Coinbase’s $100 billion valuation should be about 80% lower, New Constructs CEO says

coinbase mobile phone app
Coinbase is the largest cryptocurrency exchange in the US.

  • New Constructs CEO David Trainer said his calculations point to a valuation of $18.9 billion for Coinbase, well below the estimated $100 billion.
  • Coinbase is set for a direct listing on the Nasdaq on April 14.
  • Coinbase faces the risk of competitors driving down their fees in the young cryptocurrency market.
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The potential $100 billion valuation of Coinbase Global ahead of the cryptocurrency exchange’s trading debut is “ridiculously high,” said New Constructs CEO David Trainer, with an outline from the veteran stock analyst including his view that the company’s profitability faces the risk of being slashed.

Coinbase is set for a direct listing on the Nasdaq exchange on April 14. This week, the San Francisco-based company estimated a more than 800% jump in first-quarter revenue to $1.8 billion from a year earlier but noted that it is “very difficult to accurately forecast” revenue going forward because of market volatility.

“Even though Coinbase’s revenue surged over the past 12 months, the company has little-to-no chance of meeting the future profit expectations that are baked into its ridiculously high expected valuation of $100 billion,” said Trainer in a research note from New Constructs released Friday.

Coinbase is currently the largest cryptocurrency exchange in the US by revenue, and its platform offers access to Bitcoin, Ethereum, and Litecoin, among other digital currencies.

Coinbase is a standout among companies with recent IPOs because it makes a profit, said Trainer, with core earnings rising to $317 million from about $17 million in 2020 year-over-year.

But overall, Trainer said his “calculations suggest Coinbase’s valuation should be closer to $18.9 billion — an 81% decrease from the $100 billion expected valuation.”

Among Coinbase’s risks is competition as the cryptocurrency market matures, and that could lead to transaction margins at the company to fall “precipitously.”

He pointed to sharp competition in late 2019 between brokerages over stock-trading fees and said such a “race-to-the-bottom phenomenon” is likely to emerge among cryptocurrency exchanges.

“Competitors such as Gemini, Bitstamp, Kraken, Binance, and others will likely offer lower or zero trading fees as a strategy to take market share,” he said. Also, if traditional brokerages begin offering customers the ability to trade cryptocurrencies, that would “most certainly cut down on the unnaturally wide spreads in the immature cryptocurrency market.”

He said, for example, if Coinbase’s revenue share of trading volume fell to 0.01%, which is equal to traditional stock exchanges, its estimated transaction revenue in the first quarter of 2021 would have been just $35 million, instead of the estimated $1.5 billion.

“The crypto markets are very young and we expect many more companies to compete for the profits Coinbase enjoys today,” Trainer said.

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The Turkish lira is facing an inflation spiral and its central bank may need ‘outside help’ to fight the crisis and regain foreign investors’ trust, Commerzbank says

Person counts Turkish lira bills
  • Markets are seeing a repeat of the 2018 crisis, which was also triggered by presidential policy, Commerzbank said.
  • The Turkish lira is facing the risk of a damaging inflation spiral, according to the bank.
  • Turkey’s central bank may need ‘outside help’ to fight the crisis and regain investors’ trust, the bank said.
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The Turkish lira has hit record lows this week, domestic markets are in turmoil after the surprise sacking of the head of the central bank and the currency is facing a crisis and a damaging inflation spiral, according to analysts at Commerzbank.

“The next lira crisis is upon us,” Tatha Ghose, a foreign exchange and emerging markets analyst, at Commerzbank said in a note on Tuesday.

President Recep Tayyip Erdogan installed the third central bank chief in just two years earlier in the week, firing incumbent Naci Agbal, whose approach to monetary policy had won the confidence of domestic and foreign investors alike. Agbal last week raised interest rates to 19% from 17% to head off a pickup in inflation, angering Erdogan, who has made clear he believes higher interest rates boost inflation. This contradicts traditional economic theory, which argues the reverse.

Inflation could now spiral to over 20% by the end of the year as a result, Commerzbank’s Ghose said.

“…He must truly believe that lower interest rates will solve Turkey’s current macroeconomic problems even in the short-term; otherwise it is difficult to believe that the president would risk another lira crisis already, when private sector balance sheets are reeling from a massive FX liability burden,” he said, referring to Erdogan’s macroeconomic beliefs.

“We saw similar presidential involvement in monetary policy right before the last lira crisis in 2018,” Ghose said. “This particular experiment risks ending in an FX-inflation spiral,” he added.

