Coinbase valued above $100B, ahead of direct listing
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We can expect the marginal cost to mine a coin to scale with price. So if btc worth $52,000 then people will invest on average $52,000 in equipment and electricity.
There are 6.5 coins mined every 10 min. So daily network cost approximates to 6.5 * 6 * 24 * $52,000 = $48,000,000
This is not strictly accurate as past equipment costs less and people may over invest expecting appreciation. But it should be close enough.
So to run the network at a price of $52,000 you need $17.76 billion dollars to enter as fresh capital to be burned as electricity and equipment, correct?
And if the price hit $1,000,000 as boosters claim, mining difficulty would rise to adjust and the new annual maintenance cost would be: 6.5 * 6 * 24 * * 365 * $1,000,000 = $341,640,000,000
And then this would decrease as halving happened. In May 2020 and then 2024. So the annual cost to run a $1,000,000 btc network post the may 2020 halving would be about $170 billion per year. That much new capital needs to enter the market and be burned up simply to maintain the price at $1,000,000. And to be useful to the world a $1,000,000 bitcoin would need to generate $170,000,000,000 in value annually.
Have I got this right or did I make a grievous error somewhere?
This feels correct but I don’t think it is. For example gold has decreased by $200/oz recently - it definitely didn’t just get cheaper to mine. I know mining is different and it’s not a great comparison, but costs don’t scale immediately, miners don’t make decisions entirely based on the price of btc now, etc.
Economic principles like supply and demand meeting on an agreed price are very muddy.
But in bitcoin average costs have to work out to marginal costs. When more mining power enters mining gets harder to compensate and mining costs rise.
Though I read an analysis that there were surplus profits in the 2017 bubble.
I'm not at all up to date but I long ago presumed bitcoin needed to move to a custody transfer market instead of processing on the block chain and the expense involved or beholden attachment that creates to a miner.
if Citi (eg) will lend me to trade against collateral of my existing holdings finding risk less (cp counterparty and ops*) liquidity from stock borrowers (typically short players) and happily create a new income that's limited by the value at risk of my trading up to my collateral underlying assets and therefore greater than the principal, surely so can Coinbase. I assumed that was why the London Stock Exchange invested in them.
edit I forgot *: see Herstatt Risk inherent in closing currency cash dealing causing the eponymous bank's failure in 1974. possibly more interesting to today was a year earlier in the Cedar Bank crisis in '73 that although little known was the most existential threat to the markets certainly pre LTCM and I'd say still far more dangerous. relevant today because Cedar was a pseudo official shadow bank living by profits from high risk secondary mortgage loans. Cedar was only a bank under a statutory loophole the infamous (to my career at least) Section 123 of the English banking act. interestingly none of the UK so called challenger banks are clearing banks the only new one in 400 years is a white label specialist running on Azure called Clear.bank at that url. a notable lot of UK transactions are happening on Azure with Clear.
1= $1m/bitcoin is x20 from here. And here is already a pretty high price.
2= $170bn is a lot of money. But on an international/global scale, it's a drop in the bucket.
That would be $85 billion for mining, whereas gold mining annually is about $1.3 billion. ~$1000 per ounce mining cost * 130 million ounces mined.
Of course it’s not an exact comparison as you prob ought to add in storage costs for gold but then maybe you’d need to add crypto online wallets and it gets messy. Mining to mining is clear and simple.
It is a drop in the bucket globally, but it also means you need that much capital flowing in to maintain the market price. Just to maintain. So you would want the network to be producing that much value at least.
There's something off about the argument that you're making and I think it's that you have cause and effect backwards.
You keep phrasing this as if mining moves first before price, and investments in hardware are necessary to sustain high prices. But the reality is that high prices come first and incentivize investment. That investment is not required for Bitcoin to continue to operate, it's just an expected effect for a given cause.
1. The market price is set by people deciding to buy bitcoin, and
2. Bitcoin miners will invest in equipment and energy up to whatever the market price is
3. Thus, at a market price of X, at current mining rates, the miners will have costs roughly equal to 6.5 * 6 * 24 * X per day, or C
4. So to maintain a given market price, $C must enter the market at any given time, to covet the costs of the miners.
5. If less than the miners costs enters the market in money, the price will drop and miners will exit the market until their new cost structure is in equilibrium with the new price.
In other words, as new coin at a given break even point enters the market, that dictates how much new capital must enter the market to keep prices steady. If more capital than that enters prices rise, if less then they fall.
This is so because unusually in the bitcoin network marginal cost equals average cost as the network adjusts difficulty based on miner effort. So I think this makes things kind of backwards and breaks our intuitions.
As far as currency goes, it bitcoin transactions rise, does that have no impact on price? I realized my price thinking makes no mention of them and I don’t know how they affect things.
And the cost per adult would be over $24. At least a quarter of people in africa are under 18 I think, though I couldn’t find great stats. So the correct number would be more like $32. 2% of wealth per year.
If it did happen in nine years the next halving is 2028 so the cost would be ~$85 billion per year. And that would be less than it is now due to inflation.
Ok that’s actually not as bad as I thought, though still pretty expensive. You need $85 billion from new entrants in burnt capital just to maintain the value of existing bitcoins at that price, and people need some reason for putting in capital other than price appreciation assuming appreciation stops.
I always see people referring to the energy consumption of bitcoin as though it’s strictly additive.
What I’d be interested to know is how it compares relative to energy costs for transacting with and securing fiat currencies.
Second, what people tend to ignore is that innovation doesn’t come in a vacuum - there are second, and third degree improvements triggered from it. In a world where bitcoin is $1million, it means the world has agreed on the benefits, and we will see innovations to address the tradeoffs that come from this. For example, we could see significant investment into renewable energy as a means to support the energy consumption of bitcoin.
Third, and this isn’t directed at you, just a general statement based on arguments I see on HN - cryptocurrency itself does not have high energy consumption. Proof-of-work mining does. There are methods to support cryptocurrency that do not result in high energy consumption (Proof of Stake, DAGs). It’s wrong to generalize energy consumption issues to all cryptocurrencies.
Very hard to compare. One thing I’m unsure of for bitcoin: do costs go up if there are more transactions or does mining difficulty adjust so that costs don’t rise no matter how many transactions bitcoin does? I realize this is a major gap in my understanding.
The finance and currency system does much that bitcoin doesn’t currently do. So comparing as a whole isn’t adequate unless bitcoin network costs don’t scale up with numbers of transactions because mining gets easier.
Actually how do miners make money once there are no more coins to mine?
> In a world where bitcoin is $1million, it means the world has agreed on the benefits, and we will see innovations to address the tradeoffs that come from this. For example, we could see significant investment into renewable energy as a means to support the energy consumption of bitcoin.
That actually doesn’t follow. All that follows is that the world has decided to move $170 billion in capital into bitcoin per year.
The world is presently set to move about $20 billion of capital into bitcoin per year, and there’s no real consensus above usefulness.
