they had more, but that would be doubling down in a way where they have a ton of exposure already.

Speaker 29: (58:41)
Do we have a cash flow statement? I didn’t look at December. Is there a cashflow statement in December?

Speaker 20: (58:48)
There wasn’t an earnings release.

Speaker 29: (58:51)
In December. Was there a December cashflow statement?

Speaker 20: (58:53)
Oh, there should have been with the S1.

Speaker 29: (58:58)
I didn’t look there. I didn’t look at it. So, if you look up the DNA number of $11 million, that does not imply enormous investment. That’s not a big DNA number. So, I don’t know. I don’t know if there’s a lot of proof. I need to look at the cashflow statement and see what cap x looked like. And I haven’t looked at it. Just on that one DNA number, there’s not any strong evidence of massive capital expenditures [inaudible 00:59:29].

Speaker 30: (59:31)
[crosstalk 00:59:31]-

Speaker 7: (59:31)
[crosstalk 00:59:31] news real quick. Hang on, sorry. Got to break in. Arthur Hayes just turned himself in in Hawaii.

Speaker 11: (59:38)
Whoa. Man, that makes me sad.

Speaker 7: (59:43)
So, yeah. Arthur Hayes is the CEO and founder of BitMEX. He’s been in Singapore, and he’s facing charges for about the last half year or so. I feel like it was about six months ago. And yeah, just turned himself in.

Speaker 17: (59:56)
Hopefully that means that there’s been some negotiations going on before he turned himself in and [crosstalk 01:00:02]-

Speaker 31: (01:00:02)
[crosstalk 01:00:02]-

Speaker 32: (01:00:02)
Yeah, they planned that quite some time ago. It was part of their offer. They made the offer and said… It seems like it’s a very well negotiated deal. He thinks that if he appears then he’s able to leave again and go back to Singapore, and he could do some of his stuff from there, and then he could come in and he can do some of these other things. He can appear to the New York court from Hawaii by video conference.

Speaker 7: (01:00:35)
Yeah, so it says appear before a federal judge in Honolulu pursuant to an earlier agreement. Released on $10 million bond pending future court proceedings in New York.

Speaker 33: (01:00:46)
Yeah, it’s been at least three weeks, if not longer.

Speaker 7: (01:00:52)
Since that negotiated agreement was announced? So this whole-

Speaker 33: (01:00:57)
[crosstalk 01:00:57] announced that they were-

Speaker 7: (01:00:57)
Oh, okay.

Speaker 7: (01:00:59)
He was in Hawaii, and there were articles as long as three weeks ago saying that he was making offers to surrender. When the deal got done exactly, I’m not sure. But yeah, he’s been in Hawaii for at least three weeks now, if not longer than that.

Speaker 34: (01:01:12)
Oh wow, that was ballsy. Just chilling out, hoping that nobody came and knocked.

Speaker 35: (01:01:18)
I think there’s a lot of places to hide in Hawaii.

Speaker 34: (01:01:20)
Yeah, I know.

Speaker 7: (01:01:23)
Okay, cool. Well, so that news. Let’s go back to the main topic. Coinbase it is.

Speaker 36: (01:01:29)
[inaudible 01:01:29] follow up on Tina’s comment. So it looks like in terms of the end of year 2020, they spent about $10 million in cap x at first, which was down from $30 million in 2019. And there’s actually some capitalized internal use software development cost, which is like another $10 million , but as Tina mentioned, DNA is $31 million and their cap x was like 10-

Speaker 37: (01:02:03)
DNA is $31 million and their CapEx was like $10, so they’re not spending a whole lot of money.

Speaker 38: (01:02:07)
Against what kind of EBITDA number?

Speaker 37: (01:02:11)
So last year EBITDA was $500 million.

Speaker 38: (01:02:15)
Yeah, it’s not a big CapEx number.

Speaker 37: (01:02:17)
No, it’s tiny.

Speaker 38: (01:02:18)
These guys are not allowing capital into their business.

Speaker 37: (01:02:21)
And as a percentage of revenue, it’s tiny.

Speaker 38: (01:02:25)
They should have a ton of Bitcoin on this balance sheet. Where is it going? It’s disappearing into somebody’s pocket.

Speaker 39: (01:02:31)
Well, they spent like $100 million on earn.com or something.

Speaker 38: (01:02:36)
$100 million on what?

Speaker 39: (01:02:38)
Earn.com. It used to be 21.co, Balaji, it was his company. Yeah, it got bought. And then Balaji was … yeah.

Speaker 38: (01:02:50)
That was a couple years ago though.

Brad: (01:02:51)
All right, so I got their cash flows from operating activities. So it’s operating investment and financing. In 2019, it was -80, -105, -16, for a combined of -202. But in 2020, they had a-

Speaker 38: (01:03:09)
Wait, wait wait. You’re mixing things up. What’s the CapEx number? You’re calling out numbers without … It’s meaningless if you’re just throwing out. What’s the CapEx number? What page is this on? I’m in the S1. What page is it on?

Speaker 37: (01:03:22)
113.

Speaker 38: (01:03:24)
You’re looking at cashflow statement?

Speaker 37: (01:03:26)
Yes, sir.

Speaker 38: (01:03:27)
Okay, let’s go look at the cashflow statement.

Speaker 37: (01:03:33)
It’s interesting, because they have their business combination. So they actually .. It was cashflow positive when they were buying companies, because the companies themselves had cash on their own balance sheet. So last year, I mean, they were not cashflow negative. I mean, they increased their cash balance from $1.7 billion in 2019 to $4.9 billion.

Speaker 38: (01:03:53)
No, no. That’s not a cashflow statement. This is notes. [crosstalk 01:04:01].

Speaker 37: (01:04:00)
It’s F8. Let’s see what page this is.

Speaker 38: (01:04:02)
What page is that on?

Speaker 40: (01:04:12)
Guys, just think about how much 4,500 Bitcoin cost in 2012. That’s less than one year’s engineer’s salary. So how low do they think of Bitcoin if they only stack 4,500?

Speaker 37: (01:04:32)
What’s the best use of that cash at that point in time? You’re trying to increase your … grow your business itself versus stacking. If you don’t have liquidity, if you’re going to stack, and hold, and never sell, then you need to get additional cash from elsewhere to invest in their business. So …

Speaker 39: (01:04:50)
And it’s expensive to run a regulated business in over 30 countries, given with lawyers and regulators. That’s just a huge, huge lift. And then on top of that, in terms of, “Innovations,” in whatever they’re doing, I mean, making it easier for tax reporting and stuff like that, adding features to the software. But mostly, I bet they spend a ton on lawyers.

Brad: (01:05:19)
[inaudible 01:05:19] There for a little bit.

Speaker 40: (01:05:20)
Q is segue 2X. And the predecessor-

Speaker 39: (01:05:24)
And they did the stealth launch of the Bitcoin cash stuff.

Speaker 41: (01:05:30)
And remember, Andreessen Horowitz owns around 25% of Coinbase, and they funded a load of Shitcoin. So, it’s basically a funnel for them.

Carol: (01:05:44)
Hey, Ellie, I’d love to hear your thoughts. I know you did a write up of it yesterday, and I don’t know if you have additional stuff coming out, but I’d love to hear any more thoughts from you.

Ellie: (01:05:59)
Oh, I’m sorry, I’m lurking a little bit on another call. But yeah, I’ll be releasing another post-mortem, some thoughts, but obviously very bullish on the results.

Carol: (01:06:12)
Awesome, looking forward to it.

Speaker 41: (01:06:23)
Meanwhile, word is out that Clubhouse is raising on a $4 billion valuation, up from one in January.

Speaker 39: (01:06:28)
I don’t know. I feel like it was better in January. There were more people here and stuff. Do you really feel like it’s four times more worthwhile right now?

Speaker 41: (01:06:41)
I think it was undervalued at one. This thing’s going to $100 billion by the end of next year.

Speaker 40: (01:06:47)
Android is not out yet either.

Speaker 39: (01:06:52)
Allowing people to get paid, also. I think it’s going to be interesting. I don’t know. We’ll see what happens. I wish they’d use lightning instead of-

Brad: (01:06:59)
Why do I get the feeling they’re going to issue their own token?

Speaker 38: (01:07:04)
They don’t need to, man. It’s all [crosstalk 01:07:06].

Brad: (01:07:06)
[crosstalk 01:07:06] back by A16Z.

Speaker 38: (01:07:08)
Exactly [crosstalk 01:07:09].

Brad: (01:07:08)
Neither does does Signal, but they’re releasing their own token.

Speaker 39: (01:07:16)
If Snoop Dogg and Teletubbies have their own token, then it’s inevitable.

Speaker 41: (01:07:20)
It’s called Club Clout Base.

Speaker 39: (01:07:25)
Jason, how you feeling about your portfolio on the backs of a Coinbase hitting $121 billion valuation?

Brad: (01:07:31)
Hey, James, can you mute yourself? Sorry, thank you.

Speaker 41: (01:07:35)
No, it’s exciting. We’re also … and I don’t know, I probably would get in trouble. Well, I can just tell you that there’s a lot of action for that stock in the private market.

Speaker 39: (01:07:50)
Well, we can all see it on, on FTX2, because they have the futures there. So, it’s trading at 121 right now, which is $9 billion more than Goldman Sachs.

Lamar: (01:08:04)
Here’s the question I have, you guys. So when the banks see this delicious quarterly report, and they see the amount of revenue that Coinbase is getting, and they know that they can custody Bitcoin, do you see them ramping up efforts to get into that game? And if you think about it, like probably all … what, all of the 56 million customers that Coinbase has are going to be banking customer somewhere. So do you see this basically putting a target on their back, and everyone saying, “Let’s go get some of that revenue?” So then, they’ll have this plethora of competition?

Speaker 39: (01:08:53)
Yeah, it’ll be interesting. Because there’s already competition. And the thing is, for Coinbase, they’re going to be kind of caught in the middle. Because you could become Shitcoin Casino, like the Bittrex/Poloniex Binance model, or you could go Bitcoin only, which obviously Swan, like Cory is doing, or River Financial, or a bunch of others. If you stay in the middle and try to serve both, you’re not going to do both that well is my guess. And the thing is, the vast majority of people, they just want Bitcoin. The people that want Shitcoin Casinos, they want everything. And it’s not a great position to be in. I don’t know. They might try to do both or something like that. It seems to me they’re going more in the Shitcoin Casino direction. And if they are, then basically, they’re going to have the stench of all coin death on them during the bear market, like they just did. So …

Speaker 42: (01:09:54)
I heard Brian Armstrong say on a Clubhouse call with … one of the Clubhouse calls recently, that they want to be the Amazon of crypto, and they don’t want to pick winners and losers. That was his statement.

Speaker 39: (01:10:10)
He won’t say the word Bitcoin, still. He’s such an ass.

Jason: (01:10:14)
They’re the AOL of crypto.

Speaker 39: (01:10:20)
I love how they would talk about the blockchain on the call, and we all know which blockchain they were talking about. I think he said Bitcoin once, maybe.

Lamar: (01:10:32)
Yeah, that’s what bothers me long-term, man, is because I’m saying, the banks literally have the connection directly into the entire flow of money for these people who are going to usually go to Coinbase and buy. And all it takes is for Coinbase to go down during a crazy day or something. And people are like, “Well, screw that. I’ll just buy it from a bank. You know what I’m saying? I think that’s, to me … They didn’t announce that as a risk, but I think that’s one of the biggest risks they have.

Jason: (01:11:04)
That’s a great point, Lamar.

Speaker 41: (01:11:06)
One way to mitigate that risk is to take $10 billion in debt and just buy Bitcoin with it. Because if a bank wants to buy them out, they would have to buy into Bitcoin as well.

Jason: (01:11:20)
Can someone go over how much cash they have on hand and has that grown over the years? Or …

Speaker 39: (01:11:27)
Yeah, I’ll take a look, one sec.

Speaker 38: (01:11:31)
It looks like the expense of their technology. So their big expense launch.

Jason: (01:11:35)
Wow.

Speaker 38: (01:11:37)
So the question is what the composition of that is.

Speaker 39: (01:11:39)
It looks like cash and equivalents is about $4.8 billion. It’s represented by an increase of $3 billion, also. They had $1.7 before the print on the S1s.

Jason: (01:11:59)
Okay.

Speaker 40: (01:12:02)
Mentally, this is a little bit of a hobby horse of mine, but it isn’t another big risk for them that the SEC decides that half or more of the shit coins on the platform or are securities, and they have to delist just a huge percentage of their assets?

Speaker 41: (01:12:16)
But that’s a good thing, because then they get to sell new coins to the public. I mean, that’s a good thing for Coinbase’s stock rather.

Speaker 43: (01:12:24)
Yeah, I haven’t looked at the latest numbers, but previously, I thought 90+% of the revenue came from Bitcoin and Ethereum trading fees. So even if they did have to delist a bunch of tokens, I don’t know how much that would impact their bottom line.

Speaker 39: (01:12:44)
If you look at the daily volume on something like Chainlink, they’ll be doing $50 million a day back and forth. So we got 1.5% taken off of that. I think over a month, six months period of time, in a bear market … in a bull market, excuse me, that would affect the bottom line for sure.

Jason: (01:13:06)
Plus whatever promotional fees Chainlink is paying them. Just like Stellar is probably paying them for this stupid 4% back when you use your credit card or whatever versus 1% if you use Bitcoin.

Speaker 39: (01:13:20)
Yeah. It seems intuitively like this would be really bad for them if the SEC comes down hard on the Howey Test security stuff. On the other hand, I think them going public is probably the best thing that could ever happen to these altcoins from both Coinbase can afford lobbyists, and they have little bit more clouT as a public company. So, very interested to see what happens there.

Speaker 41: (01:13:43)
And what did someone say, the majority of their net revenue is in Bitcoin and Ethereum, right?

Lamar: (01:13:50)
Yeah, but what happens if somebody comes after Ethereum?

Speaker 41: (01:13:53)
No, I hear you. Yeah, I’m reading it right now. It says the majority of our net revenue is from transactions in Bitcoin and Ethereum.

Speaker 39: (01:13:59)
Lamar, don’t get me excited, man.