Whilst it is impossible to predict what form the new Turkish monetary policy will take, it is highly likely that interest rates will be cut back to around 13%, which will cause inflation to strongly accelerate in the next nine months, the Commerzbank report said.

The value of the lira against the US dollar is likely to depreciate and risks going exponential, but medium-term policies and developments are impossible to predict, Ghose wrote.

Following the firing of Agbal, investors fled the Turkish market on Monday. The benchmark Borsa Istanbul 100 index had fallen over 5% at close, but turned positive on Tuesday, similarly the lira recovered slightly. It is however still at record lows against the dollar and investors are continuing to pull funds from the Turkish market. The yield on the benchmark 10-year sovereign bond was up by more than 1 whole percentage point on the day at 19.24%, the highest since the last lira crisis in 2018.

By starting yet another cycle of unstable monetary policy, Erdogan “has thrown monetary policy credibility out of the window,” Ghose said. Even policies designed to stabilize the central bank, or rate hikes would not be enough to calm investor worries, as this cycle has repeated itself too often by now, he said.

“For the lira to stabilize, some sort of regime change, or institutional hand-over may be necessary – for example, under IMF supervision – which will restore credibility,” Ghose said.

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Turkish lira crashes as much as 14% after the firing of the head of the central bank sparks market turmoil

GettyImages 1014049930
A foreign exchange office in Istanbul, Turkey.

  • Turkish President Recep Tayyip Erdogan fired the head of the central bank after he raised interest rates last week.

  • The lira fell by as much as 14% against the dollar as foreign investors fled Turkish assets
  • The government says it will continue to follow a free-market and liberal foreign exchange regime.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

The Turkish lira fell as much as 14% on Monday, after President Recep Tayyip Erdogan sacked the head of the central bank, Naci Agbal. Investors fled Turkish assets after Agbal’s departure, whose appointment had increased confidence and trust in the country’s monetary and macroeconomic policies.

Since Agbal’s appointment in November 2020, the lira had regained some strength and stability, as domestic and foreign investors responded well to his more traditional macroeconomic policies. Previously, Turkey’s unconventional approach to monetary policy had made many investors cautious and the lira suffered as a result.

Agbal raised interest rates to 19% from 17% on Thursday. The rate hike boosted the currency, but went against Erdogan’s belief that higher interest rates raise inflation. Agbal’s replacement, Sahap Kavioglu, shares this opinion.

“Mr Agbal’s replacement, Sahap Kavcioglu, is a little-known business school professor who shares President Erdogan’s economics theories and is, unsurprisingly, associated with the ruling party. Turkey will be an interesting example of what EM can expect if inflation fears rise markedly, with markets nervous about inflation in developed countries and punishing asset classes accordingly,” Jeffrey Halley, senior market analyst at OANDA, said on Monday.

Turkish finance minister Lütfi Elvan has however stated the country will continue to follow a policy of free markets and a liberal foreign-exchange regime. A statement by Kavioglu also said the Turkish central bank “will continue to use the monetary policy tools effectively in line with its main objective of achieving a permanent fall in inflation”.

The falling lira dragged on the benchmark Borsa Istanbul 100 index, which tumbled by as much as 9% on Monday, as investors fled the domestic market.

The heightened nervousness of fixed income investors was also reflected in the stark price fall of the benchmark Turkish 10-year bond. Its yield rose by as much as 300 basis points to around 16%, on Monday, its highest since August 2019. Yields move inversely to prices.

Growing concerns over economic and currency instability following Agbal’s dismissal, especially relating to shifts in interest rates and inflation, have raised the risk associated with Turkish assets and led investors to pull out of Turkish markets across the board on Monday.

The long-term strength of the Turkish economy and the lira are now in jeopardy, Rabobank senior emerging-market strategist Piotr Matys said.

“Essentially, the risk that the CBRT could make the same policy mistake as in 2019/2020 is high. To reiterate the point we have made on numerous previous occasions, Turkey cannot afford to have negative real interest rates when inflation is substantially above the official 5% target,” Matys said.

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A bitcoin stash worth $68 million was seized by German police, but the owner won’t give up his password

Bitcoin
About 20% of all bitcoin, is stranded in wallets because forgot their passwords.

  • Germany police reportedly seized about 1,700 bitcoin, but the owner won’t give up his password.
  • “Perhaps he doesn’t know” the password, a German prosecutor told Reuters.
  • At Saturday’s bitcoin price, the stash was worth about $67.9 million.  
  • Visit the Business section of Insider for more stories.

German prosecutors reportedly are holding about 1,700 bitcoin confiscated from a bitcoin miner, but the man won’t give them his password to unlock the cryptocurrency. 