The world could be putting $170 billion in because there is value, or it could be a massive waste of resources. The world has certainly misallocated resources before.
And yeah I was restricting my own comments to bitcoin. Ethereum et al I know much less about.
With BTC (and I would assume most other cryptocurrencies), by transaction fees.
They also get additional payments in fractions of a bitcoin for transactions and this is in addition to the costs I wrote above?
Yeah, the basic design of bitcoin is for the block rewards to dominate early on with no/low transaction fees, but transaction fees to gradually take over as the main reward for miners maintaining the network.
the way it works, let’s say you have A bitcoins and you want to pay someone B bitcoins. you create a transaction that say: I want to move A to B and A-B-fee the miners see it and see the fee. it gets included (ie mined) in a block.
actual example 50BTC -> 20BTC + 29BTC
when the miner mines it, it will send the tx fee to its own wallet
also, most miners sort transactions by the most profitable to less profitable and mine only the most profitable ones
> >I always see people referring to the energy consumption of bitcoin as though it’s strictly additive. What I’d be interested to know is how it compares relative to energy costs for transacting with and securing fiat currencies.
the base load of the combined major central banks, transfer networks and custodial institutions is undoubtedly considerable
not least I'm thinking how much still runs on Itanium and OPENVMS. Just ten years ago I would have wagered the majority is on Itanium running vms or nonstop or the Honeywell legacies virtualized by Unisys. now a significant UK clearing bank ( at clear.bank) has run on Azure with white label customers who would have brought plenty of attention in the event of any problems, I'm no longer sure at all that I have any real idea what infrastructure is on.
re the energy costs of the network and that growth, I'm baffled - surely bitcoin should have moved to a custody model of settlement in view of the energy and other costs and risks of on chain transactions by now?
if the account is a true bitcoin account I borrow btc and owe a greater amount of btc to settle.
it's not unreasonable for my bank to expect me to close my trading profits into my bitcoin account.
that's just two regular bitcoin demanding and regular transactions creating more demand
Secondly, Coinbase doesn’t allow any secondary transactions, this was a company sponsored (approved) secondary. As a result this created immense scarcity so you can see how much the price changes just in these limited sales.
Third, as we saw with the last bull run of Bitcoin everything with blockchain in the name had a halo effect so there is definitely upward momentum.
Fourth, there is no Bitcoin tracking security on public markets. Obviously if Bitcoin succeeds so does Coinbase, this is an Avenue to get exposure to that without having to invest in Bitcoin directly and since Coinbase makes money on volatility which Bitcoin has a tremendous amount you get to ride the swings up and down by investing in Coinbase and not having exposure to Bitcoin directly. Investing in the shovels not the gold.
Eventually companies grow in to their valuations and that is determined by supply and demand and ultimately revenue and profits. Coinbase is still growing rapidly and profitable so in today’s market there will be a huge premium for that.
Technically it most closely resembles zoom from a financial perspective and from a capturing the trends perspective so while the valuation may seem high if Coinbase isn’t worth this then neither is zoom.
When will there be a market correction it’s impossible to know. We could have said the same thing for the post two years and it still hasn’t happened.
Don’t forget that getting yield outside of stocks is increasingly difficult and while we are on HN trapped in the echo chamber of tech and tech stocks when you look at the old staples like Coca-Cola they haven’t appreciated during this time.
Large mutual funds could be rebalancing their portfolios to move more into tech which they should have done from 2010 onwards but largely resisted outside of FAANG stocks.
The only thing that is certain is that this is a wild ride.
Pretty tough to eat appreciation; meanwhile Coca-Cola (and all those other old, boring companies) pays ~ 3.5% dividends annually. I'm sick of companies using my money for free to only fund their own growth.
This is why stock buybacks are better in some ways than dividends for returning money to shareholders.
This seems obvious, but I’m not sure it’s the case anymore.
DeFi has been growing, although hampered by ethereum right now, could eventually consume much of Coinbase’s income stream.
They may need to pivot to more of a banking role as ethereum solves tx fees and DeFi grows on L2. Whether that means more or less profit is not clear. I have a theory this IPO is really a calculated approach to facing such a reality, while they’re still considered untouchable.
A successful model for Coinbase at this point is probably what Google does: let others innovate, clone the ideas once they start becoming popular, keep them under an umbrella and provide easy integration/movement among them.
edit meaning that you at least wouldn't want that to be exclusively true
Bitcoin futures are available since 2017 on CME and CBOE.
Because of their big purchases Microstrategy stock (MSTR) tracks Bitcoin pretty well.
$MARA and $RIOT are publicly traded companies in the US that professionally mine for Bitcoin. Their stocks ride the same wave as that of Bitcoin.
Not sure of how it applies but there it is.
One way I could see this going: the smallest unit of a Bitcoin is a Satoshi. What happens when that value is greater than a transaction base cost?
Right now it’s $0.0005 or 100 millionth the cost of a coin. This implies a lot of runway.
In other words, off chain transactions are a potential solution.
We did, but blockchain tech rallying on the bitcoin price is a little like paper producers rallying on a baseball card fad. But markets are irrational, so...
There are a few in Europe look up Exchange Traded Products.
If the price went up, the sellers also know this and will adjust their offers though, so you won't be able to buy underpriced BTCC shares in the morning. You can bid at the previous day's closing price but good luck getting your bid filled.
$GBTC Grayscale Bitcoin Trust
People are just putting their money into anything as a hedge - real estate, stocks, crypto, gold. Until the value of the at can be sustained and inflation comes back, it's unlikely much else will change.
One of the whole purposes of conversion to pure fiat is to eliminate any reason to hold cash other than short-term liquidity in order to encourage investment in productive assets, driving production.
> It's just completely losing its value thanks to a long sustained QE.
Except...it's not, the quantity of direct, utility-producing goods and services you can get for a given number of dollars is declining much slower than the long-term average rate. Easy-money policies aren’t driving significant inflation, probably because we’d be seeing significant deflation without those policies given other conditions.
There is asset price inflation for the things we want to buy. Stonks. Real estate in desirable places.
If you examine the 500 most commonly bought household goods, inflation is tracking ~10%+ in major metro areas in the US. This is before covid.
Maybe I need to start looking into land prices. And for that I mean forest or agricultural...
We're not at that point, and I'm speaking as someone that supports a gold standard or equivalent to prevent rampant fiat debasement. I take it you didn't live through the 1970s. There have been numerous times in the past century where currency in major economies was prominently debased far worse, far faster than what we're seeing today. Sutained QE has done far less damage to the USD as one example, than what the 1970s did to it or the extreme destruction we saw during the George W Bush years (go to Google, type in "Belgium GDP", Netherlands GDP, Czech GDP, or Brazil GDP, almost any nation; you'll see a comical liftoff in their GDP chart, far beyond any real growth rates, that's the dollar getting massacred thanks to the idiotic fiscal policies during the GWB years).
