The problem with Coinbase's valuation (2024)

Good morning.

Coinbase, the cryptocurrency exchange, goes public tomorrow, and estimates are it will launch at a market value of around $100 billion.If you think that sounds crazy, well, Fortune’s Shawn Tully does too.In this piece, he walks through the math of what it would take to justify that valuation in the future.Highly improbable.

Coinbase did show awesome growth and profitability last year. Revenues doubled from $483 million to $1.4 billion, and operating profit went from a $45 million deficit to $409 million. The first quarter was even more stunning—with revenues growing 11-fold to $1.8 billion, topping last year’s revenue in a single quarter.

But here’s the problem:Those revenues reflect a take of about 0.46% on each dollar traded in cryptocurrencies—which is about 50 times what the Nasdaq and the New York Stock Exchange generally earn on each dollar they trade.To justify its soaring valuation, Coinbase would have to become larger than the traditional exchanges, but not compete with them on margin.That defies the laws of economics.

Of course, these days, lots of things defy the laws of economics.Fed Chairman Jay Powell told 60 Minutes interviewer Scott Pelley Sunday night that these are not the “bad, old inflation days that we had when you and I were in college back a long time ago.” (For the record, I was in college then too.)Maybe they aren’t.But the money that the Fed and Treasury are pouring into the economy has to go somewhere.And Coinbase provides one hint of where.

“We do look at asset prices,” Powell told Pelley.“And I would say some asset prices are elevated by some historical metrics.”Is it a speculative bubble?“We don’t think we have the ability to identify asset bubbles perfectly.”

Speaking of alternative assets, our guest on the Leadership Next podcast this week was 33-year-old entrepreneur Ryan Williams, whose technology company Cadre makes it possible for average investors to put money into commercial real estate.“I thought it was critical for more people to be able to participate in this asset class,” he told us.He’s also looking to put money back into Black and brown communities where capital is scarce.You can listen to his remarkable story on Apple or Spotify.

More news below.

Alan Murray
@alansmurray
alan.murray@fortune.com

TOP NEWS

Chip plans

President Joe Biden yesterday told more than a dozen CEOs that he had bipartisan support for his $50 billion proposal to boost semiconductor manufacturing and research in the U.S. The CEOs included the likes of GM's Mary Barra and Ford's James Farley, both of whose companies are feeling the pain of the current global chip crunch. Intel's Pat Gelsinger was also there, voicing support for the plan. Taiwan's TSMC, which is building a $12 billion Arizona plant with government incentives, is also a fan. Fortune

Climate investment

BlackRock and Temasek Holdings have joined forces to form a new investment firm, Decarbonization Partners, that will…well, the name says it all really. The money-managing giants are putting $600 million into the effort, half of which will serve as seed capital for a $1 billion first fund. BlackRock CEO Larry Fink: "I look at this as one of the greatest investment opportunities over our lifetimes." Bloomberg

Sputnik V I

First, Czech health minister Jan Blatný was sacked for resisting the purchase of Russia's Sputnik V COVID vaccine, and now the country's foreign minister—Tomáš Petříček, another Sputnik V critic—has also been shown the door. Petříček said his dismissal was also partly down to him opposing the involvement of Russia's Rosatom in a Czech nuclear power plant project. Politico

Sputnik V II

India, meanwhile, has become the 60^th country to approve the Russian vaccine. The Russian Direct Investment Fund, which is marketing Sputnik V, says it has deals with six Indian manufacturers to produce more than 750 million doses in the country. Reuters

AROUND THE WATER COOLER

Brexit effect

British exports to the EU largely recovered in February, following a 42% January slump that was largely down to Brexit's full effects kicking in. However, exports are still way down compared with a year ago—notably, the rebound was led by non-perishable items, and exporters of goods such as fresh foods are still struggling. There was also a modest recovery for imports from the EU. Sky News

Russian buildup

Russian troops are heading to the Ukrainian border in numbers not seen since the 2014 annexation of Crimea. So, is Russia really preparing to invade again, or is this merely a show of force? CNN

Facial recognition

For the first time, a Chinese court has ruled that citizens can demand the deletion of their facial-recognition data. The case involved a zoo that wouldn't let people in without submitting to facial scans. However, while state media has praised the decision as one that will let people "bravely say no to facial recognition," it doesn't actually deal with the question of whether the zoo was allowed to limit entrance in this way. South China Morning Post

Tax avoidance

As Matt Gardner of the Institute on Taxation and Economic Policy notes in this piece for Fortune, we are for the first time in a generation witnessing a federal corporate tax debate that focuses on reform and sustainability, rather than slashing the rate. "The President’s call to increase the statutory rate from 21% to 28% for domestic corporate profits will receive most of the attention," he writes. "But his plan for ending offshore tax avoidance is equally important." Fortune

This edition of CEO Daily was edited by David Meyer.