Lamar: (01:14:04)
If anybody understands-

Carol: (01:14:07)
If I could jump in-

Lamar: (01:14:08)
… the origins of Ethereum, it’s like, yeah, it’s a little bit ugly.

Jason: (01:14:11)
Exactly, yup. Oh, one thing.

Carol: (01:14:16)
If I could jump in-

Jason: (01:14:17)
Sorry, go ahead. Go ahead.

Carol: (01:14:17)
If I could talk a little bit about the … right now Coinbase, because it’s regulated by the New York DFS has a process in place for evaluating the coins that it’s listing. And if you go to the New York DFS website, you can see the kind of analysis that any of the entities that are regulated there have to undertake to get comfortable with what it is they’re putting up on their exchange. And one of those items is getting an opinion from counsel that the coin is not a security. Now I’ve seen varying degrees of competency exercise in those opinions, but it is an important element they can rely upon.

Carol: (01:15:04)
And to the comment that was made about Ethereum a moment ago, or Ether, is that Ether is … The SEC has said that it’s not a security as it’s being traded now. And that’s been the position for two and a half, three years now. What they haven’t resolved is what about at the time that it was first released into the marketplace?

Speaker 39: (01:15:24)
Hey, Carol?

Carol: (01:15:24)
Yes?

Speaker 39: (01:15:25)
That’s often quoted, but it was actually one person at the SEC. It was not any sort of SEC pronouncement. That was somebody within it.

Carol: (01:15:34)
Oh yeah, but as SEC watchers will tell you, it’s about as good as you get from a pronouncement from the SEC, because it came from the division head, the division that you would look to for that kind of pronouncement. Yes, you’re right. I mean, could a court take a different view? Could a new commission take a different view? It’s possible. But I think now that the Ripple case is teed up in front of the courts, that’s going to really dictate the way a lot of these cases are going to go.

Speaker 44: (01:16:07)
Unless it’s in the federal register, it doesn’t matter what anyone says.

Speaker 41: (01:16:11)
That that’s not how the Southern district of New York is going to take it. Carol, I agree with you on Ethereum. It seems like this is a pretty good government estoppel claims thing. But my day job used to be to write some of these Howey opinions for issuers. And I can tell you, at the time it was incredibly unclear how the courts were going to take it. And I think there’s still some real uncertainty, at least until the Ripple case is resolved for many of the altcoins.

Speaker 45: (01:16:37)
What about Eth 2.0?

Carol: (01:16:38)
Well, and we’re also likely to see some kind of proposal coming out of the SEC in the not too distant future, or from the administration as a whole on a number of these issues. But I guess, being somewhat of a conservative lawyer, I don’t think they’re going to deviate too far from where their positions are at this point, absent something very significant happening.

Speaker 40: (01:17:01)
It is worth mentioning that Ethereum 2.0 is a totally different structure than Ethereum 1.

Speaker 39: (01:17:04)
It is funny-

Speaker 40: (01:17:06)
[crosstalk 01:17:06] direct control of the protocol and [crosstalk 01:17:10].

Speaker 39: (01:17:09)
It is funny how terrible the SEC is at doing their job, because literally all of these are securities, and they failed to stop even a single one of them, pretty much.

Speaker 41: (01:17:20)
[crosstalk 01:17:20] what about the-

Lamar: (01:17:20)
Well, you know what’s so funny? If we stay on the topic of Coinbase, if the XRP situation comes down on the side of XRP, Coinbase becomes way more valuable, right? Because then what’ll happen is, you’ll end up seeing a lot more coins, a lot more ability for trading, which gives them far more revenue. So I think this XRP case has a lot to do with Coinbase as well.

Speaker 41: (01:17:46)
I agree with that, but Lamar, I think it’s asymmetric. I think if Ripple loses its case, that’s really bad for altcoins, but compared to most altcoins, Ripple has pretty smart lawyers associated with it. They’ve got a [crosstalk 01:17:58] board. They’ve got a high market cap. I don’t think that if Ripple escapes, that means that all other altcoins are likely to escape.

Speaker 40: (01:18:05)
Also to follow up on what Lamar said, Hester Pierce has been pushing a Safe Harbor framework for those tokens for about two and a half years now. And if they decide to adopt something like that, I think it would be equally as bullish for Coinbase.

Carol: (01:18:23)
I did an article back in January, February of 2020 for CoinDesk. and personally, I never thought that Hester Pierce’s proposal had too many legs on it, whatever you want to say, that it was going to go any place. And I think that’s even more the case now that Gensler is in place. I think we may see some new thoughts on approaches, but again, I wouldn’t see it moving the needle too much from where we are. And personally, I mean, I hear a Lamar, I respect his views, but I’m not sure that as goes Ripple, goes Coinbase. I wouldn’t tie the two together at all.

Speaker 40: (01:19:13)
Carol, why do you say that about Gensler? You said, “Now that Gensler is in place.” I thought he was probably going to be much more friendly to crypto and Bitcoin than Jay Clayton.

Carol: (01:19:27)
I don’t know why you think that that might be the case. I mean, he is knowledgeable about the technology. Does that knowledge mean that he’s going to relax the federal securities laws in favor of crypto and potentially further exposure to people that the securities laws were intended to protect? And I’m saying that as devil’s advocate in part here. I think if you go and you listen to what he had to say when he testified before Congress in the Libor hearings back in, was it June or July of 2019? I think that he’s going to have a fairly … He has a knowledgeable view, but I think there’s going to be a fairly conservative view of how the regulatory structure should work around it.

Carol: (01:20:21)
Now, I want to be very careful. I don’t want that to be interpreted, “Oh, they’re going to go regulate Bitcoin. They’re going to go regulate different types of crypto.” Really, it’s the sale and the distribution. And the Ripple case at the end of the day, when you read through it, their real argument was that the SEC’s argument is that Ripple was being used by the people who were involved in creating it in the first place, and the way that you would use a security to help fund the further development of the business. And that’s what’s really at issue in that case.

Carol: (01:20:55)
So, I know there’s a lot of confusing elements here. Do we need to have some sort of a structure that allows the, especially what we would consider, for lack of a better term, a utility token, to be able to be used in a way that is more utilitarian than it is necessarily a security or currency? Yes, that’s possible, and that’s hopefully where we’ll see some, some leadership.

Jason: (01:21:20)
Carol, this is Jason. I do think there is something to be said about Gensler’s approach that might be a little different. He has signaled in the past, talked about that he believes Ripple … or XRP is a security. He’s also said he’s considered whether Ethereum is a security, too. The CFTC has commented that … And to Tina’s point, when they convert to a staking mechanism that they might have to be re-evaluated as to whether they are security. I appreciate your confidence, and I know you’re doing the devil’s advocate thing, but I’m hopeful about Gary Gensler in terms of some of his perceptions of the market. And to have someone who is a professor at MIT, I think is going to offer a lot. I’m happy to also announce, too, and I mentioned this to Corie. And it is confirmed, we do have Hester Pierce coming to speak to Cafe Bitcoin on May 21st about Bitcoin ETFs and all this. So, we’ll get a chance to ask her direct questions.

Speaker 38: (01:22:19)
So I’ll make a couple of comments here. People were asking about the revenue for Coinbase, and I’m on a chart right now, F25 in the S1. And it shows 2019 versus 2020. And I think this is indicative of why Coinbase is doing a direct listing, as opposed to an IPO, a priced round. Just take a look at Retail Net. So net revenue, transaction revenue, retail in 2019, they posted $433 millionish of revenue. In 2020, $1.04 billion. For institutional, $30 million of revenue in ’19. In 2020, $56 million. So not a huge growth number there, but the retail side has grown significantly.

Speaker 38: (01:23:03)
And so when you take a look at the … They’ve got subscription services, everything else, those are probably in the single digit millions up to a max of $20 million for 2020, but those are all significant growth rates from the prior year. So I think this thing is a slingshot pointed at the moon, as far as where their perspective is. And certainly, it gives me further conviction as to why they’re doing it a direct listing, as opposed to the traditional marketing for an IPO.

Speaker 37: (01:23:29)
It’s funny, the only thing I heard from that was, “All the retail people coming in and getting wrecked.” Look at all the retail people, the millions of retails that are coming in buying DeFi tokens, thinking this is just the same asset class as Bitcoin.

Speaker 46: (01:23:54)
Listen, if you buy something called Sushi Coin, or Hotdog Coin, or whatever, and you get wrecked, that’s on you, sorry.

Brad: (01:24:03)
Is there any way to discern though that-

Speaker 41: (01:24:07)
I’ve got a long on Sushi Coin.

Brad: (01:24:09)
… the inevitable dip or crash of the future Coinbase security, due to a prolonged bear market, especially what you see in 2018, with 99% draw downs on most of the alternative assets, playing as a narrative for … against Bitcoin as well? Because Coinbase is kind of seen as part of it.

Speaker 37: (01:24:32)
And I think that ties into why they’re doing this IPO right now. If you look on page 112, it says, “Since our customer custodial funds are included in cash and cash equivalents, and last year it was under a billion, and this year it’s … well from operating activities, they had $3 million in cash flows, and they’re keeping customer custodial funds included in their cash and cash equivalents.” So, just take that for what it’s worth.

Brad: (01:25:06)
Well, personally, I’m also just concerned about how it seizes the narrative against … in the market, almost as more [inaudible 01:25:13].

Speaker 41: (01:25:15)
Yeah, especially with the new … This bubble is even worse. It’s like you got a lot of reputational, highly respected people in the macro world or whatever, are just pushing the narrative that Bitcoin and crypto, and Ethereum and Bitcoin, and DeFi and Bitcoin. So it’s even worse this time. Last time, at least it was ICOs who were blatantly, obviously dumb startups that couldn’t get money from VCs. And there was just a FOMO bubble. But now, a lot of smart people are coming in and just swallowing this narrative that, “Well, I guess the future of finance is going to be on a blockchain.” So yeah, you’re right, man. When this blows up, I think this time is going to affect people’s perception of Bitcoin.

Speaker 46: (01:26:06)
Once again, if you listen to banana boy, Mark Cuban, and you think he’s intelligent, and you invest based on his advice, that’s on you.

Speaker 37: (01:26:14)
Yeah, the second part of that sentence, I was reading said, “Any large fluctuations in the related liability will directly impact our cash flow from operating activities. We believe our existing cash and cash equivalents will be sufficient to meet our working capital and capital expenditures needs for the next 12 months.” So any kind of blow off top, any kind of drop in the altcoins is really, really damaging for Coinbase.

Brad: (01:26:45)
So, it going to be net negative or net positive? What do we think if this thing goes out and it’s the IPO of the year? We know they’re a Shitcoin Casino [crosstalk 01:26:55] for Bitcoin.

Speaker 41: (01:26:55)
If they’re $9 billion over Goldman right now, this could be like Tesla or Apple, bordering that, but I don’t see it sustaining that.

Speaker 46: (01:27:03)
I think it’s net positive [crosstalk 01:27:10].

Brad: (01:27:10)
Yeah? Good for Bitcoin in the end?

Speaker 37: (01:27:11)
Definitely a net positive.

Speaker 46: (01:27:12)
Everything is good for Bitcoin, Brad.

Brad: (01:27:14)
I hope they’re employees [crosstalk 01:27:17] bigger believers in Bitcoin than the CEO because-

Speaker 41: (01:27:20)
Oh, they’re going mint thousands of millionaires, or at least a thousand millionaires. So hopefully they invest in Bitcoin startups, and buy more Bitcoin.

Speaker 46: (01:27:29)
I’m also excited to see guys like Morgan Stanley or Goldman eat their lunch. Because fuck Coinbase.

Jason: (01:27:39)
[crosstalk 01:27:39] There’s at least few BitCoin maximums of Coinbase.

Speaker 41: (01:27:43)
This is going to be another wind of another injection of cash into all these crypto DeFi protocol things. Because there’s a lot of these VCs that are going to have Coinbase stock now that it’s going to prolong the bubble, I think, the crypto bubble. [crosstalk 01:28:00]

Speaker 46: (01:28:00)
If they were smart, they’d go buy Bitcoin with it.

Speaker 37: (01:28:01)
So, they did $1.3 trillion in trading volume for the year. Did they disclose how much of that is in Bitcoin? Because that’s essentially the entire market cap of Bitcoin turning over every year. Obviously it’s not happening but-

Speaker 46: (01:28:15)
[crosstalk 01:28:15] is Bitcoin. Coinbase’s entire-

Speaker 37: (01:28:15)
… it might be 70%, 60%.

Speaker 46: (01:28:19)
Their entire business is Bitcoin, because every single Shitcoin they sell is a Bitcoin derivative.

Speaker 37: (01:28:24)
Yeah, $1.3 trillion in annual volume.

Speaker 41: (01:28:25)
Yeah, but even just directly, I’m pretty sure most significant majority of their volume is Bitcoin. That’s what I seem to hear from OTC desks, and people that are watching on chain volume and everything. It’s significantly all Bitcoin. It’d be nice if they reported that though. If they said, “This is how much of it was Bitcoin. This is how much of it was Ethereum, and this is how much of it was the rest of it.”

Speaker 39: (01:28:48)
I think that’s on coin market cap, actually. I think you can see it by exchange, and then actually see the pairs, and see what’s trading on different exchanges. It’s been a while since I looked. Tim, I don’t think you got a chance to speak, but go ahead.

Tim: (01:29:03)
Yeah, I was going to just say that people are talking about what the potential performance of Coinbase will be, or at least the equity when it’s released. And as I take a look at it, as a … if I put my analyst hat on, I’d say that there’s clearly a concentration of risk in the operating model. Because they custody cryptocurrencies. They earn a fee off of the trading of that from institutional retail customers, but that’s their only business. So, they get to custodial fees, et cetera. So there are other things that break down the revenue.

Tim: (01:29:38)
But if you take a look at other market incumbents, so to speak, like Morgan Stanley, BNY Mellon, Fidelity, they’re all making moves to turn into their lane. They’re a lot more diversified in terms of their businesses. So if Bitcoin takes a dump, or if cryptos in general, take a dump, their businesses are not going to be as effected nearly as bad as Coinbase. So you’ve got some significant concentration risk in Bitcoin … or in Coinbase. And that’s something that they’re probably going to be thinking about diversifying a way. They have a fiduciary responsibility once they become a public company to protect shareholder values. So, that’s one thing I’d be looking at.

