0:00

So the song, I have a question for you. Why

0:03

are you not a millionaire? How do you know I'm not a millionaire

0:05

because you told me to buy Ethereum

0:07

at $8 a share a few years ago.

0:10

And I didn't. And

0:12

neither did you. And now both of us are looking

0:15

like idiots. I feel like I've been

0:17

early, but at the time always thought I was late.

0:19

And I think that's the, and that's why you just

0:21

didn't buy it. That's no,

0:23

that's no, that's not the reason I didn't

0:25

buy it. It was also while at the time I didn't have any

0:27

money. I was 19 years old. You

0:30

had more than $8. I

0:32

had more than $8 of my parents' money,

0:36

which I guess, I guess I could have thrown

0:39

it into this thing called Ethereum

0:41

and then had to explain it to my dad, like where

0:44

$500 went, which I,

0:47

maybe I could have, but no, no, it's not, it's

0:49

not something, you know. Yeah. If

0:51

here's the question though, you know, and I'm 25.

0:53

If I came across in equivalent to Ethereum, would I

0:55

invest in it? Happy you is

0:58

my question. Do you have any, I was going to ask, do you have any

1:00

other tips? My investing framework now

1:02

is a lot like this, which is when I see

1:04

something that's sort of

1:06

in its inception and not a lot of people believe in it.

1:08

And in fact, it's very non-consensus and the

1:10

vast majority people are against it, and it

1:12

doesn't make sense to them. That's when I throw a

1:14

little bit of my money into it, maybe a percent of

1:16

my savings, like 1% of my savings. And then I

1:18

just sit back and then maybe it goes to zero,

1:21

but then if I do, I do this like pretty often. So,

1:23

you know, maybe 15% of my portfolio is

1:25

in 15 different, tiny things that. Everybody

1:28

thinks it's going to fail maybe

1:30

one actually a hundred exes. I can't tell

1:32

not enough time has passed the VC strategy.

1:35

It's the VC framework. Yeah. Okay. Well

1:37

I guess one hot new

1:40

potential item that came up in the

1:42

news is Coinbase. So I

1:44

think this would be a very interesting conversation for us to

1:46

go through. First of all, what are the

1:48

technical details behind Coinbase? What

1:51

was the financial data behind Coinbase? Does

1:53

it make sense for it to be valued as highly as it does?

1:56

I definitely know cryptocurrency the deep

1:58

technical level, the soft knows the business

2:00

and the finance at a very deep level. So between the

2:02

two of us, I think we should be able to have a conversation

2:05

that you're not gonna be able to find anywhere else and learn a lot

2:07

about this. Definitely. So welcome to another week

2:09

of what can you tell me about software, where we discuss

2:11

software and I guess this week, cryptocurrency

2:14

and Coinbase let's get into it.

2:27

For us explain to us what claim basis. Sure.

2:30

So I think the best way to understand

2:32

what Coinbase is, is to first understand

2:35

the world as it was before Coinbase

2:37

existed. So quick story.

2:39

I have a family friend who

2:43

was giving a speech at the university, I think in like 2015

2:45

or 2016. And.

2:49

They wanted to pay him for it. And he said, no,

2:51

I just give these speeches for fun. I just want to tell people

2:53

and educate them. So they said,

2:55

all right, how about this? We'll give you this. We'll

2:57

give you this gold coin. It's worth like five

2:59

bucks. It's got this thing engraved on

3:02

it, which is called a Bitcoin private key. And he's like, what's

3:04

Bitcoin. And they said, Oh, it's just this random thing.

3:06

That's, that's blowing up right now. It's

3:08

not really worth anything, but you know, it might be fun

3:10

in a few years. This is okay, great. I'll take

3:12

it. So it sits on it. And

3:14

like a year later he discovers that

3:17

this is now worth like. A thousand

3:19

bucks. So his

3:21

nephew he gets his nephew to help him sell

3:23

it, but there's nowhere to go to sell

3:25

this at this time. So they find some

3:27

dude on Craigslist and they meet up with him

3:30

and in like a home Depot parking lot

3:32

or something, and they sell him their

3:35

their Bitcoin their engraved physical

3:37

Bitcoin. And there's a lot

3:39

of problems with this, as you can imagine. So first

3:41

of all, It's pretty shady.

3:44

Like this is not the best way to sell something.

3:46

But second of all, if we're talking about a digital currency,

3:49

which just exists as ones and zeros,

3:51

it's kind of ridiculous to have to physically meet someone

3:53

to transact. So this is really not

3:56

how the world should work

3:58

when you're exchanging cryptocurrency

4:00

for the U S dollar. So Coinbase

4:02

is a cryptocurrency exchange, meaning

4:05

that they allow you to pay with us

4:07

dollars or whatever your local government

4:10

backed currency is for cryptocurrencies,

4:12

such as Bitcoin, Ethereum,

4:15

or any of another 50

4:17

cryptocurrencies. Right. That story

4:19

doesn't sound quite decentralized.