Gold went from around $250 to $1900 over a little more than a decade from ~2000-2011, before sustained QE became a thing. In the 1970s it basically went up 1,000%. Not much has actually changed about how governments destroy currencies, it's the same old same old. Perma QE didn't change much, it's not a new tool, and nothing is very different today versus the past (except that so far this is a cakewalk compared to the destruction in the past; maybe it'll get a lot worse yet, of course).
You're better off holding cash than Tesla shares at $800 or $900. I'd rather take a 3% average debasement per year than sit in the S&P 500 at these levels (especially given what the US economy is going to look like in the coming decade). From these heights I'll bide my time for the next inevitable crash or significant decline, that's when the serious returns are generated, not chasing mania ever higher in markets at late stages. The big money was already made in Bitcoin, from $0 to $50,000; the upside from here is a joke by comparison to the risk. So it goes to $150,000 (maybe). That isn't a crazy return vs the outsized risk, that's the kind of return you could have gotten in any cloud stock after IPO. Yet it takes an extraordinary move of adding ~$2 trillion in market cap for Bitcoin to get there. The risk vs reward in Bitcoin at these levels is like a lot of absurdly overvalued stocks presently. And of course everyone becomes certain that something is fundamentally different today - it's not, this mania won't endure either (to be clear, we're not just in an asset bubble, this is a mania, the 8th or 9th inning of a bubble phase).
Significant inflation isn't coming back anytime soon (not until or unless they start devaluing the USD directly, but that isn't for at least 20 years yet), the US is in a heat-death stage of economic erosion. Ever greater sums of capital are being put into the freezer in the form of very low yielding debt, that process will continue to rob the US of dynamism and growth, trending growth toward zero as it goes. This is the exact same process Japan went through, and it's why they were unable to spark traditional inflation with their crazy spending and QE-like programs, they tried everything in the Keynesian book and it all failed (for the same reason the US didn't drown in inflation from 2010-2020 despite the rather insanely low interest rates over that time). We're not going to see a serious wave of inflation this decade now for the same reason we didn't the prior decade.
Bitcoin is not a stock, it's a deflationary asset. There are not just a limited amount of bitcoin, but a constantly decreasing amount and a constantly increasing amount of people wishing to use them. People sounded very much like you at every step of the way, including in the rise to $1,000. "The risk isn't worth it."
> Significant inflation isn't coming back anytime soon
I mean except in the commodities markets, the housing market, the price of ammo, of course. Unless you believe those are just "bubbles" as well.
> We're not going to see a serious wave of inflation this decade now for the same reason we didn't the prior decade.
We are seeing inflation, it's just occurring in hard asset classes like real estate.
> and nothing is very different today versus the past (except that so far this is a cakewalk compared to the destruction in the past; maybe it'll get a lot worse yet, of course).
https://fred.stlouisfed.org/series/M1
It is worse though.
In all historical episodes of hyperinflation, at the start, everyone holding assets just thinks they are getting rich.
I find this hard to believe, at least not to the extent you're implying. People don't actually use Bitcoins that much, they mostly speculate on it.
Bitcoin was created after the last financial crisis. I'm genuinely curious to see what will happen when the next one hits.
Do you have anything I can read to learn how to distinguish asset bubbles from inflation? Why does inflation sometimes take this form?
Even Silver is being pumped.
Can’t we say the reason why gold isn’t up 1000% is because its digital form of it, bitcoin, took that position?
Isn’t QE inflating assets instead of monetary value hence why stocks/equity is going up?
Btw very interesting take thank you!
Bitcoin is a more of a speculative investment than a store of value at this stage, because it has been producing such extraordinary returns (whereas gold is the opposite, on average far more of a store of value than a speculative investment (with some rare bursts of euphoria)). Bitcoin still isn't very widely/greatly (immense sums) held by the rich or the elite institutions, they're only beginning to dip their toes into it. Will Bitcoin end up primarily as a store of value over time (and less of a speculative frenzy)? Sure, that appears to be the likelihood at this point.
Gold moves, across time, in line with the destruction of the US Dollar (it'll see occasional temporary bursts due to fear / panic / commodity bubbles etc). Gold is overwhelmingly priced in dollars. Most commodities are. If gold would be up 1,000% as representative of enormous inflation / destruction in the USD, we'd be seeing that in an epic commodity bubble of the sort we saw in the 2000s. You'd see it in everything from copper to oil to silver. While those commodities are clearly seeing some inflationary push-up from the dollar losing value (and bets on future dollar destruction), it's not remotely close to a 1,000% gold move type debasement.
Low interest rates over a very long period of time, is indeed inflating assets, exactly as it helped cause the 2003-2007 real-estate bubble previously. I wasn't disputing any of that in what I said. Those low interest rates are causing housing values to rest far beyond where they otherwise would be (people buying more house than they otherwise could, due to artificially low mortgage rates). Those low interest rates are driving speculative money into most asset classes, from art & collectible cards to stocks and real-estate and most everything inbetween. It took a while but the high asset prices became a bubble which then became a mania, which will then either crash or otherwise be forced to stagnate across a very long period of time (think: Nasdaq from 2000 to 2015). This market doesn't have to crash, it may just decline or swing in tantrums, while inflation erodes its value and brings the valuations back in line with the mediocre US (and global) growth rates. The China boom phase is well over and there is no next China-like outcome coming soon, so global growth will largely disappoint this decade. This current market is a rather extreme case of future returns - distant future returns - being pulled forward. How many decades will it take for Tesla or Snowflake or Shopify to grow into their valuations? Tesla needs to become as profitable as 2 to 4 Toyotas to justify its present valuation, that should only take about 40 years of perfect execution and world conquering dominance. When you pull returns forward from so far into the future, the penalty you pay is stagnation as you eventually pass through that future time. And if this market does crash spectacularly, they'll pump and pump and pump and reinflate the valuations again at some point, most likely, even if it takes the better part of a decade to do it (which isn't to say those valuations will reach present mania levels again, maybe that doesn't happen but once every several decades; but to get back to abnormally elevated valuations, they can certainly drive us back to that after a crash with QE and low interest rates plus 5-10 years).
My strategy is to pay as far below what I consider to be fair value as I can for high quality assets. It ends up being taking advantage of the fact that very few investors are capable of objectivity, capable of controlling themselves, capable of controlling their greed or emotions. Markets always go too high and sell down too low; you sell into the froth and buy the panic (Buffett's mantra of being greedy when others are fearful, and fearful when others are greedy, it is that simple; then repeat it with discipline across a lifetime). The disciplined win over time. I generated enormous returns from both the run up to the present, and the March quick crash. You don't need to do that very often to make a lot of money over time, as returns compound, you only need a few giant hits rarely; as such you can afford to be very strategic and very patient about it; this is one of the points that amateur investors most often fail to learn, they think you must always have your money at work, you must always be doing something, it's entirely wrong. Understanding there are many times when you should do nothing, when you should be patient, is very important. There are critical times to act, where you can strike and generate the extreme bulk of max potential returns, and that doesn't happen constantly (although people think it does during mania phases, a lot of those people will ride the mania back down the other direction though; see: Dave Portnoy as a microcosm of a typical bubble amateur routinely losing playing with a mania he doesn't understand). One of the most important rules is to first do no harm, first don't lose money, and if you can do that compounding returns will generate an extraordinary outcome over time. The people that ride this mania back down (which will be most investors), may see their progress reset by a decade (or worse), as happened with the dotcom bubble crash or real-estate bubble crash. It can take a very long time of average returns to climb back out of a 40% or 70% drop in your portfolio (eg playing with speculative fire in a stock like Tesla that could drop by 90% and still be overvalued).