Carol: (01:30:14)
Has anyone considered-

Speaker 41: (01:30:14)
Real quick on-

Carol: (01:30:14)
Has anyone considered the value of the customer base? It’s a very large customer base. And if you look at traditional FIS, some of them, at least some of the models have historically bought others because of the customer bases that they have. So, I don’t know if that’s figured into anyone’s calculation.

Speaker 41: (01:30:39)
Oh, sorry. I think the government is going to be a big customer, because they have a surveillance company they bought last year, and they already have a government [inaudible 01:30:48].

Jason: (01:30:47)
The other thing I’d like to point out is they have a lot of accounts that are just people who signed up with their email address, maybe gave some information, and they count that as accounts or users. But they’re not customers in the sense that there’s no money in those accounts. They have a lot of those, which I think all the exchanges have. They all have that to juice up their numbers. But yeah, what really matters is how much is being transacted and the [crosstalk 01:31:22] really.

Speaker 38: (01:31:24)
Just envision that discussions going on in C-suites across bank / investment banks across Wall Street looking at the market cap of Coinbase. These are not happy people. [crosstalk 01:31:41]. So, they’re just not happy people looking at that. Trust me, they’re not. [crosstalk 01:31:48].

Speaker 37: (01:31:47)
It would be about $1,600 per customer.

Speaker 41: (01:31:51)
It’s about $2,100. If you look at $120 billion valuation right now on the FTX futures market for the IPO, and then $56 mil or whatever, that’s like $2,100 per KYC user. As far as transacting users, they’re at 6 million. So, that’s about $20,000 per user. So obviously, there’s a ridiculous amount of growth priced into where the market is seeing it right now. I also just took a look at last 24 hours volume on Coinbase. And it’s 19% Bitcoin to USD, 13% Eth USD, 6% Litecoin, 6% Stellar, 4% Link, 4% Cardano. So basically, and then there’s like a 2% Bitcoin to Euro. So I’d say, if you add up all the Bitcoin to different fiats around the world, you’d probably get-

Speaker 47: (01:32:43)
Objection.

Speaker 41: (01:32:44)
… 22% or something like that, would be my guess. Did anybody spot who’s doing the objection thing? Because we [crosstalk 01:32:51]. Who is it?

Speaker 48: (01:32:55)
Maybe [Neenan 01:32:57]. Can anyone else confirm that?

Speaker 49: (01:32:58)
I thought it was Sam.

Speaker 48: (01:33:01)
There’s also a Spencer down here with his mic on.

Tina: (01:33:03)
[crosstalk 01:33:00] There’s also a Spencer down here with his mic on.

Spencer: (01:33:10)
[crosstalk 01:33:10] Sorry, this is Spencer. Can you guys hear me?

Tina: (01:33:14)
Yeah. We can hear you.

Spencer: (01:33:15)
Okay, cool, cool, cool. Yeah. This is my first ever comment in clubhouse, so go easy on me. My main observation on the S1 in the IPO, I used to cover IPO’s a lot when I was a journalist at Business Week in the Wall Street Journal. I covered the Facebook IPO, the Google IPO. The thing that really jumps out at me is a hundred billion dollar or a hundred plus billion dollar valuation is incredibly rare for an IPO, and Facebook I think was the last company that had a hundred billion dollar valuation on the IPO, and the profitability of the company is just spectacular.

Spencer: (01:33:55)
It’s very rare that you see a company going public with multiple billion dollars of profit and margins at the level that they see. So it’s incredibly impressive. But the thing I wonder, putting on my former journalist hat is, Facebook had incredible network effects, which gave them really high barriers to entry. And what I wonder about Coinbase is all those other Wall Street people that that guy was talking about who were not happy about this, they’re going to be coming after these guys hardcore. They already are. And I wonder what people think about how, big is the moat that Coinbase is building around its business?

Connor: (01:34:32)
Zero.

Spencer: (01:34:33)
How sustainable is it?

Connor: (01:34:35)
Zero. They don’t have a moat.

Lamar: (01:34:38)
[crosstalk 01:34:38] There is no moat.

Speaker 51: (01:34:43)
[inaudible 01:34:43] It’s actually really good to see the business carved and sliced up by others. That’s a huge positive for Bitcoin. You want to see the business carved up and sliced up by other companies. That’s good for Bitcoin.

Spencer: (01:34:54)
[crosstalk 01:34:54] What about an investor who’s thinking about buying or not buying the Coinbase stock? What I’m hearing from you guys is, don’t buy it.

Speaker 50: (01:35:01)
What he’s trying to say is their moat [inaudible 01:35:05]has to be for the institution. So yes, you may have Morgan Stanley and Goldman Sachs have the crypto, but they’re probably not going to custody it. So they’re trying to say they give a full all-in-one solution on custody. And they can point to Tesla. They can point to micro strategy. Whether or not that’s as big of a moat as they would say it would be? Probably not.

Lamar: (01:35:26)
They also have incredible goodwill in their name, right? Just from the standpoint of investment, people know their name. If you ask any person on the street about where they buy Bitcoin, they’re going to say Coinbase, I’m telling you, we see it every day. So, I mean, they got that piece from that perspective. But other than that, man, their business is not that difficult to actually replicate.

Speaker 51: (01:35:51)
Liquidity begets liquidity on exchanges as well. You see this in financial markets, whoever has liquidity, this is why people are always paying market makers to support their stocks. And this is how things work. You can’t just start an exchange that has slightly a better technology and unseat NASDAQ and NYSE, you would have to work for many, many, many, many, many years to flip in a major exchange. It’s the same thing with Coinbase. People are used to going to Coinbase because they have deep liquidity compared to what else is out there. That’s going to persist for a long, long time alongside the brand equity that they’ve built up since 2012 as Lamar said.

Speaker 50: (01:36:28)
Something that I haven’t heard said yet is, I think this is going to shine a very bright light on tax treatment for cryptos. Because, Bitcoin is basically buy and hold, but all corners, for the most part, trade a lot. And they’re going to be releasing quarterly numbers about the trading activity. And it’s not going to take a resident genius of the IRS to figure out there’s a lot of under-reporting in trading activity when it comes to doing taxes. So it’ll be interesting to see how that develops.

Spencer: (01:36:56)
Oh yeah. A hundred percent. I think when the person asks, is this a net positive for Bitcoin? I would say absolutely, yes. But I would say the flip side of that is with greater power and visibility comes greater responsibility. So this is going to trigger a whole other new level of scrutiny of this space that you’re not going to believe.

Speaker 51: (01:37:17)
I have a quick question, if anyone wouldn’t mind.

Patrick: (01:37:22)
Go for it.

Speaker 51: (01:37:22)
Are there any potential downside risks to the overall Bitcoin price if Coinbase gets overvalued? So we were just talking about how, in regards to their moat, I feel like people who don’t typically dip their toes into the Bitcoin or crypto ocean think that Coinbase is going to be the Facebook and you know, that pipe-

Patrick: (01:37:59)
No, I don’t think the price of Coinbase is going to drive the price of Bitcoin. But I do think with what Spencer’s talking about with additional scrutiny coming out of this, that ties directly in with what their moat is. You saw the news article today with the trade association, they’re starting with Fidelity and with Square. I think that whenever you’re a company that’s of this size, your only economy of scale is to create barriers to entry to the smaller competitors in the marketplace. So I think that they’re actually going to fight for a little bit more obsessive regulation on the smaller people. So that’s something for us to think about too. What kind of innovation is going to be blocked because Coinbase needs to protect its market share?

Connor: (01:38:42)
It’s the opposite way around too. Coinbase is sucked into Bitcoin’s gravity and not the opposite.

Alex: (01:38:46)
This is Alex. I want to piggyback on Patrick’s comment too, because that was my thought initially, is that with all the different variables in the marketplace, exposure to CME and ETFs all having correlation to Bitcoin’s price with the CMEs trying to close the gaps at the end. I just felt like, with Coinbase as big as it is, and people consider it the holy grail with an investment into Bitcoin, I know there’s the Gemini’s of the world, but really Coinbase is the US exchange of choice, so my thought really is that any kind of bad press outside of a huge hack, like Mt. Gox, I do think there could be some correlation negatively against Bitcoin. But that’s just my opinion.

Connor: (01:39:33)
That’s incorrect.

Speaker 53: (01:39:34)
That’s wrong. You don’t know what you’re talking about.

Alex: (01:39:37)
I disagree because they don’t even hold enough Bitcoin to matter. There’s a car company that has 10 times more Bitcoin than Coinbase. So if Coinbase goes down, Bitcoin doesn’t care.

Patrick: (01:39:49)
If anything, Bitcoin is going to be the only thing that saves Coinbase and its reputation.

Speaker 52: (01:39:56)
Hey guys, quick question. I’m just listening and I’m sorry for my ignorance, but the two questions I have about the Coinbase, it’s a direct listing, so they’re not raising funds to do something. So basically, when you’re looking at the tweeters and all those investors, so many investors bragging about how much money they’re going to grab. So basically for me as just a regular person, when I’m looking at the Coinbase IPO, it’s the way for all those guys to cash out, because otherwise they don’t really need money to carry on or I’m wrong.

Speaker 51: (01:40:37)
No, you’re right. That’s one of the underpinnings of a direct listing is that it’s not a primary issuance, meaning they’re not issuing coins and then cash that’s raised is going into the corporate treasury. It’s going to be releasing all the early backers of the company, so the founders, some of the early employees. And what they’re going to do is they’re going to work with their bankers to determine what percentage of the private shares are going to be released and who gets an allocation to be able to do that. So, that is ultimately what’s going to happen. The benefits to an investor for a direct listing is that you don’t have a lockup. So typically, somebody mentioned the Facebook ITO earlier, that if you bought into ITO you had a six month lockup, you couldn’t trade it.

Speaker 51: (01:41:23)
And, Facebook tanked after the ITO, it went up a little bit and then it tanked. And a lot of people got out after the six months and they’re kicking themselves for it. You don’t have that restriction with Coinbase because of the direct listing. So you could buy it and immediately flip it. So there is a little more, I guess, investor friendly structure associated with direct listings.

Patrick: (01:41:45)
Yeah. I think it’s also worth mentioning the other reason to do a direct listing, other than giving founders liquidity in the event that you’re not raising money, is that you’re getting access to debt, right? If you have a market price for Coinbase shares, those are things you can more easily borrow against. And so, if they’re really bullish on their future, it’s better to raise money via debt than equity.

Speaker 51: (01:42:06)
Yeah. And I also think that it’s a strategic thing and a blessing for Coinbase to be able to do a direct listing. Number one, you take a look at their ’19, ’20 numbers, and it’s just, like I said a slingshot pointed at the moon, they’re taking advantage of it. And any type of go to market or go public scenario is going to take advantage of sentiment. So, if they were to go through a typical marketing process and have an underwriter underwrite their shares, it might end up like we work. Where all of a sudden you find some things in the cashflow statement or the balance sheet that just aren’t right. And it blows the whole thing up. So I think they’re being opportunistic, strategic, and they’re definitely going to mint a lot of millionaires in Fiat.

Speaker 52: (01:42:49)
Okay. So second question, I was watching Coinbase, and I’m really surprised that they went public because Coinbase had the old opportunities to become a crypto stock exchange. Why didn’t they take that? They just kind of became another stock in the stock market rather than creating all this crypto based stock exchange platform. That’s what I was hoping they would take toward.

Speaker 51: (01:43:23)
What? Yeah, I agree. What?

Speaker 52: (01:43:30)
So basically what I was seeing is Coinbase had an opportunity become a crypto based stock exchange. So any company can list on the Coinbase stock exchange, but trading happens on the crypto, not the dollar or anything else, right?

Speaker 51: (01:43:49)
Yeah. I think you’re talking about a security token exchange. I don’t think those are very large. There’s been very little equity on those things. It wasn’t something that Coinbase was particularly interested in.

Speaker 50: (01:44:03)
I think BlockFi talked about maybe doing something like that at some point.

Speaker 52: (01:44:08)
I just think that would serve the Bitcoin and crypto benefits, more than Coinbase just going ITO at this stage.

Speaker 53: (01:44:17)
They have to do that in accordance with the SEC. They can’t just list things on their exchange and say “we’re listing crypto stocks here.” They can’t do that. This is the United States and that doesn’t fly. So I’m not sure what you’re talking about, but that doesn’t fit any regulatory framework whatsoever.

Patrick: (01:44:43)
One follow-up comment on the correlation between Coinbase and Bitcoin. If you think about, if everyone just becomes huddlers, that would result in more upside to Bitcoin. But at the same time, that would be a negative for Coinbase because trading volume goes down.

Speaker 53: (01:45:02)
That’s why they don’t like Bitcoin.

Patrick: (01:45:05)
Yep. No, I a hundred percent agree a hundred percent.

Speaker 53: (01:45:08)
But not everybody are hobblers there’s there are plenty of people who don’t hobble. And at the end of the day, like Ace Greenberg said “we’re in the moving business, not the storage business.” He was head of Bear Stearns, a company that went under a few years ago.

Speaker 51: (01:45:27)
Yeah. I mean, that’s analogous to custody for securities and the big firms. So say for example, you’re an entrepreneur, your company gets bought out by another company, and it’s a stock and cash deal. You get a percentage in stock, you get a good percentage in cash. Some people feel bullish about the company that just acquired them, so they want to hang onto the sheriffs, they don’t want to trade it. So that’s a custody opportunity. No financial institution that I know of will custody shares, unless you’ve got a broader relationship that’s generating revenue. Period.

Connor: (01:45:57)
Coinbase also has basically tracked Bitcoin as an investment. Coinbase has been the A-plus, knock it out of the park, home run, venture bet in this space, and it is at par with Bitcoin.

Speaker 50: (01:46:15)
So Connor, what would you rather hold over 10 years, Micro Strategy or Coinbase?

Connor: (01:46:20)
Bitcoin. Fuck both of those.

Speaker 53: (01:46:26)
That’s the right answer.

Speaker 54: (01:46:31)
In regard to coins lost, I’m reading it’s estimated between three and 4% is lost annually. I’m not sure of those numbers, but supposedly there’s more lost than new coins are coming into the market.