“We asked him but he didn’t say,” Sebastian Murer, a prosecutor, told Reuters on Friday. “Perhaps he doesn’t know.”

At Saturday’s bitcoin price, the stash was worth about $67.9 million.  

The bitcoin miner, who was from Kempten, Bavaria, was not named in the report. He was sentenced to about two years in prison after installing bitcoin mining software on others’ computers, using them to remotely to build a sum of bitcoin, according to Reuters.

He reportedly kept his mined bitcoin in a password-protected digital wallet, which is a common way to hold the digital currency.

Without the password, there’s no way to open a digital wallet. 

Read more: 4 heavyweight investing firms answer the 5 most burning bitcoin questions facing investors as the cryptocurrency sees unprecedented volatility

Last month, another man in Germany had a bitcoin stash of about $220 million rendered inaccessible because he’d lost his password. In January, a man from the Welsh city of Newport said he’d mistakenly thrown away about 7,500 bitcoin, worth about $275 million. 

About $140 billion in bitcoin, or about 20% of all bitcoin, is stranded in wallets because forgot their passwords, according to The New York Times. 

As the cryptocurrency has ballooned in the last few months, locked-out owners have watched the value climb. Bitcoin hit $40,000 last month for the first time, then $41,000, before pulling back. It’s since climbed again, and, as of Saturday, its 24-hour high was $39,982.81, according to CoinDesk

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The Winklevoss twins said buying Bitcoin is the ‘trade of the century’ and predicted a 30x return in a recent interview. Here are the 9 best quotes

winklevoss
  • The Winklevoss twins pitched a large purchase of Bitcoin today as the “trade of the century” and predicted the digital currency will soar by 30 times in a recent Real Vision interview.
  • Tyler and Cameron Winklevoss also described Bitcoin as a social network, suggested comic books and baseball cards would increasingly move to blockchains, and bemoaned the Federal Reserve’s lack of transparency.
  • Here are their 9 best quotes from the interview.
  • Visit Business Insider’s homepage for more stories.

Tyler and Cameron Winklevoss described buying a large amount of Bitcoin now as the “trade of the century” and predicted the cryptocurrency will soar 30-fold from its current price of about $19,000.

The twins, who famously accused Facebook CEO Mark Zuckerberg of stealing their idea when he launched the social-media company, are Bitcoin billionaires and run a digital-currency exchange named Gemini. They made the comments during a a Real Vision interview filmed on December 7 and released on December 11.

The pair also compared Bitcoin to a social network, predicted collectibles will increasingly be bought and sold on blockchains, and criticized the Federal Reserve’s opacity.

Here are their nine best quotes from the interview, lightly edited and condensed for clarity:

Tyler: “Bitcoin was the first internet money in the world. Then when you realize that money is the greatest social network of all, Bitcoin is maybe the greatest social network of all also.”

Cameron: “We are just not going to run away with your Bitcoin. It just does not make any sense for us to do that.”

Cameron: “The mainland is legacy finance, crypto is an island. We want to see an inversion where crypto becomes the mainland and legacy finance is just this dinosaur that is slowly fading away.”

Read More: JPMorgan unveils its 50 ‘most compelling’ stock picks to buy for 2021 – and details why each one will be a top performer

Tyler: “The comic books you grew up reading, the baseball cards you collected, those are now being put on a blockchain because people are starting to realize their physical nature is actually not a feature, it is a bug. It is not about the physical nature. It is the scarcity. It is the uniqueness.”

Tyler: “I do not know who said compound interest is the eighth wonder of the world. Albert Einstein or Warren Buffett, maybe it was Gandhi, I do not know” – the quote is commonly attributed to Einstein.

Tyler: “How do these conversations go behind the curtain? It is like the Wizard of Oz. The Fed, it is a mystery, and there is no clarity on how the decision is made. Wave the magic wand, Jerome Powell says this or that. It is insanity.”

Tyler: “The dominoes are starting to fall, and eventually it is going to be a central bank, some very smart companies, a country is going to take a huge position in Bitcoin and talk about it.”

Read More: Buy these 28 discounted stocks from an LGBT-inclusive index that’s crushed its global benchmark since 2010, says Credit Suisse

Tyler: “The trade of the century is still out there for a couple of people, a couple of hedge-fund managers. It will be as great as the George Soros breaking the pound trade” – describing the opportunity for a fund manager to buy $100 million worth of Bitcoin.

Tyler: “Our thesis is that Bitcoin rises 30-fold from here because it is digital gold, it disrupts gold.”

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