Apr 15, 2021 - Economy & Business

The crypto bet gets real

Illustration of a coin exiting a roadway made from a stock trend line

Illustration: Annelise Capossela/Axios

Yesterday saw more crypto speculation than any other day in history.

By the numbers: Coinbase, the stock, had $30 billion of trading activity on Wednesday alone. That's more than all the cryptocurrency that Coinbase, the company, trades in a week.

  • Other crypto assets surged. Bitcoin and ethereum both hit new highs yesterday, dogecoin spiked, and digital artist Pak sold $17 million of his work at Sotheby's.

Why it matters: The price rises have created astonishing wealth — Coinbase CEO Brian Armstrong, for instance, earned $60 million last year and is now worth about $16 billion. But that's not because the grand visions for crypto's potential are anywhere close to becoming a reality.

Flashback: "Venture capitalists are right to be crazy about Bitcoin," wrote Axios' Dan Primack in 2014.

  • Dan saw crypto disrupting the payments industry and other incumbents: "What if you no longer needed a phone company to create phone numbers? Or what if your web searches no longer needed to go through Google’s servers?"
  • I was skeptical: "My bet is on Goliath," I wrote, "not David."

So far, Goliath has not been disrupted. Crypto has essentially zero market share in payments, or phone numbers, or web search, or any other real-world application bar wealth hoarding.

Yet Dan was right in the only way that counts, at least as far as VCs are concerned. They made astonishing amounts of money, mainly just riding the value of bitcoin upwards. (Coinbase was a great investment in 2012, but still not as great as simply buying bitcoin.)

Where it stands: In the harsh glare of the public markets, Coinbase can look a bit underwhelming.

  • It's very proud of its $1.8 billion in revenue and $800 million of profit last quarter — but compare that to Goldman Sachs, on a similar valuation, with $17.7 billion in revenue and $6.8 billion in earnings over the same period.
  • Reality check: It's not even clear that Coinbase's profits will grow. Substantially all of Coinbase's revenue comes from taking an enormous commission on crypto trades. As we've seen in the stock market, large commissions in hot markets have a habit of trending towards zero very quickly.

The first day of trading in Coinbase stock saw new investors lose about $3.4 billion in total. (That's the difference between the final trade of $328.28 and the volume-weighted average price of $369.94, multiplied by total volume of 81 million shares.)

  • That's more than six times the $525 million that Coinbase has raised in total outside investment.

The bottom line: Up until yesterday, crypto was a bit like play money: Easy come, easy go. Now that Coinbase is a public company and all-round crypto bellwether, things feel much more real.

Go deeper