Speaker 50: (01:46:49)
I don’t think that will continue.

Connor: (01:46:51)
I don’t think that’s accurate either.

Patrick: (01:46:52)
When was that put out?

Alex: (01:46:56)
And are you just taking the aggregate of everything that’s ever been lost? Because yeah, sure. There was a ton of coins that are unrecoverable from the beginning because no one thought they were worth anything.

Connor: (01:47:07)
Most Bitcoin is not lost nowadays, it was lost in the early days, like Neil said, when it was literally worthless. I mean, a single Bitcoin is $58,000, that’s a midsize luxury sedan. How often do you misplace your mid-sized luxury sedan? You know what I mean?

Spencer: (01:47:21)
I wonder if it’s an average year over year. So the first few years was a ton because nobody had any idea what they were handling. And if you include the Satoshi’s wallet, that’s a shit ton. But nowadays I don’t think it’s as nearly as common.

Speaker 53: (01:47:36)
Why do people obsess over how many coins were lost anyway? I mean, you can divide up the 16 decimal places on the lightning network. There will always be coins available. Availability is not the same as supply. There will always be coins for sale. They will always be available to some degree. It doesn’t matter how many coins were lost.

Spencer: (01:47:53)
It does matter though, because if you say three million coins are lost then you’re taking out of the total supply. That market cap is completely affected by the coin.

Speaker 50: (01:48:02)
It’s the one variable with regard to supply that’s pretty much unknowable. So that’s why it matters.

Spencer: (01:48:11)
But we know the price. We know the price now.

Alex: (01:48:16)
The price of Bitcoin now is pricing in what the market thinks is available.

Connor: (01:48:23)
There’s about three million-ish coins lost. And the idea that they’re being continually lost overtime is stupid.

Speaker 53: (01:48:31)
Price of anything is always at the margin. Nothing is priced on the average. Doesn’t matter what the lost coins are. Trading always occurs at the margin. Pricing always occurs at the margin. That’s the way pricing works.

Spencer: (01:48:45)
So let me throw out two other things to think about in terms of the Coinbase business that I would probe if I was a journalist. we mentioned brand equity as a strength and we mentioned first mover advantage and market share, i.e. liquidity. The other two things I’m thinking about are the strength of the management team. I remember meeting Brian Armstrong when I was at the journal in 2014, and I set up a Coinbase account, and that’s after they raised their first one hundred million from USB. And I was pretty impressed.

Spencer: (01:49:18)
He had a pretty bold vision, which he’s clearly executed on. So I would think, what do we think about Brian Armstrong as a leader and as someone who you would trust your money with? And then secondly, the product itself, I got to say, it’s a beautiful product. It’s easy to use. How hard is that going to be to copy as they keep innovating, right? They have a big lead. Can they keep that lead on the product roadmap too?

Connor: (01:49:47)
I wouldn’t trust Brian Armstrong as far as I can throw him. And I was on their app just recently. I think their UI is shit. It’s cluttered and it’s ugly and it’s confusing.

Alex: (01:50:02)
Could you condense what that vision was that he told you? Like in a sentence or two?

Spencer: (01:50:09)
Well, this is six or seven years ago.

Connor: (01:50:13)
Eric just joined. Let’s get Eric up here. He used to be a Coinbase employee.

Spencer: (01:50:17)
Yeah. He talked about basically dominating the market for trading cryptocurrencies. This whole vision of economic freedom, that’s a later bill he came out with. But from the beginning he was thinking about dominating the market for trading in cryptocurrencies.

Alex: (01:50:37)
I don’t think what they’re doing is demonstrating economic freedom. That they care about that. But that’s just my opinion.

Lamar: (01:50:45)
But my question is, is Binance doing a better job with that vision? That’s the question. We don’t know Binance’s numbers, but.

Alex: (01:50:56)
Binance has five times the amount of new signups than Coinbase does. They’re executing way better.

Connor: (01:51:02)
Yeah I’d say Binance is 10 times bigger and better than Coinbase.

Lamar: (01:51:11)
Yeah. That’s what I’m saying. Truthfully again, I think Coinbase is leaning heavily on the name of Coinbase, real talk. That’s not a bad thing, it’s what you do, right? But I think that because there is no moat, look what Binance is doing, look what FTX is doing. There are a lot of different exchanges popping up and we still don’t have Wall Street in the game yet. That’s the thing, when wall street gets in the game, the banks get in a game, I think it’s going to change a lot. [crosstalk 01:51:39].

Spencer: (01:51:39)
Got to get this one big one in that list?

Alex: (01:51:41)
Yeah we’ll see how good the leadership is as soon as CZ and Sam Bankman-Fried’s plans really catch on. And as well, like Lamar mentioned, the big players on wall street. But I think something Tina brings up a lot that I haven’t heard mentioned since I rejoined the chat 10 or 20 minutes ago, is these guys are middle services, they’re going to be outmoded as more and more decentralized options get built and developed and built to scale.

Speaker 50: (01:52:20)
Of Coinbase is going to be the shitcoin casino they’re in trouble because Uniswap is two years old and almost a third of the way to where Coinbase is, so.

Lamar: (01:52:30)
Let’s be real, bro. Uniswap they only have 44,000 people using. Let’s just be for real about that. We’re talking about 56 million people versus 44,000. It’s not even close, man. Let’s be completely honest about that situation. [crosstalk 01:52:46].

Speaker 52: (01:52:46)
I want to comment on this 56 million. 56 million is larger than the largest global banks around the world, it’s larger than Square, it’s also larger than Robinhood. So, it’s quite high. And we’re at the early stages of this parabolic move. This is huge.

Spencer: (01:53:06)
56 million members, basically you gave them an email address that you verified. That’s not a very good number.

Speaker 52: (01:53:15)
Every company you look at Twitter, banks, Robinhood, they also have these accounts. My guess is it’s probably five to 10%.

Alex: (01:53:25)
Didn’t someone say 6 million of their users are transacting actively?

Spencer: (01:53:30)
Yes 7.2.

Speaker 50: (01:53:31)
They said it doesn’t matter because they disclose the transaction volume, which is 1.3 trillion annualized.

Connor: (01:53:38)
Hey Eric, what Coinbase number employee were you?

Eric: (01:53:43)
It’s hard to say because I started as a contractor and they kept me on as a contractor for 18 months until I actually joined. So that’d be hard to actually pin down a number, but I was in the first traunch of support folks that came on. There were six of us, and then in the end I think there were three of us or so.

Connor: (01:53:59)
Yeah, you were there really, really early though, that’s my point. Right?

Lamar: (01:54:02)
Hey Eric, did you know Luke Riddle?

Eric: (01:54:05)
Yeah. I do know Luke. Me and Luke worked together quite closely. I like Luke.

Lamar: (01:54:11)
You know what’s so funny, I literally was the person that orange pilled him. He came with his fiance at the time and I talked to him, and then next thing I know he’s like “Lamar, I work at Coinbase.” I was like, what? It was crazy. He wasn’t even fooling with Bitcoin. So now I’m going to start telling him when this stock goes live, man, I’m going to need some of that.

Eric: (01:54:31)
Yeah. He was a great guy. Same thing with his fiance, she actually worked on my team for quite a while. She was quite a go getter.

Lamar: (01:54:39)
Yeah. He’s an amazing dude, man. I love that dude. But yeah, that’s funny because that means he was early with you. I’m going to need some of that stock when it goes live, man, I’m going to have to hustle him down, shake his legs out.

Eric: (01:54:50)
Yeah. The thing that I’m excited about the Coinbase IPO is that this to me looks like the first real event of Wall Street getting involved in a big and meaningful way. And it opens up a lot of other things to happen here. And people were talking about Binance against Coinbase, something somebody else pointed out to me is, this valuation really sets the terms for exchanges across the board. And so, it’s interesting to see this happening because Coinbase is going to act as a metric for other major extremes such as Binance, Gemini, whoever else that might want to get into the space at some point. So.

Speaker 51: (01:55:27)
Yeah, there’s clearly a watermark for the industry, for exchanges that want to issue securities. So it’s definitely a watermark. But somebody had mentioned that they wanted to shake somebody down to get access to the Coinbase shares. When it direct lists, you don’t need to shake anybody down. If you’ve already got a brokerage account and you have the ability to put in your own trades, then you can access it. All you have to do is put it in a-

Lamar: (01:55:49)
I want them free. That’s what I’m saying.

Speaker 51: (01:55:51)
Oh, got it.

Lamar: (01:55:52)
I want them to free. I’m going to tell him, look, man, I love him to death, he’s a really good guy. Me and him have been cool since then, but he came to a little conference I had, a little thing at the local community college, and then after that he hits me up and says he works at Coinbase. And now I know those options are about to get busy. So I’m going to shake him down, man.

Speaker 51: (01:56:15)
Well, what’s interesting is seeing all the chatter and activity going on with family offices and ultra high net worth investors. I’ve already seen a couple of emails in my groups where somebody has access to a pool of pre- public shares. And so what’s going on is, you’ve got some people who are early backers who are employees or what have you, and they’re finding people who want to buy shares of Coinbase before it direct lists, to get their liquidity early, or perhaps they’re worried about the performance, et cetera. So that’s really interesting. It happened with Roblox, it’s happening with Robinhood, all these companies that are going public, there’s always a market for the pre-IPO or pre publishers.

Ron: (01:57:01)
Sorry guys could I ask a question. It’s Ron.

Eric: (01:57:06)
Hey, can you actually hang on real quick? I just wanted to provide numbers on Binance. So Binance last 24 hours volume, obviously we aren’t as sure about their numbers, but still, order of magnitude $44 billion in the last 24 hours versus 3.2 for Coinbase. Last 24 hour visitors, 26 million for Binance versus 4.3 million for Coinbase. So, when we talk about Binance doing a lot since launching in 2017 versus Coinbase launching in 2012, that’s the performance that we’ve been seeing.

Alex: (01:57:42)
Yeah, Binance is crushing Coinbase.

Speaker 50: (01:57:46)
Do we know how much Binance owns though?

Alex: (01:57:46)
The other thing too is CZ said publicly that he doesn’t sell the Bitcoin fees that they generate where Coinbase just dumps all their Bitcoin fees.

Eric: (01:58:03)
On another note, actually Alameda FTX was doing 11 or $12 billion a day back in January. So I’m not sure where they are now, but I could assume it’s probably 15 to 20 a day versus Coinbase at three. If that BNB token were actually equity, I would’ve bought that thing when it was like six bucks. [crosstalk 01:58:25].

Patrick: (01:58:24)
Until they changed the white paper, it kind of was.

Eric: (01:58:34)
I think they just offer you a discount on their trading there. Right?

Patrick: (01:58:37)
Originally they were going to use corporate operating profits to burn tokens and they actually did that. And then they changed the white paper.

Eric: (01:58:44)
Well, burning, burning tokens is not the same as actually having access to their cash was.

Patrick: (01:58:49)
Correct.

Eric: (01:58:49)
So if they were that I would have absolutely bought a chunk of that because they were the shitcoin casino, but it wasn’t equity, so. I guess I shouldn’t have bought it anyway. I mean, stupid thing went up so much.

Speaker 50: (01:59:03)
People are only buying it because it’s new kind of like PolkaDot and Uniswap and what’s the other one, Chain Link and all of these new ones, people want the new ones because they want to get in on the next Bitcoin. They don’t want XRP, XRP has been around for a while.

Eric: (01:59:24)
No I said Binance.

Speaker 50: (01:59:25)
I know, I know BMB is one of the new ones, right? That’s why I’m saying people are buying into it.

Eric: (01:59:29)
It’s been around for a while. But I was-

Speaker 50: (01:59:33)
A while compared to 2017, I think it launched in 2018 or something. It’s still fairly new.

Eric: (01:59:38)
I only would’ve bought it if it was actually equity. If I could have equity then I would buy equity.

Connor: (01:59:45)
I want to share this tweet for the people who were talking about, should investors buy Coinbase or should they buy Bitcoin? This is from my boy Bitcoin Hype Man on Twitter he said that Coinbase’s Q1 revenue was 1.8 billion, Micro Strategy’s Q1 profit on their 70K BTC they held was 2 billion. So there you go.

Eric: (02:00:05)
You’re much better off owning Bitcoin than any of this crap. Honestly, just buy Bitcoin. Bitcoin is better than owning any of this junk, all the stuff is transitory. These exchanges won’t exist in 10, 12 years because no one will be coming out of Fiat at that point, they’ll just be buying things directly. That’s how you’d be earning Bitcoin. The whole world’s going to change. Unless they change their businesses, you just want to own Bitcoin. [crosstalk 02:00:33].

Lamar: (02:00:33)
For the record for the record, Hoddle said that at 6:15 PM Eastern, I just want to say that for the record.

Spencer: (02:00:42)
What’s your best guess for their business and how it evolved? Because obviously they bought things like Earn.com, and do you think they’ll be able to escape the shitcoin casino and build a different business?

Connor: (02:00:51)
No.

Speaker 50: (02:00:56)
It feels very Google-y to me. Google tried to expand into lots of businesses, but they never got away from the fact that really they were just an online ad machine. That’s it. That’s most of their revenue to this day. They try to diversify into Android and phones and email and storage and all this other stuff. But all of that revenue combined doesn’t even compare even a little bit to what really drives that company, which is ads. Similar thing to Coinbase, they’ve been trying to diversify, they want to have different sources of revenue besides Bitcoin, but everything else is very little relatively speaking. I don’t know, they could try to copy Binance, but given the regulatory burden that they have, I think that it’s going to be much harder for them to catch up to Binance. And if they want to go Bitcoin only then, well, I don’t think their CEO really wants to. You’re going to need some sort of activist board members in order to make that happen. And I think they’re inevitably going to be a shitcoin casino.

Lamar: (02:02:12)
Here’s the thing long term, even if they went Bitcoin only, Jimmy, think about it. If we’re talking about hyper Bitcoin realization, at some point you’re not going to need to trade your fee out for Bitcoin as much because you’ll start getting paid in it, it’ll start coming to your wallet.

Speaker 50: (02:02:27)
Right. I mean, they have to pivot to Bitcoin banking services or something like that. Or being able to do a centralized second layer or something. Yeah, they’d have to do some pivoting. It does have a lifespan.