I don't know whether we'll see sustained damage to the economy from whatever the next crash-type event is, such that stocks stay down for a long time, or if we'll see something more like micro crashes more frequently (with QE & low interest rates bouncing valuations back up faster). Either way, my strategy is to take advantage of any event where I can buy value cheaply or cheapish. I don't need that to happen very often, I only need to make sure I get a nice hit when that pitch arrives, and I can safely stay out of the mania while others take all that risk (I seek to unload my previously purchased assets to buyers during the mania, rather than be buy-heavy at that time, in other words; then I'll reload later at a cheaper value). The only way this fails is if values never - literally never - become cheap, or reasonably priced, ever again. I don't believe that's going to be the case. If you generate a huge return from doing this, you can afford to sit out the volatile ending mania stage, even if it lasts multiple years, you become free to disregard all of it, the risk gets assumed by everyone playing in the fire and they're ultimately the desperate sellers I'll buy from later on.
As a side note, this isn't timing markets (which is a common misconception). This is calculating value and making a determination about what one considers a good price to pay for an asset. When Buffett sits out the insanity, as in 1999, he isn't timing anything, he's deciding not to overpay based on his personal judgment about price vs value (price is what you pay, value is what you get). We all make such value judgments, consciously or subconsciously; you have a choice as to whether it's conscious & deliberate or abdicated, you can be calculated about it or you can throw dice or play follow the leader in a mania (eg they're all buying GME on Reddit, so I should too; shit it crashed from $500 to $40). You can train yourself to get good at judging price vs value, or you can offload to someone else's opinion of that. Those are the only choices.
Could you give some guide lines on how to achieve this?
Here is what I point new investors to:
- Buffett: The Making of an American Capitalist, by Roger Lowenstein.
- Margin of Safety, by Seth Klarman
- The Little Book That Still Beats the Market, by Joel Greenblatt
- Common Stocks and Uncommon Profits, by Philip Fisher
- Business Adventures: Twelve Classic Tales from the World of Wall Street, by John Brooks
- This article from 1984 by Warren Buffett: https://www8.gsb.columbia.edu/articles/columbia-business/sup...
- Peter Lynch also has a couple of optional books that are decent and very easy to digest for a new investor, very common sense oriented.
- Also optionally, Buffett's various writings are often excellent, however they're all over the place in focus, so it's hard to pick one. His annual letters for example can be acquired on the Kindle or from Berkshire's website and many are worth reading (if somewhat boring for most people I suspect).
The single most important thought in investing, in my opinion, is to always be cognizant of price vs value. What you're paying, what you're getting in return. Then always be aware of, always estimate as best you can, what your moat is for the investment at the price you're paying (what Klarman and others have called a margin of safety). How much can go wrong with your investment before you drown? How much room for error is there in the price that you paid? I like the Buffett book I reference above, because it pounds home that concept while introducing how Buffett came up, how he thinks (I don't particularly like his book, The Snowball, for that).
Also, Margin of Safety is out of print. However, there is a certain Archive site with a time machine, that if you were to put this url into it:
https://files.leopolds.com/books/Margin.of.Safety.1st.Editio...
You'll find an archived copy of the book in PDF format. Alternatively you can put that file name into Google and find some other copies of it floating about still (Klarman refuses to put it back into print and had been having the PDF copies taken down).
The absolute easiest things to look for (things most anybody can do), is growth vs valuation, along with having enough of an understanding of the business you're buying part of, to know whether they have an enduring position in their market, whether they have a moat or edge that isn't going to easily vanish. It's important to understand the context of the business you're buying into. Ultimately if you're going to self-manage, you have to decide what kind of ratio on growth vs valuation you're willing to accept, what's too high. These are largely subjective decisions, there is no right or wrong answer in most cases, only answers that entail more or less risk (the worse the ratio (eg high valuation + negative growth), the closer you get to it being an objectively wrong, dangerous answer though). Personally I prefer a balance on that equation. I'm a value investor, and it's commonly thought that value investing is a conservative, low return approach, however that's not inherently the case, that's up to the investor's approach (Benjamin Graham was a cigar butt value investor, looking for a last puff on cheap stocks, and his approach produces far lower returns over time than Buffett's approach to value investing). If a stock has a medium or high valuation, it can be a great value proposition if the necessary growth is there as a proper offset.
For example, if you go back to December 2018, Facebook was trading for around a $370 billion market cap, around 14.8 times operating income for that year. Why didn't more investors see that opportunity? It should take only a few minutes at most to run a basic extrapolation of a modest growth rate and see how that Facebook value proposition would end up a few years into the future. And yet, sentiment on the stock was irrationally bearish. That's nothing more than emotion, herd behavior, and it's extremely common. It's investors listening to other low-value opinions, it's Wall Street money being the typical followers that they are. People are generally terrified to stand apart on any decision, much less an investment. Many of those investors end up being the desperate sellers you want to buy from as they sell you FB at $137. They have no idea what they're doing, they have no idea when to buy or sell. And that's true of most of the professionals on Wall Street, they're almost all clowns (very highly paid clowns, because they're operating in a protected cartel). Was Facebook's social monopoly - their moat, their edge - going to vanish soon circa December 2018? That was an absurd, silly, borderline stupid premise, and yet it was a commonly floated notion; there was wildly bearish sentiment going around at the time - and yet back in objective land, where you always want to remain, their business was still firing soundly. So if an investor could brush away the irrational people spewing their emotional bias about FB, you could focus on the actual business and what it was actually doing, and run some very straight-forward projections into the future (even being conservative about it).
I'll give you another obvious example from my perspective. In March I posted here about which stocks I thought were interesting during the crash. I argued about Square and why I liked it. For that stock I looked at a few things. They did $4.7b in sales in 2019 and their market cap was down to like $17-$19 billion during the crash, so it was trading for around four times trailing sales with a solid growth profile (and, in theory, a lot of growth ahead of them, as they were still relatively early into their growth phase). Their operating profit/loss picture had persistently improved as well, they weren't at any risk of bleeding to death. Now, that's a laughably obvious value opportunity, that's dirt cheap value. That's a margin of safety or moat of safety that is massive, a lot of things would have to go wrong for Square to not be a great buy at that price. The calculation when you input all of that, including its business context (putting in risk for the pandemic), is that they could probably see their sales fall by a lot during the pandemic and their growth rate plunge and it'd still be fairly valued at near a $18b market cap with maybe some further downside risk of 1/3 from there if the damage were really bad. And then you'd have to believe they weren't going to resume growth, that they'd never get back up, to think the position would be really dire. That easily goes into the low risk camp.
