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🌙 Is Coinbase Headed To The Moon?
It’s no news that Bitcoin has been the talk of the town, so after Coinbase released MONSTER Q1 results ahead of their direct listing this Wednesday the 14th, it only made sense to provide a little update and break down some of the surprising figures. To summarize, Coinbase offers an exchange to make it accessible for average investors to buy/sell cryptocurrencies, and offers institutional custody services to over 55 million individuals, 7,000 institutions, and over 110,000 partners across 100 countries, creating an unparalleled ecosystem. They are also known for providing security and safety, one of the largest concerns revolving around investing into crypto. It’s clear Coinbase has become the standard across new users, and even large corporations. Once Tesla announced that they would use Coinbase to purchase and hold their BTC position, average investors who praised Elon’s decision gained a lot of confidence in the platform. If you have been in the space for a couple years, you know how tough 2018 was, and people fear we will enter a similar situation in the near future. While I do believe corrections will happen (20-40% drops), I am fully confident that we won’t see another 80+ percent drop across the market. This cycle is drastically different than before, we are in a new paradigm where large institutional long term investors are dipping their toes into the water. Okay before I get too off topic any longer, let's dive into the facts behind the news with Coinbase.
The company reported that in just the first quarter they generated $7.2 billion in annualized revenue compared to $1.3 billion IN ALL OF 2020! With a 3x increase of the previous year in just one quarter, it’s clear demand is picking up at a rapid pace on both the retail and institutional sides. What blew my mind even more, and probably the most important figure in my opinion, was how much money they hold custody of. Currently the crypto market cap is around $2 trillion, and Coinbase holds custody of $223 billion (slightly over 10% of all crypto’s market cap). That’s freaking wild. The company is going public through a direct listing, selling almost 115 million shares to the public. Current valuations range from $70-90 billion, but I believe with the large demand of investors who are interested to partake in the offering, coupled with the increased volume of new transactions on their platform, the company will soon be valued over $100+ billion. Speaking of volume, Coinbase had reported that the first quarter topped $335 billion in transactions, while all of 2020 reached only $193 billion. Currently, 95% of Coinbase’s revenue comes from transaction fees. While this works well when markets are booming, investors are undermining that cyclical nature of the space. For instance, when the crypto market is popping (the current state of the market), Coinbase will be benefiting from large transaction volume (keep in mind they benefit more from retail investors who get charged a higher fee opposed to the large institutions, who are buying in larger quantities with reduced fees).
Furthermore, how will Coinbase stay competitive, as they charge a higher fee than industry average? Well typically that would matter, but who really cares when you have uneducated people aping into sh*t coins who think the fees will outweigh the potential percent increases. Lmao regardless, fee compression will occur and Coinbase will have to think of other offerings to help mitigate this. This leads me to my next point. I think we will start to see the company become aggressive in acquiring other companies in the space, in particular focusing on the emergence of DeFi technologies (Decentralized Finance). Coinbase announced last Thursday (April 8th) that they will be joining the “Defi Alliance,” a group that facilitates mentorship for tech teams working in the DeFi space. Furthermore, Brian Armstrong, Coinbase CEO, alluded to the company's strong interest in making DeFi a priority for the company moving forward while on a firm’s earning call. Lastly, I believe that they will start to aggressively look into M&A activity as the company comes into a large influx of new capital ready to be deployed. Definitely something to keep your eyes on! 👀
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💯Thank You For Reading, See You Next Week!
What's up, my name is Evan Hiltunen! I am a recent finance grad from Indiana University and financial analyst @ Goldman Sachs. I have a strong passion for start-ups, finance, and technology, and I hope you find this newsletter informative!
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