Connor: (02:02:48)
The problem with those pivots are, large holders of Bitcoin largely will only gravitate towards Bitcoin only services. And Coinbase has just burned so much goodwill in the community, I don’t think they’re ever going to grab a toehold in Bitcoin banking. They have a short time period to be a shitcoin casino. I hope they squeeze all the juice out of that lemon that they can then ride off into the sunset.

Speaker 50: (02:03:13)
It’s like a hoddle. It’s the way you’re talking about. It’s almost like Bitcoin is using and abusing them. And then once the shitcoinery comes to an end, there’ll be done. It feels long and then everyone’s just of the opinion that they’re a foundation and it’s a coin casino and they’re not going to be able to escape that. I mean, I could see how they could get into doing earnings and stuff, but then you start thinking about wages and stuff like that, then you start thinking about BTC pay server and how all of this stuff is eventually moving towards decentralized open source options that don’t charge anything.

Eric: (02:03:44)
I make a prediction that Coinbase is going to be acquired by one of the major investment banks or buddy center banks in United States. That’s my prediction. [crosstalk 02:03:54].

Speaker 50: (02:03:54)
But they’re just going to be so big. I don’t know how you could acquire them [crosstalk 02:04:00].

Connor: (02:04:00)
Get acquired by the banks all the time. [crosstalk 02:04:03]

Speaker 55: (02:04:01)
By the banks all the time.

Speaker 56: (02:04:02)
Either way.

Speaker 57: (02:04:03)
Yeah. I think Coinbase is going to acquire a large investment bank.

Speaker 55: (02:04:07)
Yeah. [inaudible 00:00:07] One of the benefits of dealers direct listing is they have an incredibly valuable currency to play around with. People are talking about Facebook and Google before, but the reason that Facebook and Google actually continue to grow is because they did really smart MNA. Facebook acquired Instagram for a billion dollar. Everyone thought they were out of their freaking mind. It turned out to be probably the greatest acquisition in the last 20 years. Then Google acquired YouTube and it gives them a whole other huge revenue stream, which was still based on advertising, but it was a different part of the advertising market that they didn’t have any share in. I would watch out for Coinbase using their currency to do consolidation or strategic MNA.

Jimmy: (02:04:53)
They’ll do a merge with Square and with Fidelity or something like that.

Speaker 55: (02:04:58)
Well that’s the thing, the stock isn’t their’s. The early backers and the current executive team is going to sell their private shares into the secondary market. So, the owners of that stock, they’re not going to have any, I guess they’ll own shares themselves, but it’s going to be owned by people. So I think that the play here, if they’re going to do smart MNA is they’ll go public through direct listing, they’ll have float, they’ll have a valuation and then they’ll be able to issue debt. With rates so low right now they could issue long-term bonds. They have a good revenue model right now, and they could use that as a way to acquire other businesses. They’re not going to make acquisitions.

Jimmy: (02:05:38)
Horowitz is the controlling shareholder with 25%. Whatever Andreessen Horowitz wants, that’s what’s going to happen.

Speaker 55: (02:05:45)
Agreed. I doubt that it’s going to be that play, but probably issuing some debt [inaudible 02:05:51].

Speaker 58: (02:05:51)
Marc Andreessen was on the board of Facebook for a long time. So think about that.

Speaker 55: (02:05:56)
Well, if that’s the case and what do you guys think Andreessen Horowitz wants?

Speaker 59: (02:06:02)
They want to get acquired. That’s their play. Andreessen Horowitz, that’s their whole play. They buy into companies and they’re looking for a pop on the acquisition of that company.

Speaker 57: (02:06:11)
I think Andreessen Horowitz is,

Speaker 55: (02:06:12)
I meant specific to Coinbase, not their playbook, generally. Somebody said that whatever Andreessen Horowitz wants is what Coinbase [inaudible 02:06:21] and Andressen Horowitz is the majority shareholder. That’s the largest single shareholder. So what do they want? What do you guys think they want?

Speaker 57: (02:06:28)
I think they’re trying to make the next Facebook.

Jimmy: (02:06:31)
I think it’s a decentralized web or web three, like thesis that they hope Coinbase can maybe be a cornerstone of. That’s a silver lining or whatever, if you will, of what their plans may be. Of course, it could just devolve into more shitcoin or more token printing and casino betting.

Speaker 55: (02:06:54)
So, side note, should I invest? There is a Canadian company with the ticker coin and that’s what Coinbase’s IPO listings going to be. This is trading on the venture exchange and the name of the company is Coin Hodl Inc. with a market cap of 4.5 million. How high do you think that market cap is going to be by about April 20th?

Speaker 57: (02:07:18)
40 million.

Jimmy: (02:07:20)
I’m thinking about picking up some shares. I got to convert to Canadian dollars though.

Speaker 57: (02:07:28)
Same thing happened with clubhouse earlier this year. I think an interesting pivot for Coinbase, I think it’s a stock called Coin that’s listed in Canada.

Jimmy: (02:07:45)
It’s Coin Hodl Inc. I love the name.

Speaker 57: (02:07:49)
If I ran Coinbase, I would just raise a ton of money and then buy Bitcoin.

Jimmy: (02:07:55)
Yeah, that’s what they’re gonna do. I think that’s what they’re gonna do. In about, over the next year, they’re going to acquire more Bitcoin. Because I don’t see how they can stay solevant otherwise.

Speaker 57: (02:08:07)
What do you mean? They’re making tons of profit. Why would they not stay solevant?

Jimmy: (02:08:12)
In 2020 they did. And in Q1 2021, it looks like they are. Eventually when prices stabilize and the shitcoin sell off, I don’t think they’re going to have a lot of solvency. There’s not going to be as much demand.

Speaker 55: (02:08:24)
I agree with you a hundred percent there. As soon as all coins seem less appealing and people have better options for the shitcoin casino, their Bitcoin volume has been just horrendous, lately. Which is great. It means people are buying and keeping their Bitcoin. But I think you’re going to run into trouble if people basically shitcoining as hard as they are.

Speaker 57: (02:08:46)
Yeah. There’s going to be a lot of people with sour grapes that are gonna not want to get back into Bitcoin where they’re not going to want to go with Coinbase again. So they’re going to have to profit off of the next big Bitcoin bull run. I think they’re going to have to buy Bitcoin, especially when you know all of what the miners are producing is getting bought off right away. They’re going to have to buy up on the next tapering off.

Jimmy: (02:09:13)
But can we trust Brian Armstrong to buy the dip and hold it? It would be even worse for Coinbase. If they bought a hundred thousand Bitcoin and then were forced to sell it off.

Speaker 57: (02:09:24)
They can just buy it back from the customers.

Jimmy: (02:09:28)
They haven’t demonstrated conviction on Bitcoin itself for six or seven years. So, I don’t see them changing that.

Speaker 57: (02:09:39)
They’re not going to buy Bitcoin. They should, but they’re not going to.

Jimmy: (02:09:41)
Yeah, if you were talking about what Andreessen Horowitz wants, well just look at what Andreessen Horowitz was doing. They’ve got 816 crypto, they raised, I think it was $300 million six months ago for, specifically to invest in DeFi coins and NFG coins and all this stuff.

Speaker 58: (02:09:59)
The first one was 300. The new one is 500.

Jimmy: (02:10:02)
Oh right And now they’re going to get some liquidity on this. So what are they going to do? They’re not going to buy Bitcoin. They’re going to pile it into all this other shit.

Speaker 55: (02:10:11)
I think this can guide us in terms of Coinbase’s history with crypto assets. If you take a look at the cashflow statement in the S1. This is consistent between 2019 and 2020, proceeds from settlement of investments, that’s a line item and there’s two lines purchase of crypto assets. In 2019, they purchased 271 million of crypto assets and they sold 272 million worth of crypto assets the same year. In 2020, they bought 528 million. They sold 574. So, as soon as it comes in, they’re selling it.

Speaker 57: (02:10:47)
I wouldn’t be surprised if they, do have a breakdown of what they’re selling? I wouldn’t be surprised if it was comp tokens and urine tokens and MakerDao governance tokens and all this stuff. They’re making a market for all these DeFi pre-sales that they buy.

Jimmy: (02:11:02)
Well, I did see a line item for warrants. They’ve got about, I think the line item was one and a half million coins of ripple that they have a warrant on. Generally, you get warrants when you buy out a company or you purchase securities, so you make an investment and it’s an equity kicker. So it’s a sweetener to the equity that you’ve just purchased. I don’t know if they’ve made an acquisition and that acquisition had some coin attached to it, but they’ve got warrants out there for ripple.

Speaker 60: (02:11:31)
Ripple has a lot of warrants out on it right now.

Speaker 57: (02:11:39)
I think we need a warrant out for Coinbase.

Speaker 56: (02:11:44)
Wanted dead or alive.

Speaker 60: (02:11:49)
Wanted 80% drawdown. So I guess the consensus here is nobody’s buying Coinbase.

Speaker 59: (02:11:57)
Why would you? You could buy Bitcoin. It’s way better.

Speaker 57: (02:12:01)
Let the boomers buy Coinbase, we’ll buy Bitcoin.

Jimmy: (02:12:07)
It’s a nice trap for everybody that’s enthusiastic about crypto, but don’t really get Bitcoin yet though. They’ll learn.

Speaker 55: (02:12:15)
That sums it up perfectly Jimmy.

Speaker 57: (02:12:17)
Or maybe they’re not enthusiastic about crypto or whatever this whole space, but they’ve been looking for something they’re comfortable with to get some exposure to it. They’re not super enthusiastic about it, but they see a trend and this could be a nice little, the first orange pill that they get is riding Coinbase up and then down. And then they’re like, “you know what? I just need to buy the underlying Bitcoin itself”.

Speaker 61: (02:12:40)
It is probably going to drive the price up though. Like this is probably going to dominate for the week or whatever and it’s probably going to draw a lot of eyeballs to people that want to buy Bitcoin.

Speaker 57: (02:12:51)
I think it’s the other way, whenever Bitcoin price goes up, Coinbase will follow. It will be kind of like all coin number one.

Speaker 55: (02:12:59)
Yeah, but this specific event, I think it’s going to be a little bit of the news cycle about the IPO is going to lead people to just say, “Oh, that’s so expensive. I’m just going to buy Bitcoin”.

Speaker 57: (02:13:10)
Possibly. I don’t know. I could see lots of bad scenarios for Coinbase, which would be terrible. They could become a sort of super shitcoin casino, like Uber ICO platform kind of thing. They could, their board members are saying, “why aren’t you doing what finance is doing?”, which is essentially list every shitcoin, collect fees and make their own token and do all this other crap. I’m sure they’re talking about it so it could get pretty bad. It might require some regulatory action or something before they really stop. But, there’s so many ways in which this could go really badly and ultimately just hurt Bitcoin and set Bitcoin back because of their stupidity. But yeah, I don’t know.

Speaker 55: (02:14:11)
They’re actually not the first traded exchange, probably. Right? You can look at, and I’ve been tracking Voyager as a little bit of a proxy and I don’t know how scientific it is, but now they’re up roughly 25 X over the last three months, trading over $30 a share. I got to believe that if Voyager is getting that kind of attention, Coinbase is too. When you look at some of the relative metrics that they listed today, they pretty much track with what Voyager’s growth has been Q1 over Q1 and Q4 to Q1. So interesting parallels.

Speaker 62: (02:14:50)
So, you’re thinking that Coinbase can get to two and a half trillion.

Speaker 57: (02:14:58)
I don’t know where that math came from. Oh, 28 X growth on that? No, because I think that’s built into the price. The market cap of Voyager is significantly different than the market cap of what Coinbase is likely to be. So yeah, I don’t think that necessarily translates the way you’re thinking. That’s not what I’m saying.

Speaker 58: (02:15:20)
What do you guys think about the trade that, or the idea that people who’ve been watching crypto, especially boomers, gen X-ers, who don’t feel comfortable buying Bitcoin would just feel comfortable buying Coinbase? And it’s just as simple as that for them, they want exposure to the sector, so they’re just going to buy Coinbase and then that’s it. I mean, it’s [inaudible 02:15:48].

Speaker 62: (02:15:51)
Plus from an additional fundamental basis of looking at an actual company, the company looks super healthy. What baby boomer’s going to sit back, see those numbers and go, “Oh, I’m not going to invest in that”? This is what they’re used to.

Speaker 57: (02:16:09)
Yeah. That’s what I’ve been thinking. I’ve been listening to this whole conversation thinking this the whole time. I understand why everybody says what they’re saying. Ultimately I think Coinbase is probably going to do pretty well.

Speaker 63: (02:16:21)
Yeah, Wayne, I agree with you. I think this is kind of like the ultimate boomer entry point is through traditional stock markets. They keep an eye on these IPO’s.

Speaker 64: (02:16:34)
I’m also thinking about the narrative. Tomorrow, after tomorrow, CNBC talking about this being bigger than Goldman Sachs. That narrative is kind of like a new paradigm and that’s going to just lift all boats and definitely will help people kind of shift their mindset in terms of how important Bitcoin is.

Speaker 57: (02:16:55)
They could be on CNBC tomorrow saying, this is the next Google, the next Facebook. Don’t miss your opportunity for getting in at the ground level and for a lot of people, the way that they invest, it’s really just that simple. So I think that they’ll have, I think they’ll do okay.

Speaker 55: (02:17:09)
There’s going to be a ton of options.

Jimmy: (02:17:14)
It is going to crash so hard in a year, in a Bitcoin bear market. It’s going to crash so hard.

Speaker 55: (02:17:24)
Right.

Speaker 56: (02:17:24)
All this revenue goes completely off a cliff. It’s procyclical. Coinbase is high [inaudible 02:17:29] of Bitcoin. If Coinbase goes up to like 200 billion, I would see it sub 50 billion, sub 30 billion in 18 months. You have to be aware of that as well.

Speaker 62: (02:17:41)
That’s the thing, none of us know what these other banks are doing. None of us know about them bringing on into your freaking banking back in and “your online banking, please click the button to buy Bitcoin”. Nobody knows what they’re doing. And if that comes on and droves this year, I’m with you Cory, that revenue is going right out the door.