Most stocks and situations aren't so obvious, so easy. The principle is the same though, it just takes more effort, thought, measurement, well considered projection, to reach a conclusion about the price you're paying vs the value you're getting. Start by asking: what value am I getting for my money? What value is represented behind that price. That includes the business comprehensively, its prospects, its growth near-term, its potential or likely growth longer term, its risks; and often it can include externals, depending on the business (is this business depending on a trend sustaining, on a commodity price remaining high/low, on politics in China, on hurricanes in Florida, and so on).
Getting really good at rapidly extrapolating with multiple outcomes is a great skill to acquire. Take a stock, absorb its P&L statements from the last 3-5 years or so, learn some about its business, and run some scenarios in your head (or write it down, whatever works). It's a training exercise, and over years you get to mentally compare your projections vs reality, and you can adjust your mental models if you're missing by too great of a margin about how you gauge such things, how you extrapolate forward. Over time you learn some things - risks, potential upsides - to look out for in businesses, to put into the calculations, that you maybe didn't know in the beginning. Did you include a variable and apply a discount for the potential that corporate income taxes might increase (and is this corporation's earnings primarily domestic, like an airline or bank)? Etc etc. Eventually you can look at the profile of a company, its valuation and P&Ls, and get a great sense almost immediately whether it's in your risk wheelhouse, on what value its presenting at the current price.
Run a value calculation on a bubble stock. What value is Snowflake presenting to me at a $82 billion market cap? That when it finally gets around to $3 billion in profit, it'll have a 27 PE ratio and probably low growth to match, all just to get it to where it's already at. What do I think its growth will look like in the century it finally gets there? Why should I pull returns so far forward for that stock, what extraordinary value am I getting to make up for the hyper price I'm paying? When Salesforce had a $82 billion market cap back in 2017, they were set to do $8 billion in sales that year. Snowflake presents something around a 20x worse value proposition than 2017 CRM (when you include their horrible burn rate and dramatically lower sales). Who the hell in their right mind would go anywhere near that? It has disaster written all over it (or at best, extended mediocre returns). And 2017 CRM wasn't a steal, that was a rich valuation. Snowflake requires that you pay an extreme price for growth. That's where an investor has to decide what ratios they think are acceptable; place those settings in the wrong place and you increase the odds of getting crushed, getting trapped in a lost decade, or taking a haircut you have to potentially spend years to recover from. Do I think I can buy Snowflake in the future at a steep discount to the $429 highs it previously hit? I wouldn't be surprised if it can be picked up in the future below $100, possibly far below that. Do I think this market's hyper valuations will persist forever? No. And you can go from there. Inevitably something will crash the stock, something won't go right, growth will be weak for a year or multiple quarters, any number of a thousand things, and it'll tank the stock hard, and they're priced for perfection. Snowflake has to execute to perfection for the next decade, non-stop, to prevent that stock from tanking at some point, and even then the market may kick their feet out from under them regardless. Do I think it's likely they can execute like that for a decade? No, hell no. They'll have their Qwikster moment too, and if they're lucky they won't go out of business (classic dotcom bubble scenario, high burn rate, market crashes, economy tanks, business vanishes; the supposedly impossible happens).
Why are people buying Tesla at $780 when they could have had it for under $180 a year ago? Where were these people a year ago? It's a great buy at four times the price and wasn't back then? Wild irrationality, a complete failure to understand anything about Tesla, a failure of due diligence, people generally buying things having no idea what they're doing. The market is always filled full of investors looking to buy your high priced stock at the wrong time, and later they'll be begging you to buy it from them at 10% or 20% the price. Rinse and repeat, it never stops happening, it will never stop happening, it's standard issue human behavior, and you can generate consistently great returns taking advantage of that fact, so long as you can control yourself and maintain discipline about your behavior during times of manic greed or intense panic (because the other people sure can't).
I have a specific question about the calculation of the fair value. My understanding is that there are two steps:
1. Project the future earning (that is the difficult part)
2. Discount the earnings and get the NPV - the fair value of the company
Currently the interest rates are so low that the NPV will be quite high and not that far from the current valuations. Indeed, this seems to be the rationalization by many for the sky high valuations of today. But this seems wrong to me. What would you advice? Pick some other interest rate, maybe an aspirational rate of return for ones investing? Or don't try to compute the NPV and think in terms of multiples like P/E and P/S?
So for example if I think the fair value for Coca Cola (KO) is 30% to 50% lower than where it's at today, that's not based on a textbook valuation approach. I base it on what I'm willing to pay for growth, and Coca Cola is a pathetic non-growth machine (not to mention a giant sugar liability). I look at Coke's financials and, with some understanding of their business, I ask: what am I willing to pay for zero or negative growth across time? China's boom has come and gone and Coke's growth - as a global business - has recently been stagnant, mediocre, so what are their prospects going forward? I don't like that picture at all. I might be willing to pay somewhere between 8 to 15 times earnings for zero growth (depending on context; I might pay less for a financial firm than a tech firm, and so on), if there is something I like about a company. Coke's multiple is closer to 27-33 lately. Why would anybody ever pay 30 times earnings for zero growth and bad prospects for growth? Coke is a very easy fair value calculation as far as my personal judgment is concerned, their persistent growth problems make that a super fast decision. I'll look elsewhere. McDonald's is in a similar boat as Coke, it's a horrific value proposition, 30+ times earnings for a business with very little (or negative) growth. I might pay 12-15 times for MCD or KO, maybe. Personally I tend to really dislike companies with no growth or weak growth prospects going forward, it's a giant negative in the margin of safety calculation (growth is a first-aid kit for problems that inevitably crop up in a business over time, random messes, it applies a bit of a balm, helps as an offset in the value calculation; if you don't even have growth, inevitable problems are that much worse when they happen).
Fair value means I've looked at the stock in a way that I prefer to approach a stock and I've made a determination for myself, for my investment purposes, as to how much I think it should be worth. And I may come up with a few versions of that, one for an average market (with typical multiples), one for a slightly bubbly market; typically I disregard trying to come up with a value based on a mania, I'm not a buyer at that time in most cases. Those variations, models, are meant to inform myself as to the flex in my investment. If valuations merely go back to where they were in 2012 or 2016, how might my investment perform if its multiple is reset 1/3 lower? Will I get killed on the price I paid? It's modeling.
Interest rates will absolutely distort the context of deciding what something is worth, that falls into the variations, models, you build for different scenarios. The point of doing that is to check / prepare your position against a bad outcome. People claim that low interest rates will keep stocks inflated, so there's nothing to worry about; I like to point out that multiples were far lower at numerous points in the past decade when interest rates were at zero and we also had QE going on. How about if we just roll back to where multiples were in 2014 when rates were zero (and our economy was better positioned in 2014 than it is now, although our headline unemployment rate was similar)? If I were a buyer today I'd absolutely be running that simulation for myself whenever I buy.
