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Coinbase IPO: Netscape or Webvan "moment" for Crypto?

In 2017, I wrote about "Crypto-currencies: Fad, Fraud or Frontier". In 4 years all three aspects of crypto came true in some form or shape. At that time Bitcoin was going around $4200 and Ethernum was less than $300. The crypto market reached another key milestone this week with biggest IPO of Coinbase as proxy for how real is this new frontier of asset class. On first day, Coinbase at $85B was worth more than 3 times of Nasdaq valuation where it started trading. What an irony! Shouldn't Coinbase "company" should have its own "coin" to trade on Coinbase "exchange"? I am sure someone will come up with "token" which tracks Coinbase stock price to trade on Coinbase or FTX exchange. Complicated? Yes and that's why normal investors should stay away from these.

Having said that, one cannot ignore that market cap of all cryptos together exceed most valuable company (Apple) market cap and Bitcoin itself is worth more than trillion $ and Ethernum is worth more than Exxon. That's why we cannot ignore this trend. So let's look at this trend once more. Little recap:

Let's understand basics of "money" or "currency". Why do humans need "currency"?
Currencies serve multiple purposes like:

  • Medium of exchange (makes bartering much easier and friction-less)
  • Storage of value (one can't store farm-output like grains or fruits to be consumed few years later)
  • Investment (GOLD as investment)
  • To finance countries/governments (ever heard of "printing money" by Federal banks)
  • Movement of wealth (e.g. convert pesos into US $)

Cryptos address almost all of above without control of any one government. While there are unlimited supply of new cryptos, at least some leading ones like Bitcoin have limited supply (21 million) and its becoming more difficult, costly, time and energy intensive to mine these. This would make these assets same as "diamonds" due to scarcity value. After all, I always wonder how do people value diamonds and why do they even buy those?

Now coming to key question. Netscape IPO in 1995 unleashed late 90's boom on innovation and thousands of companies were founded. Some of today's biggest companies like Amazon, PayPal, Ebay, Google are result of Netscape moment. It also led to creation of Webvan which had IPO in 1999 just before dot.com bubble bust  leading to Webvan filing bankruptcy in 2001 (only after 3 years since its founding). So are we witnessing Netscape IPO moment or Webvan IPO moment in Crypto with Coinbase IPO. I would say a bit of both! Coinbase IPO would definitely unleash new innovations in fintech which would go beyond what Square,  PayPal or Stripe are doing and significant venture funding would flow into these markets. We will see some of the companies getting valued similar to "eyeballs" valuations during dot.com bubble. At same time, we will see established players start offering crypto based assets/ETF and make it much more accessible to normal investing people (already Robinhood, Fidelity etc offer buying and selling Cryptos). As a result overall valuations of crypto would increase. Many new investors (e.g. millenniums) may buy crypto before they even consider buying gold or diamond as asset. For reference, all of GOLD in the world is valued at about 9 trillion. If you add "diamonds" and "art markets", total market could be worth about $15-20 trillion. That means in this century, we could see new assets like cryptos/NFTs/tokens worth in similar range (from 2 trillion today). But as we have seen during dot.com, it would be very difficult to spot which assets/companies would give similar returns as Amazon stock. I am sure its out there but we just don't know it yet. On top of it, its almost impossible for a normal/rational human to have patience to hold it for 20-30 years with all the volatility we will see in crypto/NFT markets. 

/Shyam


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