Speaker 55: (02:18:04)
Well, we know specifically that’s one of the business lines that [inaudible 02:18:07] is setting up. They’re using all their connections and their expertise and they’re building a tech services business and they’re basically doing the enterprise, the institutional version of wire or simplex and their goal is to have that convert to Bitcoin button and a Bitcoin balance and a dollar balance in your Bank of America account in your Citi account, in your Chase account, that’s a business that [inaudible 02:18:28] is actively chasing.

Speaker 62: (02:18:29)
Right. And if Fastserve gets a hold of it, think about how they build it. We don’t know that they’re building something out and every bank I know pretty much uses something from Fastserve. So, you’re dealing with some behemoths out here and you basically just opened it up and showed everybody what you’re doing. Almost, it’s like Coinbase should stay private.

Speaker 55: (02:18:50)
What they have to do is they have to keep the Ethereum alt coin DeFi pump going with help from Andreessen Horowitz and FTEs and clubhouse and sort of the whole Silicon Valley cabal. They have to keep the whole thing going long enough for all the early shareholders to exit.

Speaker 56: (02:19:08)
Assuming a Bitcoin bear market next year, it’s going to be a very dangerous assumption on your part, Cory.

Speaker 57: (02:19:18)
But they will do what he’s saying though.

Speaker 55: (02:19:20)
We don’t know if that’s going to happen or not. I’m not trading it either way.

Speaker 56: (02:19:25)
There’s no way to know anything, but I think you’re not going to see [inaudible 02:19:31] This changes the conversation. The fact of the matter is, Coinbase, whether you like them or you don’t like them, Coinbase, being a public company, goes a long way to legitimizing this space. You may not like them, I may not like them, but that doesn’t matter. And that’s a huge-

Speaker 55: (02:19:56)
I’ll bet you, I would bet you,

Speaker 56: (02:19:56)
I’m not betting anything.

Speaker 55: (02:20:02)
[inaudible 02:20:02] Bitcoin pullback of 50% or more.

Speaker 56: (02:20:03)
It’s about changing the narrative, watching the world change. If you don’t understand that, you’re missing the story.

Speaker 55: (02:20:11)
No, I’m specifically talking about a big pullback, which I don’t think we’re done with.

Speaker 56: (02:20:16)
You may or may not see a big pullback. You have no idea what you’re going to see. The last 10 years did not right all forward going future history. That’s a bad assumption.

Speaker 57: (02:20:28)
What’s a big pullback?

Speaker 55: (02:20:31)
I just said over 50% pullback.

Speaker 56: (02:20:33)
Yeah, maybe you’ll get 30 or 40, 20. A lot of people plowing into an asset that has just become legitamized. As you see more and more legacy players get into this.

Speaker 55: (02:20:49)
You’re going to see a lot of [inaudible 02:20:53].

Speaker 56: (02:20:53)
[inaudible 02:20:53] payout very differently. You sound a lot like Plan B, Cory. He thinks like you.

Speaker 55: (02:20:59)
You’re going to see a lot of [inaudible 02:20:59].

Speaker 56: (02:20:59)
Maybe you and Plan B are on the same page on this one.

Speaker 55: (02:21:03)
I have better math.

Speaker 57: (02:21:06)
I’m sure there’s going to be a pull back. I would be willing to bet on a more than 50% pullback in the next five years. I have no problems betting on that.

Speaker 56: (02:21:16)
Five years? I didn’t say five years, I said next year.

Speaker 55: (02:21:20)
You said the next decade. You said the rest of the decade, that’s nine years.

Speaker 57: (02:21:22)
You said next decade.

Speaker 56: (02:21:25)
The rest of the decade you’ll have a 50% pullback at some point, but that could be from a lot higher numbers.

Speaker 57: (02:21:31)
Think about a 50% pullback though. A 50% pullback in Bitcoin is like an 80, 90% pullback on all coins. That’s a huge revenue.

Speaker 56: (02:21:41)
All I am saying is Cory is assuming we’re going to have a big bear market next year and we may or may not.

Speaker 55: (02:21:48)
I didn’t say big bear market.

Speaker 56: (02:21:50)
You said bear market. You said it was going to kill everything.

Speaker 55: (02:21:53)
I didn’t say shit about everything. I said it would kill Coinbase’s revenue and it will go off a cliff. And you see with Google and Facebook,

Speaker 56: (02:22:02)
Maybe you’re watching a big, you’re watching a huge change take place. You’re watching a huge change take place. Be really careful thinking you know the future based on the last 10 years.

Speaker 55: (02:22:12)
No shit [inaudible 02:22:14]. [inaudible 02:22:15] you’re quoting me to myself, but we’re talking about Coinbase here and I’m saying that their revenue [inaudible 02:22:23]

Speaker 56: (02:22:21)
You were talking about Bitcoin. You were talking about Bitcoin, Cory.

Speaker 56: (02:22:24)
It starts with Bitcoin, but the point was what that actually means for Coinbase.

Speaker 55: (02:22:30)
Do we know-

Speaker 56: (02:22:33)
Maybe that doesn’t happen with Bitcoin. That’s the point. The point is it may not happen with Bitcoin.

Speaker 57: (02:22:41)
What’s the timeframe you were saying? Is it the next decade or the next two years? How long is it going to not have a 50% pullback?

Speaker 56: (02:22:50)
The next few years.

Speaker 57: (02:22:51)
So you are saying for the next three, let’s say next two and a half years, you don’t think there’s going to be a 50% pullback?

Speaker 56: (02:22:59)
Possible, but I think the odds are greatly diminished from what we’ve seen in the last 10 years. I think you’re watching a massive shift. Legitamacy,

Speaker 57: (02:23:08)
The chances are greater than 60% that we’re going to have a 50% pullback. I would gladly bet on that.

Speaker 55: (02:23:15)
I guess we’re going to find out Jimmy, because neither one of us know, but all I’m saying is you’re watching an asset, which has been an illegitimate asset for a decade, become a legitimate one. That’s a huge shift in psychology and a marketplace. So you’ve got a lot of players.

Speaker 56: (02:23:30)
It may or may not be a big psychology. I’m just talking volatility. 50% pullback, it happens on legitimate assets too. It’s not about legitimacy or illegitimacy.

Speaker 55: (02:23:42)
It happens. It does. It happens with regard to what the Fed does. So, if the Fed pulls the plug on everything, sure. It’ll go down.

Speaker 56: (02:23:51)
It did. It’s happened on assets that the Fed had nothing to do with, right? It’s the pullbacks and the new paradigm, those things can be related, but often aren’t. What I’m saying is you’re probably going to see a greater than 50% drop over the next two years. When that happens, if I agree with Cory, that’s going to hurt Coinbase significantly. And bah humbug to all of this legitimacy stuff, when people are seeing their portfolios crashed by a significant amount, there’s going to be some panic and blood on the street. I don’t think that’s a very difficult prediction to make. That’s just sort of micro psychology.

Speaker 55: (02:24:43)
I think you’re making assumptions about how this plays itself out.

Speaker 56: (02:24:49)
All right then [inaudible 02:24:50] make a bet then. Do you want to bet on it or not? Because you’re shitting on his thesis without actually backing it up with words. If you want to actually back it up, if you want to back it up, then bet on it. Put your money where your mouth is instead of just shouting all the time.

Speaker 55: (02:25:11)
It is. I own Bitcoin. I back Bitcoin.

Speaker 55: (02:25:13)
Listen guys, it wasn’t the point of the comment anyway, let me just talk for a sec. My point was actually just to contrast with the point Wayne was making about Google and Facebook and basically what doesn’t happen with Google is search traffic falling by like 60 to 80% or even 30%. It just doesn’t fucking happen. It expands forever. Just like Facebook’s users’ numbers have just gone up, up, up, up this entire time. So there’s just not that opportunity for some core metric at the middle of your business to completely fall off a cliff and to have that sort of be reflective in your stock price.

Speaker 55: (02:25:47)
Coinbase does have that opportunity in this market where essentially whatever happens with Bitcoin, alters high beta to that and Coinbase is trading volumes are high beta to crypto trading. So the reason they are constantly moving back and forth between monthly and quarterly and yearly and doing crazy shit in their S1, like saying the best quarter of 2018 was this and the best quarter of 2019 was that, is because the shit does fall off a cliff for them regularly. Once they get this thing out in market and people are actually looking at the numbers quarter by quarter, some people are going to be roundly disappointed. Whenever Bitcoin even experiences like a 30% drop, Coinbase volumes are going to go down by like 70, 80%.

Speaker 56: (02:26:38)
Was there a catalyst for the last bear market and is there something similar we’re going to see for the next one you think? Or it’s just totally cyclical.

Speaker 55: (02:26:56)
Yeah. I think someone prominent insulted Bitcoin and then that set it off. No, I’m just lying. Who knows?

Speaker 56: (02:27:05)
Last one was it went up too much, too fast.

Speaker 56: (02:27:10)
Are you trying to figure out why we’re sideways? Is that what you’re saying? Because I know exactly why we’re sideways and everyone knows why we’re sideways. It’s the labor.

Speaker 55: (02:27:23)
Yeah. I knew you were going to say that.

Speaker 56: (02:27:27)
It went to 20,000 and then it went all the way down and way more than it should’ve and that didn’t necessarily have to happen that way. Going up too far, too fast isn’t great and we might see that again. It could’ve leveled out, gone sideways again and then went slowly. We went into quite a long bear market after things were real hot and it didn’t seem like necessarily it’s explainable. Why would we see that again versus, just really the cyclical nature of the stock to flow. It just, it just correct. We just have to, to look at it. I don’t know. I mean, I think it’s definitely because mercury was in retrograde two weeks, wasn’t it?

Speaker 55: (02:28:14)
That’s accurate.

Speaker 57: (02:28:17)
It is the log of the laser eyes. Given some adjustment for inflation of celebrity usage that has caused the sideways action in Bitcoin right now.

Speaker 55: (02:28:31)
Sideways action is perfect in a bull market. You couldn’t ask for better than that. Sideways action at the highs? This is fantastic.

Speaker 57: (02:28:41)
Why’s that [inaudible 02:28:42]?

Speaker 55: (02:28:42)
Why? Why is that good?

Speaker 57: (02:28:42)
Yeah. I’m trying to understand.

Speaker 55: (02:28:48)
Going sideways at a high means somebody’s losing their Bitcoin and somebody sucking it up and buying. You notice it’s not going down. Now with the crashes in here, that’s another story. But if this continues to go sideways, the longer it goes sideways, the bigger the up move explosion’s going to be. So going sideways is not bad at all. It’s a god damned 58,000 bucks.

Speaker 57: (02:29:06)
Okay. So the reason is that they’re just taking a lot of it off the market, which will further drive the price up on the next ride up?

Speaker 55: (02:29:12)
You’ve got somebody who’s selling. A friend of mine tells me they’re selling to put it into [inaudible 02:29:18] because they’re looking for the fork on 2.0, which comes out April 14th.

Speaker 57: (02:29:23)
I saw a chart of people and how much Bitcoin was moving into XRP. It was crazy. A lot of people are selling Bitcoin off right now. But to Tino’s point, it’s not killing the price. So people are selling it off with somebody, sucking it all up.

Speaker 55: (02:29:41)
Wait until they try to get it back.

Speaker 57: (02:29:52)
Speaking on the rationale of buying Coinbase versus Bitcoin, I can see some investors going the picks and shovels route, and that’s worked for the miners. Right?

Speaker 55: (02:30:02)
Right. For example was 50 cents. Last year. Now it’s 50 bucks. That’s a hundred extra turns. So I can see buying the picks and shovels versus the currency. I can see someone believing that I would rather own Bitcoin, but I’m just in awe of some of these Bitcoin miners. The business model doesn’t make sense at all to me, but somehow they’ve gone up a hundred X, in a year.

Speaker 57: (02:30:26)
There’s a shortage of chips. There’s a shortage of chips. Isn’t there? So hash rate should probably be climbing a lot higher than it’s climbing.

Speaker 55: (02:30:38)
I also think that the space is maturing and some sophisticated investors are trying to get positions on that maturing mining. They’re going to be able to get access to capital. They’re not going to be blown off their Bitcoin. They’re going to be able to hold it using public funds. I think there’s a play there.

Speaker 57: (02:30:55)
Hey Mike, I got a question for you. What picks and shovels companies do you know from the cobras?

Speaker 55: (02:31:02)
Levi’s blue jeans.

Speaker 57: (02:31:04)
But that’s the only one. Are they doing really good right now?

Speaker 55: (02:31:09)
The Irvine company, San Francisco. I don’t know. There’s a couple of things.

Speaker 57: (02:31:15)
Didn’t Wells Fargo start around there or something?

Speaker 55: (02:31:18)
Can I just get the gold? Like people held onto that gold. Did they not do okay?

Speaker 55: (02:31:24)
They did. But it’s common knowledge that the people who did the best during the gold rush were the picks and shovels.

Speaker 57: (02:31:31)
You said during though, I’m talking about now, Tim, how about now?

Speaker 55: (02:31:35)
Yeah. If they held the gold in 1880.

Speaker 57: (02:31:38)
This is what I’m saying. Hold on. Give it to your kids. Pass it down.

Speaker 55: (02:31:47)
Comparing Bitcoin to the gold rush doesn’t make any sense at all. And you don’t want those shitty businesses, you want Bitcoin. There’s much less risk in holding Bitcoin and the upside is bigger.

Speaker 57: (02:31:57)
It doesn’t help that we’re pitching it as digital gold.

Speaker 55: (02:32:02)
That’s just so people can understand it. And by the way, the market cap should be in the hundreds of trillions of dollars, just because morons classify it as gold’s market cap because they don’t understand it doesn’t mean a damned thing. That’s just absurd. We’ve got people who just don’t understand that. It’s not limited to the market cap of gold. Those are people who just don’t get it.

Speaker 57: (02:32:25)
I just want to know when you’re talking to us, are you like climbing a mountain at the same?

Speaker 55: (02:32:30)
I’m taking a walk. So it feels like I’m climbing a mountain. Fortunately, the ground is flat. If I was climbing a mountain, I’d be dead on the ground already.