I think either Ted or Todd is likely is doing the buying on Snowflake (at least instigated the premise), perhaps with Buffett's sign-off (given it's an increasingly large position). I also think one of the other buyers is likely responsible for Berkshire's position in VRSN.
There's a high risk that Snowflake position will humiliate Berkshire Hathaway. I think it's a mistake. It wouldn't be Berkshire's first mistake in dabbling in tech but it looks like it could be the biggest.
I have great respect for Buffett's historical performance, however I consider him mostly done at this point. He's conservatively managing the end game of his career now, he seems to be intentionally avoiding doing anything that might stretch beyond his lifetime now (I don't think he wants to do anything that might need a decade to manage that he might have to offload onto the next person). I think he should have taken advantage of KHC's weakness for example, to strip Heinz back out of the conglomerate and break it up and sell off the rest of Kraft, the stock was so cheap at times you could have almost gotten Heinz for free in the process. Instead Buffett is sitting on a hundred plus billion dollars yielding squat (KHC was down to near half the market cap it currently sports, which was the general time to grab it to try to get the Heinz business, and then sell off the lesser pieces, either after you repair what was ailing KHC or immediately depending).
If you are argument is "but the volatility" then you enjoy not winning.
Upside volatility.
Number go up.
Anyway, there is no point at looking at nominal values given inflation, population growth, general progress. I like to look at everything as a ratio against total global numbers (global wealth, global debt, global population, global equality etc.). Unfortunately it’s hard to find reliable global numbers.
The IIF only gives its numbers to a few hundred global banks and similar sized institutions.
At $5 million it's approaching the value of all stocks on the planet. I don't have to elaborate on the economy those stocks represent, the annual profit generation.
$100 trillion is nearly all household assets in the US, and nearly double all household assets in China.
I like Bitcoin, it's simply not a believable bullish case at all.
We don't have gold backed currencies for the same reason we're not going to see Bitcoin overtake all national currency systems. The guys in power with the guns determine how your currency system works and they all universally say no: you may not have your fiat currency backed by gold (or in the future, swapped out for Bitcoin).
Not to increase the price, just to maintain the network. What is the network doing that would justify that investment?
After halving the cost would drop to $850 billion a year but still.
“USD is being hyperinflated” is an easily falsiable (and obviously false) statement, so basing anything on it is nonsense.
(That it is imminently going to slide into hyperinflation is less easily falsified, which is why that is actually the perennial cry of cryptobugs, as it was for goldbugs—sometimes, the exact same people—before then.)
So,yeah, when even the rapidly inflating segments aren't anywhere close to hyperinflation, it's pretty clearly not general hyperinflation.
And stagnant wages are a completely unrelated issue to hyperinflation, though obviously wage increases mitigate and wage stagnation or decline exacerbates the effect of whatever inflation there is on wage earners.
Buying a house is an asset acquisition, not an expense. Housing is an expense (and typically the single greatest household expenses), but that expense has increased in price less than home prices.
The next greatest expenses are food and transportation.
If people buy four household computers that isn’t inflation, but how does buying a 4 bedroom home rather than two bedroom show in inflation stats?
I remember Buffets letter to shareholders apologising Berkshire Hathaway wasn't able to continue delivering the same historic returns because that trajectory would require them to own every publicly traded asset in the world after ten more years.
even now you can potentially eliminate the major inflationary risks by holding property without debt and rely on policy consumer price regulation to hold basic necessities in check but I personally think that energy risks and not only exceptional weather events put that out of contention for sanity sake. In fact if energy infrastructure and general infrastructure development is increasingly critical for the future it makes little sense to have a cash savings incentive in the economy despite this is unfortunately not a explicit case for the generational savings deprecated in a way that I readily appreciate.
edit to remove accidental negative from I personally [don't] think that energy risks....
I noticed a comment sadly without details reporting a third party obtained a crypto collateralized 7 figure loan obtained in a matter of minutes which interested me enough to plan a new survey of the infrastructure in the market. I'm personally interested in pending short term 5 figures as a business. but only if I can figure out how report to credit agencies specifically for positive feedback and I am only interested in non secured lending but whilst holding the underlying as the custodian. unsecured loan performance is a particularly valuable credit record history especially in the present volatility. the model I wish to pursue is to provide liquidity for trading traditional instruments and by acting as custodian for both crypto and trad assets, providing as USP analytical tools and guaranteeing fills on quotes from my ticker, acting as guarantor for the trades to a mainstream financial or bank. I won't go into the model but it does include kicking back fees from my prime broker for the volume and transparently revealing the collars around the spread enabling truly immediate liquidity and real time netting. hedge strategy p&l to benefit customers when closing in the market thereby paying every customer for anything that they left on the table excess for buying the liquidity.
But if you don't want to improve your life and just want to survive until the next paycheck sure, I guess inflation is low.
My point is inflation isn't being measured in a way that actually matters to people worried about more than buying groceries and a new laptop.
If all those things were included in the measurement inflation would be way over 2%.
How nice was it to have plentiful cash after the real-estate implosion? They were practically giving homes and condos away in markets like Nevada or Florida, condos that were going for $250,000 during the bubble were being given away for $35k-$50k at the bottom of the implosion and there were few takers, entire buildings were sitting empty in formerly hot markets in Florida.
How nice was it to have a lot of opportunity cash at the ready as the S&P 500 collapsed in late 2008 / early 2009 (or March 2020 for that matter), while everybody else was getting mauled, worried about margin calls, fleeing the market in fear. You wanted to be buying from those people as they were dumping nice assets for $0.25 on the dollar. To do that you needed cash on hand.
The time period after steep asset declines or crashes, is when the majority of investors lack for cash the most, they're always pinned, scared by the hits they took, and can't seize the opportunities that become available; and that's when you make the biggest killing, that's when you take up your greatest potential return positions, not during rah rah times (that's when you cash out your prior opportunistic positioning and build cash, rinse & repeat).
That's not to suggest you should always be holding nothing but cash, that isn't the point. The notion that it never makes sense to hold cash is way off the mark however. At a minimum you want some opportunity cash on hand at nearly all times, and you can increase or decrease how much that is depending on the context of the economy/market/personal/etc.
Historically there were some exchanges that have been hacked. This caused not only the company to go bankrupt but people losing a lot of money. How does coinbase prevent this from happening? This is very much one of the reasons I will never hold crypto (FYI: I've wrote my own Golang flavour of ethereum blockchain and solidity when it first came out, since im gonna get bashed for this post. I also regret not putting 1k during ethereums ICO when that was the only money I had in my bank account. This is not an investment advice). If my etrade or bank account got hacked, I can still get my money back through FDIC and SIPC. If a non-tech personstarted hyping a cryptocurrency and placed 100k in it, and they get hacked, essentially their 100k evaporates right? I guess there are worse ways to gamble your money
What I like about crypto though is the 24/7 market. I wish there was something like this in the stock market.
