The biggest crypto exchange, Coinbase (COIN), has gone public.
Its shares now trade on the Nasdaq. For the first time, investors can get exposure to the crypto megatrend by buying shares in a crypto exchange through their regular brokers.
As I (Chris Lowe) wrote to you in Monday’s dispatch, it’s a “tipping point” for crypto in other important ways, too.
By listing on the Nasdaq alongside Apple (AAPL), Microsoft (MSFT), and Amazon.com (AMZN), Coinbase is building legitimacy for this new asset class.
The listing is a new gateway for folks to learn about crypto. This will lead to even greater mainstream awareness than we’ve already seen.
It will also pave the way for Coinbase competitors, such as Kraken, Binance, and Bitstamp, to go public.
In short, today’s listing knits together the crypto economy with the traditional financial system in a way we’ve never seen before.
But colleague and world-renowned crypto investing expert Teeka Tiwari believes there’s an even better opportunity out there.
It’s an entirely different kind of exchange called a DeFi exchange.
The Daily Cut is the premium e-letter we created for all paid-up subscribers of Legacy Research.
It’s the publishing alliance behind Teeka, Jeff Brown, Dave Forest, Nick Giambruno, Jason Bodner, Dan Denning, Bill Bonner, Tom Dyson, and Doug Casey.
As editor, it’s my job to bring you their best moneymaking… and wealth-protection… ideas.
And one of the most lucrative ideas I’ve been writing to you about is the buildout of the crypto economy.
That’s when Teeka went “all in” on crypto.
This was back when the dominant narrative around crypto on Wall Street and in the mainstream media was that it was either a fraud or a fad.
But Teeka saw the magnitude of the opportunity. He persuaded the partners at Legacy to allow him to make our Palm Beach Confidential advisory the first major financial newsletter to focus exclusively on crypto.
He added bitcoin (BTC) – the world’s largest crypto asset – to the model portfolio at $428. It now trades north of $60,000… for a 14,362% gain.
He added the world’s second-largest crypto asset – ether (ETH) – to the model portfolio at $9. It now trades at $2,333… for a 25,829% gain.
And he followed up with other “altcoin” (cryptos other than bitcoin) picks that handed his readers the chance to make gains as high 4,090%… 29,231%… even 53,607%.
That last one is enough to turn every $1,000 grubstake into $537,070.
All along, he focused on one main driver of higher prices: mainstream adoption. And at the end of last year, he told his readers the tipping point was coming…
After four years of trying to push this market down, while quietly investing hundreds of millions into the space, Wall Street is about to pull off its masterstroke and take crypto mainstream.
When we look back, I believe we’ll view today as the moment crypto transformed into a mainstream asset class.
But that doesn’t automatically make Coinbase a great long-term addition to your portfolio.
Consider what happened when the internet was at the same kind of tipping point crypto is at today…
In August 1995, web browser maker Netscape had its IPO (initial public offering).
This kicked off the dot-com boom that raged for the next five years. It was also a catalyst for mainstream internet adoption.
When Netscape went public, there were still only about 16 million internet users. By the end of 1996, that number had rocketed to 36 million – an increase of 125%. Five years later, there were 513 million people online – an increase of 1,325% from Netscape’s IPO.
Here’s the thing… Netscape may have had first-mover advantage. But it didn’t end up being the best way to profit from the internet boom.
It ran into fierce competition from Microsoft, which bundled its browser, Internet Explorer, into its Windows operating system.
Netscape’s market share peaked at 90% in 1995. By the time AOL acquired it in 1999 it had fallen below 50%.
It makes its money from the fees and commissions it charges its customers to trade crypto.
And it’s been on a roll…
Coinbase reported $1.8 billion in revenue in the first three months of this year. That’s a 38% jump over its $1.3 billion revenue for ALL of 2020.
And last year, it turned a $45 million loss into a profit of $409 million.