Speaker 57: (02:32:37)
I think part of the problem of looking at successful mining companies, if you’re not looking at all the ones who tried and failed, you really need to get the whole picture to get a sense of that kind of thing.

Speaker 55: (02:32:51)
No, I’m looking at a company that spends 95 cents that’s making $1 of Bitcoin and spending 95 cents of that on electricity and saying, why is this stock up a hundred X? Does that make sense? If I had a business that was, I sold a burger for $1, but it costs me 95 cents. Why would I have those?

Speaker 57: (02:33:21)
[inaudible 02:33:21]

Speaker 57: (02:33:21)
But, Mike, if you do that a whole lot of times, yeah, if you do that a billion times, you got a pretty decent business.

Speaker 55: (02:33:30)
Do they have Bitcoin on the balance sheet?

Speaker 57: (02:33:32)
Yeah. I’m just speaking as a bad colder of MSTR because I’m looking on threes.org and I’m saying, “okay, this company has 10, 20, 30 X as much Bitcoin as these miners do. And it’ll take a hundred years for these miners to match what MSTR has”. Why-

Speaker 55: (02:33:52)
MSTR is much more recession proof than all of these other companies. I’m planning on buying a ton of MSGR over the next couple of years, not just over the next couple of months.

Speaker 57: (02:34:03)
Why wouldn’t you just rather own Bitcoin? Why the hell would you want to buy MSTR?

Speaker 55: (02:34:06)
Because I got money already in the market and I don’t want to have to take it out.

Speaker 55: (02:34:09)
If the system were to crash you won’t get your money out of the banks. So you’re better off with Bitcoin either way. You’re better off, some people think, which I don’t agree with, you got a hyperinflation or if you get a crash either way, you’re better off in Bitcoin. You don’t want to own those- Look, I like Michael Seller and I own some MSTR and your money is much better off in Bitcoin than stocks.

Speaker 57: (02:34:37)
Yeah. If you’re talking about for retirement.

Speaker 55: (02:34:41)
Yeah. Bitcoin might be a better choice.

Speaker 57: (02:34:44)
I’m not one with the better choice.

Speaker 55: (02:34:45)
I own calls on MSTR but Bitcoin’s a better choice.

Speaker 57: (02:34:49)
I’m not putting any new money into the market, but rather what I already have in.

Speaker 55: (02:34:54)
A rocket booster on your Bitcoin holdings. If you’re right about Bitcoin, those MSTR calls. We’ll take your Bitcoin even farther.

Speaker 65: (02:35:03)
Those MSTR calls will take your Bitcoin even farther.

Speaker 66: (02:35:04)
You know what, there’s much less risk, and on a risk/reward basis, you’re much better off with Bitcoin.

Speaker 65: (02:35:10)
So, then why do you have MSTR calls?

Speaker 66: (02:35:13)
Because I played that stupid game that you just mentioned. But I’d be a lot better off with a bitcoin [crosstalk 02:35:20]. That was a stupid thing I did.

Speaker 65: (02:35:22)
Embrace your [inaudible 02:35:24].

Speaker 66: (02:35:25)
It was stupid. I would’ve been better off with Bitcoin.

Bruce: (02:35:33)
So, an interesting figure is, of that 3 billion in cash flow, that increase they had, 2.7 billion of that is attributable to what they just have in customer accounts.

Speaker 66: (02:35:54)
You don’t count restricted cash flow. Restricted cash belongs to your customers.

Tim: (02:36:01)
You do if it’s part of your balance sheet. If it’s part of your balance sheet-

Speaker 66: (02:36:05)
No, you don’t. You don’t count restricted cash. It’s not part of your business. It belongs to your customers. [crosstalk 02:36:11]. It’s not part of your business’s cash flow.

Bruce: (02:36:12)
Page 112, [inaudible 02:36:14].

Speaker 66: (02:36:14)
This is like a bank or a brokerage. You don’t count that. And generally you don’t look at cash flows under. [crosstalk 02:36:20].

Tim: (02:36:19)
I’m going to respectfully disagree with you here. I’m going to respectfully disagree with you here. Take a look at any bank, and you take a look at their deposits. The deposits are owned by somebody else, but they definitely list them as assets. They are assets on the balance sheet of the bank, and they are subject to general creditors. [crosstalk 02:36:39].

Speaker 66: (02:36:39)
Actually, they’re a liability on the balance sheet, but details aren’t important. Assets are the loans, just FYI.

Tim: (02:36:45)
But regardless they belong to… It is a liability. And the reason why it’s a liability is because they have the cash on them. They put a contrary indicator for the liability that they have to pay back. But it is definitely assets of the bank. And if the bank goes under, those deposits are subject to the general creditors, the secured creditors of the bank.

Speaker 66: (02:37:05)
I’m aware of that, but what I’m saying is, when you look at the cashflow of a business, you’re not tracking the cashflow of the customers. And this is not a bank. This is a transaction processor, and they hold some cash.

Tim: (02:37:19)
Yeah. [crosstalk 02:37:21].

Speaker 66: (02:37:21)
This is a transaction processing business. This is not a bank business.

Tim: (02:37:26)
Of course. So, I think there is a-

Speaker 66: (02:37:27)
You can’t make a direct comparison.

Tim: (02:37:28)
There is a mischaracterization of that 4 billion then, because whoever made the comment, that that is their balance sheet, that’s not the cashflow statement. The cashflow statement will actually show the revenue off the transactions, and it basically, it was almost a triple over the last year. It was 430 something million last year, it was a little over a billion this year. That’s cashflow. That’s revenue. That’s not the process.

Speaker 66: (02:37:53)
But it wasn’t 4 billion, because 3 billion of it was restricted cash, which belonged to customers.

Bruce: (02:38:01)
Right. It says, the change in custodial funds due to customers included in net cash from operating activities. So, 2.7 of that three is customer cash, customer cryptocurrencies, valued at fair market value.

Speaker 65: (02:38:23)
So, I think the consensus here is that we’ll just… This is good for Bitcoin in a way. It kind of sucks, because they’re going to keep pumping out liquidity on Chit coins and DeFi tokens, and everybody should just buy Bitcoin, and also the fake coin on the DSX.

Bruce: (02:38:38)
Yeah. I think it tells us that there’s going to be a lot of new capital that wants to invest in Bitcoin businesses. People are going to see the wealth that the Coinbase people made, and they’re going to want to get those kind of returns too, so if you’re in the Bitcoin industry, that’s good for you.

Speaker 65: (02:38:52)
Yeah, good for Bitcoin exchanges. Good for valuations of private equity of Bitcoin exchanges.

Tim: (02:39:14)
So, [inaudible 02:39:15], the one thing I’ll say is, I agree with you as far as, if the decision tree is buy the direct listing of Coinbase, or use those proceeds to invest in Bitcoin, I choose the latter.

Speaker 66: (02:39:27)
[inaudible 02:39:27] at all. I have no interest in Coinbase.

Speaker 65: (02:39:36)
Unless you have a lot of money, and then you buy majority shares, and force them to delist all the Chit coins.

Bruce: (02:39:42)
I would still rather have Bitcoin than anything else. And if I had a lot of money, I’d still rather have Bitcoin.

Speaker 65: (02:39:53)
This is a real Bitcoin bowl, gentlemen.

Bruce: (02:40:00)
I love Bitcoin. I’m sorry. I am unabashful. I love Bitcoin.

Speaker 65: (02:40:05)
Me too.

Shelly: (02:40:07)
I love listening to all my favorite Bitcoiners talk about Bitcoin.

Bruce: (02:40:16)
Shelly, all I have to say is, I’m very, very grateful that you had a nice, successful flight, and you’re here to talk to us again.

Shelly: (02:40:23)
Thank you, Florida.

Bruce: (02:40:25)
I don’t fuck with airplanes so, cheers.

Shelly: (02:40:29)
I fuck with them a lot.

Bruce: (02:40:35)
Bitcoin Tina, might you want to talk about why Bitcoin’s potential is greater than gold?

Tim: (02:40:47)
Oh, come on. You’ve got to be kidding.

Bruce: (02:40:50)
[crosstalk 02:40:50]. Get comfortable.

Speaker 65: (02:40:50)
Get the popcorn out. If that was a serious question, go read The Bullish Case for Bitcoin, and then come back.

Speaker 66: (02:41:06)
[inaudible 02:41:06]. You’ve got to be kidding. Okay. And when does Michael Saylor debate frank Giustra?

Tim: (02:41:38)
To be determined, I believe.

Speaker 65: (02:41:42)
The fact that he owns frank.com is pretty fucking awesome.

Bruce: (02:41:46)
That is awesome.

Speaker 66: (02:41:47)
Wait until he owns giustra.com.

Speaker 65: (02:41:52)
That’s the most baller thing I’ve heard all year long. He’s like, Oh yeah, I found out I own frank.com, and I’m going to redirect it to my Bitcoin bull page.

Shelly: (02:42:11)
We should redirect it to that song that that girl did about him, because he’s a bull, bull, bull. That’d be hilarious.

Speaker 65: (02:42:20)
What happened to her? Did she disappear? I haven’t seen anything in a while. Bruce, are you still here?

Bruce: (02:42:33)
Yeah.

Speaker 65: (02:42:34)
What do you think about the update on the Ripple situation with Coinbase? With them so close to going public, and Ripple for some reason, pumping to a dollar. I’ve heard rumors that they were going to relist it.

Bruce: (02:42:54)
I don’t know. I think it would be a mistake to relist it. Especially, it puts them at a risk. Somebody mentioned earlier the risk of a lot of bulbs being thought of as securities, cutting into their revenue. The real risk is being charged for being an unregistered securities exchange. Now that could be absolutely catastrophic

Tim: (02:43:11)
Oh, yeah.

Tim: (02:43:13)
So, here’s the thing. I’m not a lawyer, but hear me out. Suppose I was the prosecution. I would go into Coinbase. If Coinbase has Ripple list XRP, if I was the prosecutor, and again, I’m just speculating here. I’m not a lawyer, but if I was, I would say something like, get them in their, file the action. And you go to Coinbase and say, “Are you aware that you need to be a securities broker to be… You have to be licensed to sell securities. Clearly you’re aware of that.” There’s 33, 34. I think it doesn’t even matter if they’re aware or not. It’s federal law, number one. Okay, number two. Are you aware that us, the freaking SEC, who he’s tasked with defining and enforcing these laws, clearly said, “XRP is a security.”

Tim: (02:44:00)
Did you hear that? Did you happen to see those memos that came out, Coinbase? And then, what is your defense from that? Yeah, we saw your memo there, SEC. But we thought… We were reviewing Twitter, and we thought that-

Speaker 65: (02:44:14)
Yeah, but we wanted those open finance networks, so-

Tim: (02:44:16)
Yeah, we thought that you were wrong. We thought you were going to lose. It doesn’t work that way. It doesn’t work that way. It’s like, if the DEA goes to Walgreens. I say, that CBD lemonade you have is THC. That is illegal. You’re selling marijuana. You’re not a dispensary. Cease and desist. Or they bring an action against the CBD lemonade company. They bring an action. Do you think Walgreens is going to still carry that? No. Because if the DEA says it’s freaking marijuana, then it’s on you to… Even if they prove it, you’re still screwed, because you have the regulator saying… So, in my interpretation, if the SEC says, this is a security, it’s a freaking security.

Tim: (02:45:03)
They are the enforcement agency. And I don’t know, maybe it’s just in my blood, but I don’t understand why people don’t get these rules. And it’s not me being pro-rule. Anybody who knows me, knows that I’m basically an anarchist. It’s pro-reality. It’s exactly the same as the drug thing. You can’t just sell drugs in Time Square and be like, Oh yeah, we’re decentralized. You’re either a dispensary, or you’re breaking the rules. And no regular, big company like Coinbase, in their right mind, is going to break the rules. But anyway, I think it would be a bad idea.

Speaker 65: (02:45:37)
And why do you think Binance still has it up?

Bruce: (02:45:40)
Well, Binance… Not Binance.US, or maybe Binance.US does. I don’t know. I think it’s more aggressive. I wouldn’t do it. I thought he was crazy. I’m pretty conservative about these things.

Tim: (02:45:52)
No. Binance.US has .02% of the volume of binance.com.

Bruce: (02:46:00)
Well, it’s a different story. If you don’t take U.S. Investors, it’s a different story. But if you take U.S. investors, and you’re selling something that the head securities regulator says is a security, in my opinion, from my understanding of the rules, you’re breaking the rules. That’s the whole point of the securities. A security is a security. It’s exactly the same as selling Tesla, which you can’t do unless you’re FINRA member, registered broker/dealer.

Tim: (02:46:27)
To support that, any participant in the markets, in securities, whether you’re an issuer, or an agent, a broker/dealer, or what have you, it is your responsibility to know whether or not you’re selling a bonafide security. And they can place a consent order on you to cease and desist, because sales practice violations, essentially.

Bruce: (02:46:47)
Yeah. And it seems like such a crazy strategy. Because I heard some people, there was even one, I don’t remember who it was. It was a small exchange, or a fund, or something. They were arguing about it on Twitter. And they were basically like, Well, I think they’re going to lose. And again, I’m not a lawyer, but I don’t think that’s a defense. I don’t think you could… Go back to the lemonade example. I don’t think you could go in and say, “Yeah, we knew the DEA said it was marijuana, we didn’t think it was-

Speaker 65: (02:47:14)
Was the small fund Arrington XRP Capital, by chance?

Bruce: (02:47:17)
No, no, no. It wasn’t that. But I like Michael. I like a lot of the people there, other than Ben Lawsky.

Speaker 65: (02:47:31)
[crosstalk 02:47:31]… another Brad guy. He’s pretty much- [crosstalk 02:47:34].

Bruce: (02:47:34)
Yeah. He really caught a lot of points the other day saying, Bitcoin costs 75 gallons of oil per thing. But one more thing on this… I don’t even remember what I was going to say. It was something stupid about Ripple. Screw Ripple.

Speaker 65: (02:47:46)
Lemonade. You were talking about lemonade.