> "Coinbase prioritizes the security of our customer's digital currency through a combination of online “hot storage” and offline “cold” storage. Coinbase maintains 98% or more of customer digital currency in cold storage, with the remainder in secure hot servers as necessary to serve the liquidity needs of our customers. All digital currency that Coinbase holds in its online hot storage is insured. If Coinbase were to suffer a breach of its online hot storage, the insurance policy would pay out to cover any customer funds lost as a result."
https://help.coinbase.com/en/coinbase/other-topics/legal-pol...
I get the impression that a lot of exchanges are (or were in the early days) built by 'enthusiasts' who know just enough tech to be dangerous.
[1]: https://www.cmegroup.com/education/courses/futures-vs-etfs/w...
I wonder because where some people are attracted to crypto because of the monetary gain and then learn about the technology, others are turned off by the constant focus on the $ value and then don't learn about the technology.
I truly find it fascinating to imagine our future running on a crypto layer. I'm not talking about bitcoin specifically due to its inherent limitations (which may or may not be bypassed through second layer solutions).
But playing around with some of the DeFi stuff, seeing directed acyclic graph ledgers perform at 10k tps and seeing projects which truly can bring value to people really gets me hyped about these things working seamlessly together.
The internet is not worth a lot because of the protocols underneath it but because of what people have built on it over the years. These various cryptocurrencies interacting with each other more and more gives me the same impression.
Every boom/bust cycle crypto goes through brings in more creativity from people who are building on this new world and I have trouble finding fault with it.
Would love to hear some arguments on how this view of things could be biased or perhaps wrong.
I don't see anything wrong with it, but the status quo is that building a company has to be a true calling to change the world.
That said, I have my doubts about the 'purity' of any crypto company.
https://twitter.com/JohnStCapital/status/1362859527230672896
In case the tweet is deleted, a summary. Coinbase is now being valued at over half the combined market value of the companies that collectively own most major global markets outside of China. Those markets trade everything from currencies to stocks and bonds to commodities.
For scale of asset pools: The value of all Bitcoins ever mined just hit $1 trillion. The CME Group exchanges trade nearly 6x that daily. This funding values Coinbase ~50% higher than CME Group.
The price is a prediction of future payouts (whether in dividends or value of the assets the company is holding).
If there's a similar distinction between the business models of Coinbase and e.g. CME Group, I have yet to hear it.
Traditional finance and crypto finance are often hard to compare, but here's a surface level comparison: Coinbase is an exchange, a brokerage, and a clearing house all wrapped into one. I'm not aware of entity in traditional finance that is all three, though plenty are two out of three (Robinhood is a brokerage and clearing house, CME is an exchange and clearing house).
Like somebody who put in 50% of their net worth today, and maybe it drops?
In a bubble (up to you to decide if this is a bubble) a lot of people end up very wealthy on paper, but they only keep what they manage to sell before the retraction. Sadly, a lot of people can't resist the urge to double down as prices get higher and higher, meaning they lose more on the way down than they thought they were risking on the way up.
> Like somebody who put in 50% of their net worth today, and maybe it drops?
YOLOing your net worth into stocks isn't something that happens in the real world very often, contrary to what you see on WSB. The only people doing that either have severe gambling problems, or small enough net worth that they feel like they don't really care if they lose it all because they can start over.
The weird thing about this bubble is everyone he gets rich on extreme gambles seems to want to post it for internet cred. Makes it look like everyone's doing it.
This is a market mania at this point. Everything thinks stimulus is all-powerful at this point, but there's a lot of FOMO going on too.
Jumping off this train in time is what takes a real skill, not jumping on it.
there is no gravity.
Maybe it pops tomorrow, maybe it goes on for years. I don't know, nobody really does.
Same thing was said in 2013 and 2017..
That's my opinion, but we'll see.
The government can always just make a law and take whatever it wants from you (or imprison you). Doesn't matter if it's from a bank account or bitcoin cold storage on planet Musk.
It's a lot easier for the government to pilfer your bank account, than for them to torture you to hand over your seed phrase (that is if they even know your real identity). Decentralization absolutely takes power away from the state. That's not even touching the truly anonymous crypto like zCash.
Are you sure? I have never in my life met anyone who thought they didn't have control over their assets or that they needed to have more control.
Unless governments take a hard line against bitcoin by banning it, something they mostly haven't been doing to date, I expect it will have a future as a kind of digital gold. However, gold has tens of thousands of years of history as an asset class, while bitcoin is a little less proven. Don't forget it used to be illegal to own gold in the US, so bitcoin is not as safe from government as people might think.
But all financial assets tend to follow cycles of booms and busts. So the question is, where are we in the cycle? Are we nearing the top in the near term? I think we are, the growth of bitcoin has gone nearly vertical lately.
If an asset isn't growing faster than inflation, it's losing money. If there are other assets offering better risk/reward then money will flow to them and out of the inflated assets.
Personal savings rate is up, discretionary spending is down, people are stuck at home, and everyone is glued to their phones. I think a lot of people's extra money is going into crypto and the market. FOMO reigns supreme, at least until the numbers turn red.
It may or may not show up in consumer prices eventually.
How about the actual things you need: housing, groceries, college, gas, electricity, a vacation?
Due to the pressure on government to keep inflation low to avoid devaluing their dollar inflation is a gamed number and the goal posts have been moved to keep it low so things look good. Meanwhile the price on everything that I buy or want to buy is through the roof and I can’t find a job that will pay me more than my current one - guess I should have gone with software instead of hardware
Now, thanks to economic inequality, I think a lot of folks are feeling effective inflation, but the true value we define as 'inflation' has not risen much yet. Sure, some things are up, but they're not included in the calculation of 'inflation' so it makes sense to talk about them in different terms, I think.
Inflation is coming, but it seems to be inflation driven by supply disruptions and not monetary policy driven inflation. I'm still not 100% on board with the idea, but I've been reading lately that QE is basically low-velocity money and doesn't necessarily contribute to inflation. I know we didn't get much inflation after QE'08 and the velocity of money has been in the toilet since then. Combined with the USD reserve currency status I think we could actually end up with deflation but IDK. Real economists can't figure it out and I'm just some idiot on the internet.
I am surprised by this multiple but I can see it, as the law of diminishing returns has not set in and won't for a while.
Pretty much all aspects of this require growth in other parts of the market to support, but they are all things I agree with.
For example, Coinbase should be allowing people to pool their REN to run hosted darknodes - darknodes function as a progressively more trustless exchange letting people move assets across blockchains. Coinbase already lists REN. Taking a cut of that as the volume grows there will essentially allow Coinbase to double dip. They get the transaction fees when people trade, move funds off of their exchange, and a cut when people move funds to other blockchains through RenVM, which will be a many-to-many relationship. The Forex market does several trillion $ a day in trades, so another mere order of magnitude in growth of the crypto economy would support the growth of all the infrastructure projects inside of the economy.