But that’s based on Coinbase raking in 0.46% of each dollar traded in cryptocurrencies. That’s roughly 50 times what the Nasdaq and the New York Stock Exchange generally earn on each dollar they trade.
This kind of fee will be hard to maintain…
Already, popular stock and crypto trading app Robinhood charges zero commissions on crypto trades. Coinbase also faces competition from other centralized cryptocurrency exchanges such as Kraken, Binance, and Bitstamp.
After a race to the bottom, most stockbrokers now charge zero fees for stock trades. That will happen with crypto trading, too. Other crypto exchanges will try to steal market share from Coinbase by offering their customers lower fees.
Coinbase will then have to decide: Does it enter the race for lower fees and see its margins collapse? Or does it try to keep its margins at the cost of seeing cheaper alternatives suck away market share?
Regular readers will have heard me talk about DeFi before.
But if you’re new to the conversation… DeFi (decentralized finance) describes online financial applications that are developed on open, decentralized networks.
These are known as “blockchains.”
The goal of DeFi is to use blockchains to build a financial system that improves on the centralized financial system we have today.
Coinbase allows you to trade crypto. But its setup is no different from that of any other traditional company.
It doesn’t use blockchains to trade crypto. It uses old centralized systems similar to what brokers use today.
They allow you to trade your crypto with other crypto holders peer to peer.
Folks looking to sell crypto can match with folks looking to buy crypto. Once a buyer and a seller match, they can transact directly with each other.
Even better, at no point do the buyers and sellers have to hand over ownership of their crypto to the exchange… as they have to with centralized exchanges.
DeFi exchanges are also censorship-resistant. There’s no CEO or board of directors to stop certain transactions… or keep certain people off the platforms.
And DeFi platforms charge lower fees than centralized exchanges such as Coinbase.
Leading DeFi exchange Uniswap, for example, charges 0.3% for swapping cryptos on its platform.
And there are even cheaper options. PancakeSwap charges 0.2%.
Kyber Network charges 0.1%. That’s just one-fifth of what Coinbase charges.
They’re called DAOs, or decentralized autonomous organizations.
It sounds like something out of a sci-fi movie, I know… But DAOs are organizations governed by a set of digital rules (a protocol). And they’re directly controlled by their token holders. These folks are similar to shareholders in traditional companies.
It all comes down to whom… or what… you trust…
Users of centralized financial platforms such as Coinbase trust the companies’ executives – people, in other words – to manage their funds and provide financial services to them as advertised.
Users of DeFi platforms are placing their trust in blockchain tech to manage their funds and provide these services.
Take it from Teeka, a guy who’s done more than anyone I know to help folks profit from the buildout of the crypto economy…
We’re going to transition from a centralized middleman economy to a decentralized service economy. It’s a new way of doing business that will remake entire segments of the economy. And nowhere is this disruption poised to hit with more shattering force than in the financial sector.
Friends, 2021 will be the year the world starts to wake up to the disruptive power of decentralized finance. And I want you positioned and prepared to make a fortune off the coming DeFi boom.
DeFi protocols are already allowing the trading of billions of dollars in assets… all without human intervention. These projects are springing up overnight. And they threaten to upend the business models of just about every traditional financial firm in the world.
That includes centralized crypto exchanges such as Coinbase.
Coinbase has brought crypto to the masses like no other company. And its public listing is a tipping point for crypto in general.
But it faces long-term challenges as other centralized exchanges and DeFi exchanges eat into its market share. I recently emailed Teeka asking for his view on centralized exchanges. As he put it to me…
They will boom! I would trade them over 2021 then exit. Long-term decentralized finance will doom the exchange business.
So by all means, pick up some shares in Coinbase as a speculation if its listing on the Nasdaq excites you. Just keep in mind that the future of finance will be decentralized.
And that means Coinbase could be the Netscape of crypto… It could open the doors to crypto for millions of investors… but eventually succumb to fierce competition.
Regards,
 |
Chris Lowe
April 14, 2021
Barcelona, Spain