Bruce: (02:47:50)
I don’t remember. I lost my train of thought. But the idea that you can just hope that you’re going to lose, I think it’s just… You ever that they’re going to win the case, and the SEC is going to lose, is I think, a bad strategy. And I saw this as the kiss of death when it was first announced. I think it was Christmas Eve, or something like that. Eve, Eve. And I was like, Holy crap. XRP’s toast. Because to me, as a securities person, you cannot do anything with securities unless you’re licensed. Trust me, I’m licensed. This is just the reality of the U.S. And if the U.S. says it’s a security, everything’s going to grind to a halt. And I think maybe they’re waiting for the case… They really, really want to make sure. But if it is totally decided that it’s a security, then it’s really going to change how it moves, banks interacting with it, all kinds of ripple effects.

Tim: (02:48:45)
Pun intended.

Bruce: (02:48:46)
Yeah. That will-

Tim: (02:48:48)
You got to trademark it.

Bruce: (02:48:48)
… grind it to a halt. You just can’t use it as a security. How much do you move your Tesla around? Anybody here send me some Tesla to my phone? Of course not. Securities don’t move that way. It’s a totally different thing. It would be great if they did. That’s a whole nother discussion.

Speaker 65: (02:49:02)
Okay, so Bruce, on that same line of thought then, we know that… We talked about this already, Andreessen Horowitz is a huge early investor in Coinbase. They’re going to benefit a lot from this. They’ve got huge bags of pre-mined coins, and allocation, or whatever, to all these DeFi coins, and the FATF just recently put out that updated guidelines, which majority affects DeFi more than Bitcoin. So, how do you think they’re going to thread that with… Coinbase is clearly saying their mission here is to put the financial rails on blockchains, i.e, pump their DeFi bags. And Andreessen Horowitz is pretty much aligned with that mission, obviously, if you look at what they own and what they’re doing. So, the regulators are standing there saying, “Well, this isn’t decentralized, and you guys are going to have to comply.” So, how do you think all this resolves with DeFi regulators, Andreessen Horwitz, and Coinbase now going public?

Bruce: (02:50:08)
Well long-term, I think it’ll all eventually wash out. They’re crappy business models. Securities are awesome. Securities are great. Securities are wonderful, wonderful structure, because it includes equity, which is probably one of the most brilliant things invented in the last 400 years, other than Bitcoin. It’s incredibly good structure, and it’s well-proven, sharing risk and reward between investors, which is a crucial piece of capitalism, and the way the world works, and innovation, and growth, and all the awesome things. So, securities are great. Stocks are great. They’re awesome. And when you go and strip out everything that makes it a security, because you’re afraid to play by the rules, and you don’t like the rules, so you go to a lawyer and say, “Make it not a security.”

Bruce: (02:50:50)
And they say, “Okay. Remove all power. Remove all ability to share cash flow. Remove this, this, this, this, this.” You end up with nothing left but a gift certificate to a store nobody wants to shop at, or a participation trophy to a losing race. It sucks. It’s a stupid token that doesn’t do anything. You don’t have any rights. You’re not an owner. And the ones that are laughing all the way to the bank, who are the actual owners of the actual enterprises, that if you follow the cash flows, are the VCs. And not just Andreessen, but I think VCs are, their gain is getting done anyway. Partly because of this bigger picture-

Speaker 65: (02:51:28)
So, how much do you think that they’re going to pile into supporting these tokens? Andreessen Horowitz is going to make bank here. So, how much are they going to pile into fighting-

Bruce: (02:51:39)
I don’t know. The model is going to continue until it doesn’t. It’s still profitable as of this cycle, but I think it’s a crappy model. Because eventually people wake up and say, “Oh, this doesn’t actually give me anything.” It’s literally like a sticker that says, “I support Disney.” That’s not the same as a stock certificate that says I have a share of Disney, you know? So, I think it’ll ultimately… They’ll all eventually, long-term, get wiped out, because they’re not worthwhile instruments. And I think-

Speaker 65: (02:52:07)
We saw Bitmain lose all their Bitcoin, and lose their IPO by supporting Bitcoin Cash. Obviously, Andreessen Horowitz is not going to do something stupid like that. They’re not going to pile all their money into this, hopefully. I don’t know. It feels like we saw what could happen, the worst case scenario with Bitmain losing everything, pretty much. Andreessen Horowitz is fighting the same type of battle. They’re fighting against the market, really. They’re trying to create the market, and they’re fighting regulators.

Bruce: (02:52:40)
Yeah. The bigger macro picture on Coinbase is, they have a lot going for it. It’s one of the most valuable companies in the world. It’s super hot. It’s at the center of the hottest industry. If you did have to invest in a company related to Bitcoin, that’s definitely one of the biggest opportunities, and soon to be one of the easiest and most liquid. They got a lot going for it. People in this room, most of them believe the narrative. I think you believe. And I believe. Which is that Bitcoin is money, and it’s the real money. Which is why it’s so funny that they only stack 45 hundred coins. Oh my gosh, how pathetic. That’ll go down in the history books, I think. But money’s shifting, and they’re an important place. There’s only 10 banks larger than them in the United States.

Bruce: (02:53:23)
They were right up here. So, they could acquire one of the next number 50 bank with pocket change. Now, 10 billion, $20 billion. They could acquire a good size, a piece of real businesses. So, they’ll be all right, probably. I don’t know if it’s too much of a… And they could always become a securities broker too. I think that’s where the opportunity is. I don’t want to give them too many ideas, because it’s my business, but I could maybe help them if they want, if anybody’s listening. But, no. I think that there’s other opportunities to have. I think eventually, everything will… You’re going to have Bitcoin, and I don’t know, maybe there’ll be some other things, like [inaudible 02:53:58] or something, but I think it’s ultimately going to be, it’ll be Bitcoin and securities. Securities are still going to exist.

Bruce: (02:54:03)
But I think all the Coke… If you have coin market cap of the future, I think it’s all going to be securities. Because securities are already proven as a good way to share risk and reward. And the next Tesla is going to be some kind of, maybe it’ll be a tokenized security. I don’t know. But I don’t think this model of comp tokens that aren’t even, they aren’t equity, are going to work. Why would anybody buy that crap? I don’t know. But I’ve been wrong at least one cycle, so who knows?

Speaker 65: (02:54:30)
Well, it definitely seems like they’re paying more attention now that Coinbase is going public. It’s shining a big spotlight. They have to make a decision, and they are with Ripple right now, however this resolves. I think it was Joe that usually points out that the Ripple defense was like asking the SEC for the specific guidelines of what made them determine the Ether base.

Bruce: (02:55:02)
Yeah, I saw that.

Speaker 65: (02:55:03)
So, that’ll be interesting to see, because if that comes out, then the Ripple defense can argue, Well, Ether should be a security too. And then they actually agree and say, “You’re right. It should be.”

Bruce: (02:55:16)
Yeah, they’ve got some good lawyers, no doubt about that. Because I’m not a fan, and I think it is a security probably, and with probably an unregistered offering. And I’m just not a fan of the project in general. Like I said, I like some of the people there, but I’m definitely not Ben Lawsky. Even having said that, I was pretty impressed by their reply. Clearly they have some really, really smart lawyers. I’m in the securities business, but I’m not… I read a lot of stuff, but I think I could tell maybe great lawyers from average ones. But they seem to be very, very good lawyers. They made as solid of a case as you can get. You know?

Tim: (02:55:55)
Well, there has to be something in the fact pattern of the Ether case that differs from Ripple XRP, because otherwise… That’s a decided case. It would go into the case law area, and the Ripple defense would cite that as justification for their position, as a precedent.

Bruce: (02:56:23)
Yeah. It wasn’t originally a case. It was just an announcement, basically. So maybe, I think what they’re trying to get is, I don’t know, some kind of discovery on SECs internal processes on how they came up with that announcement and decision that they seemed to make on Ether.

Tim: (02:56:42)
Yeah. Well, my understanding of the Ripple case is that… It’s pretty clear cut to me, but I don’t know all the fact patterns associated with it. On primary issuance, if the company receives funds from that, that means they’ve issued a security, in this case, a coin, and they directly took cash from investors into their corporate treasury. That is a security. That’s raising equity. And to me that’s… They basically did an ICO in the United States, which is illegal.

Bruce: (02:57:11)
And you know, a lot of people who weren’t around a long time, I know Brad would remember this well, was… There used to not be a thing called XRP. There was the token, was called Ripple, and the company was called Ripple, and Ripple was the thing you bought. And it was one thing, and only one thing. But because of what Tim just said, I suspect, at least-

Speaker 65: (02:57:28)
Wasn’t it called Ripple? [crosstalk 02:57:32]… Ripple, and RippleNet? Wasn’t the network called RippleNet? And-

Bruce: (02:57:33)
I think it was just all Ripple. Yeah, it might’ve been RippleNet, but everybody called it all Ripple. They’d be like, Oh, I’m buying 2000 Ripples. It was Ripple. It was Ripple. Everything was Ripple. And then I think, my guess is, because of what Tim said, there was a very conscious effort, maybe starting four years ago or so, where they’re like, no, no, no, no, no, no, no, no, no. That’s a separate thing over here. Everybody was laughing at it when it first came out. It was ridiculous. It was like, Oh, come on. [crosstalk 02:57:58]. You know? It was a big separation thing, and everybody was laughing at it. And then they deleted everything. The whole website, everything was all changed, because it all referenced Ripple. And then they’d just invent… They’re like, We’re calling it XRP now. Everybody’s laughing at it for a while. So, it’s important to remember that as part of that. That’s not the kind of thing that I think is going to fool the SEC. They have those records from those old days. What you could do from a defensive standpoint is say, Hey, look. We were making continual steps to do exactly what Ethereum there did, and become sufficiently decentralized. Because that’s, I think, one of the big things they’ve got going for them. I don’t want to speculate on this too much. I’m not a lawyer. It’s not my place to do it.

Tim: (02:58:46)
Well, the Ripple case, it’s not the cause/effect, but that’s the reason why airdrops and drips exist. Because you cannot issue a coin and take money into the company, period. Not until the securities laws change, and we allow ICOs in the United States.

Bruce: (02:59:00)
And even an airdrop can be a security. There’s cases where somebody’s giving something away for free, and it could still be a security. So yeah, I think… But-

Speaker 65: (02:59:13)
It’s a security, but that also falls under the regulations for the CFTC and stuff, because airdrops, they could be given to people who don’t pass AML, KYC, or whatever, and that’s a risk. Aren’t they considering you like a money service business or something? If you airdrop tokens, and people start using it as money.

Bruce: (02:59:37)
I don’t know about that.

Tim: (02:59:38)
Yeah, I’m not qualified to answer that one.

Bruce: (02:59:40)
Yeah. I know for sure that in airdrop… I used to have the cases memorized, but there’s definitely, I’m positive that there’s cases that show that basically, an airdrop can be a security. I don’t know if it counts as a securities offering. There’s two different things. You got, are you security? And was it an unregistered offering? And I think unregistered offering is considered more, there’s more teeth on the general laws around that, as far as how much trouble you’re in. And then if you’re an unregistered exchange, you’re in even more trouble, you know? So, nobody’s been brought an action as being an unregistered exchange, but I would say that once the SEC… And they can take their time. They’re notorious for taking their time.

Bruce: (03:00:19)
Once they have something that they absolutely, there’s no question, no gray area whatsoever, that it is definitely a security, and it’s still trading, then I think they have a strong case. Interestingly, most of the ones they’ve gone after are defunct by the time the SEC does the action. So, it’s not a big problem that somebody like a Coinbase is listing them. But these companies are smart. I’m sure that if it’s clear that something’s definitely a security, any exchange in their right mind would be listed immediately.

Speaker 65: (03:00:50)
Hey, when’s the last time something like this has happened in the securities world? Where some new vehicle, or some new technology, or some new regulations, or something had to get written to allow a disruptive technology, or thing. Is it specs? I don’t really follow this too much.

Bruce: (03:01:10)
It’s a pretty stagnant industry. It’s probably changed more in the last year than in the last 50. Remember these rules, 1933 Act, 1934. And the Investment Advisors Act of 1940 are the main three laws, especially those first two, are the main laws. They govern… They’re the root of almost all of what we’re talking about now. And Howie, these things are ancient. Decades, and decades, and decades ago. Nobody who was even involved with writing this stuff is alive. The people who wrote these rules had fathers who were Civil War veterans, and the car had just come out. In their lifetime, they’d never seen… They probably didn’t have a phone, never heard of a thing called a computer, and they wrote all these laws that are supposed to be governing, is staking allowed on a DeFi token of whatever.

Bruce: (03:02:01)
So, it’s a pretty stagnant thing. There’s been some disruptions with the way the clearing has worked, and other things like that, that have caused regulatory and systemic changes, particularly moving stocks to street name, which was basically a capacity problem. They weren’t able to scale how you moved certificates and stuff around, so they came up with this. Long story, but ultimately it ended up being what we call street name now. So, nobody really owns their shares in the U. S. It’s all a claim. You have a claim to your broker, and your broker has a claim to a clearing firm, and then the clearing firm has a claim to these groups called DPCC, who ultimately has a claim Cede and Co., which is the ultimate, real owner of all the stocks, and almost every single publicly-traded stock in America. So, there’s disruptions like that, but it’s clunky, boring. I love it. I think it’s fascinating, but it’s not like the crypto-level disruptions. So, I think it’s a big deal. What’s cool is that there’s disruptions also, like UK has changed a lot of things, and I think that… And they were really old and stagnant too.

Speaker 65: (03:03:11)
Hey everyone. I will be ending… Oh, sorry. Hey, everybody. Thank you for joining us for this earnings call, and the discussion that came afterwards. If you’re interested in learning more about Cafe Bitcoin, you can go to cafebitcoin.club. We’ve got the full schedule of events there. We do one-off events like this. We have a event on Monday evenings called Beginner Bitcoin Q and A. You can find some of those recordings, actually on the Swan Bitcoin YouTube channel. We do all sorts of events. We have lightening events. We’re going to be doing an event with Hester Pierce next month, as well. We have rooms in all sorts of different languages as well, if English isn’t your native language, and you want to talk about Bitcoin. So, head over to cafebitcoin.club for more information. And I would recommend, if you’re looking for something to watch now, head over to watch Bitcoin TV. I dropped a link to this in the YouTube chat, or you can go to the website, bitcointv.network. Anyway, thank you all for joining, and we’ll catch you next time.