Even if that’s true, I recently read about the bubble potentially “bursting up”: instead of prices coming crashing down, prices stay stagnant or grow slowly, while earnings grow quickly. The net result is the same (P/E ratios stabilize), but you lose out on a lot by staying out of the market.
Do you have a link where I could read more about this? As a layman I fail to understand how this would work, and I couldn't find a page explaining it.
My naive understanding is that a bubble pops when investors lose confidence in the market, and instead of anticipating growth, anticipates a correction and create a feedback loop down to a certain level (at which some counter feedback stabilizes the movement).
How can earnings increase when investors have lost confidence?
The alternative I’m describing is one where panic selling doesn’t occur. Earnings can continue to rise (because earnings reflect consumer spending and other similar trends), whereas prices don’t go up as much because market speculation reduces and people are less bullish. It doesn’t have to devolve to panic selling.
The other issue we are dealing with now is also asset inflation, where the number on the screen does not reflect any intrinsic value, but moreso the ongoing devaluing of the dollar we hold in our pockets.
I personally think this whole "modern monetary theory" is a game where the smart folks at the Fed realize that rather than have people watch the number on their savings and 401ks obliterated in a crash, they prefer to keep that number appearing the same and bury the "cost" of the bubble into a deflating dollar. It keeps the masses happy because they see the $s in their savings account still going up, which retains confidence in the system. Who knows when everyone will catch on, but it's been working so far.
Doesn't quite add up, but what do I know.
How is that any different from today?
https://www.federalreserve.gov/monetarypolicy/bst_recenttren...
And right now they are still printing more and more.
The chart you shared hasn't even changed significantly since July.
The Fed didn't print enough money to buoy Tesla 1000% or send Bitcoin up 100% in a month. There's no mechanism directing money straight from the Fed into the riskiest assets. Market mania has taken hold.
But at some point, in order for fiat currency to retain any sort of reliable buying power, there does need to be a rug pull of some sort. Doing it while so many are out of work and so many industries are effectively shut down by government regulation would be extremely dangerous (for the government of the day).
Tether “being printed” is per design. Just like wire transfers and account signups to Coinbase, they align with spikes in price.
That’s not to say they are legitimate either, but the constant conjecture about it is mostly people confused about causation.
And they eat up 2%+ fee even for people that wish to pay in cash?
They get roughly $200 per bitcoin trade. That's on both sides, so $400 per bitcoin transaction. Today was a slightly higher volume day but they did $1.6B in BTC-USD, so around ~30k bitcoin changed hands.
30k * 400 = $12Million
Bitcoin is 1/3 of their volume (they have a lot of other crypto currency pairs), so let's take 3x of that = $36 Million in trading fees today.
Bitcoin is a 24/7 market, so 365 days = $13.14 Billion per year.
This does not even count what used to be (still is?) their main business of just buying and holding bitcoin for people through DCA buys or on their app. They also are starting to have a bunch of other revenue streams through loans, debit cards, etc and invest in a number of early crypto projects.
I'm not sure what the multiple is going to be like since I don't know their expenses, but since most tech companies are valued from revenue and future growth expectations anyway, who knows.
Though 2021 will be higher, will it be 20x higher?
I don't know if it will be 20x higher either. Just saying, this makes more sense than say, Zoom, which trades at $120B mcap.
I dont think the volumes will last, but if you look at volumes today and extrapolate further growth, then sure $100B makes sense.
How much do they own now?
Next Friday I plan to do the 2-3 hour trip on motorcycle to Chiang Mai city. It’s through a mountainous snake road and with good weather very beautiful to drive.
If they aren’t of a mind stable enough to stay on this plane of existence, don’t not not stay.
They're for limiting your max amount of time on HN in a single stretch. :)
while checking out HN, TikTok, Clubhouse and Facebook at the same time
It gets worse. Many of us are probably reading HN while listening to Clubhouse at the same time.
The population is not really the factor here, it's economic growth, which is connected to population.
Growth must slow eventually too. I'm not sure how long that would take or how we'll adapt.
What's your reason for such a firm belief that this is absolutely going to happen in any timeframe that matters to this valuation?
Edit: Peter Lynch agrees with me. Instead of being a passive aggressive downvoting asshole leave a comment.
Edit: Lol, I can't respond to your comments because everyone downvoted my comment and HN rate-limited me. Later.
Lower interest rates enable growth in corporate debt, which has been used to buy back stock.
There is a direct connection between decades of lower rates, stock buy backs, and asset appreciation including stocks.
This pushes up the price of equities and decreases their return too.
Also Peter Lynch is no fool, so I'd like a source for you saying he thinks there is no connection before I believe he said that.
Bitcoin has a lot going against it- the tether fraud stuff, connections to money laundering, slow transaction speed.
Coinbase is tied to none of those things, and has the unique advantage of having a reputation in both security and compliance in an industry full of greenhorns.
https://ir.theice.com/governance/executive-management-team/d....
The marketplace should not of itself be valuable. If it is, its extraction of value for the goods/utility being traded. Its rent seeking. The only possible value derives from what is a tax on trades by volume and value, to NOT fund the engine which runs the trades. Sure Lloyd's of London is priceless. Priceless really should mean "does not usefully have a price, in that sense"
If coinbase is worth $100b what does that even mean in terms of the sustained value of the dollar?
Due to regulatory capture Coinbase gets away with charging literally 10x higher fees than international exchanges, as US regulations essentially ban Americans from trading on most of the popular international exchanges, so Coinbase has little competition.
I do think that a $100B public company engaging in the activity makes a really strong case for regulatory reform. I would expect it to be straightforward for other markets to add crypto for US residents once Coinbase goes public. I don't know that I would want to own Coinbase stock once CME/ICE/CBOE have crypto exchanges with lower fees.
Coinbase could end up being the victim of its own success.
How can it be made stable? It's risky to invest large sums in if it can just collapse at any time.
Is it even demonstrably secure against the potential of malicious original owners/operators running away with large sums of money? If there are original owners/operators, where's the governance, paper trail, and audit of them?
What if there are security or structural flaws? Who's going to fix them? Who decides what fixes to implement? Who reviews the fixes?
How can it can be converted to money if countries make exchanges illegal or tax it into oblivion?
Are you talking about Bitcoin itself here? There are no operators holding your money. It's secured by standard cryptography implemented in open source code, and the entire ledger is public.
There are developers who fix bugs that come up, and make minor improvements to the protocol occasionally. Ultimately it's everybody running the software who decides whether the changes actually deploy.
(If you're talking about Coinbase, they do hold your money and they are regulated and audited.)
I'm not talking about who is holding money at present time, but running away with the value from piles of BTCs (either historic wallets, customer wallets, or modern investment), cashing-out, and dumping BTC's value.