4:21

So how does Coinbase store your

4:23

money? So what

4:26

you have to understand is that. Cryptocurrencies

4:29

work on a system called public

4:31

private key encryption. So essentially

4:35

there's no physical. Dollar

4:37

right. There's no physical bill. Even despite that

4:39

story, there was a physical coin, but the coin

4:41

that, that, that my family friend had, it didn't matter.

4:44

What not matter was the number that was written on

4:46

the back of the coin. And that number is

4:48

what's known as a private key. So that

4:50

is essentially cryptographic proof

4:52

that I own this coin.

4:55

I own this token. You want to keep

4:57

that private key, extremely hidden, because

4:59

anyone who asks that. Access to that private

5:02

key can then sell, can

5:04

then move your cryptocurrency. That's someone

5:07

stealing your private key is equivalent to somebody

5:09

breaking into your bank vault

5:11

and just taking all the money out of there. So

5:15

it's a really important to have a very secure place

5:17

to store all of your private keys. So

5:20

essentially when I buy. Hey

5:22

cryptocurrency, I am giving us dollars.

5:25

And in exchange, I am getting back

5:27

private keys that say, I

5:29

own this amount of Bitcoin, or I own

5:31

this amount of ether. And every

5:33

time you make a transaction like this, if

5:36

I make 10 purchases of

5:38

Bitcoin, I will have

5:40

10 private keys. So I

5:42

need to store all of these private keys in a secure

5:44

place. And I also need to be able to reuse

5:46

them if I want to sell my Bitcoin. So.

5:50

That essentially is what a cryptocurrency

5:52

wallet does. I've simplified it a

5:54

fair amount, but the broad

5:56

strokes, a cryptocurrency wallet

5:58

is something which stores all of your private keys

6:01

as well as tells you how much those private

6:03

keys are, quote, unquote worth. So this

6:05

private key points to a Bitcoin

6:07

value of. Let's say 2.3

6:10

Bitcoins that I purchased earlier. So

6:12

I have my wallet and my wallet will say I

6:14

have $5,000 worth of Bitcoin,

6:17

but actually under the hood, it's saying that

6:19

I have one private key that's for $200. I

6:21

have one private key that's worth $550 and

6:23

it adds it up and shows it on the wallet. So.

6:26

Under the hood, what the wallet is doing when I sell

6:28

it, as it uses those private keys to make the sale.

6:31

And when I see how much it's worth, it adds

6:33

up those private keys and it shows me one simple number.

6:36

So the long story, short

6:38

Coinbase stores, private keys

6:40

for you. That's how it stores your cryptocurrency. So

6:43

I think that distinction is often lost on new

6:45

users to Coinbase. When I went on Coinbase,

6:47

I was aware of this wallet and the way the wallet

6:50

works, but I actually did not

6:52

come in touch with my own wallet. I was able to just

6:54

purchase coins and they appeared in my portfolio

6:56

where did the wallet go did as part

6:58

of the genius Coinbase disappearing,

7:01

this extra intermediary extra step, those

7:03

typical in purchasing cryptocurrency. I

7:06

would, yeah, I would definitely say so. I mean, how

7:08

many people like lay people who aren't coders

7:10

would really understand the concept of a cryptographic

7:12

wallet? It's not, there's not

7:15

a clean metaphor, whereas if

7:17

you're talking about a bank account, does

7:19

how much money I have in my bank account. This is

7:21

how much, or this is how much stock I, I hold

7:23

and just how much stock I can sell. It's a really clean,

7:26

very easy to understand thing. So I

7:28

think by abstracting away the private

7:30

key aspects of the cryptographic wallet

7:33

and Coinbase just literally making it like holding

7:35

stock, it allowed a lot more people to come on

7:37

the platform. It made it far more accessible. That

7:39

makes sense. And I think the, sort of the two big

7:41

stories that are always seen the last five or six years

7:44

in relation to cryptocurrency, and even in relation to.

7:46

Various exchanges that existed. One

7:49

was this idea that people would lose their

7:51

private key. And then they would, they were out

7:53

on millions or hundreds of millions of dollars.

7:56

Like they forgot the password for this computer.

7:58

And then they're like, I have five guesses. Otherwise

8:00

I lose $5 million. Right.

8:03

Right. And the other thing that I see is

8:05

all these hacks that were occurring. You'd think that something

8:07

as complicated, sophisticated, you just described,

8:10

wouldn't be able, wouldn't be hackable.

8:12

But they were, and I think the most famous one

8:14

was Mount Gox. It

8:17

was a particular exchange. I don't know if you know much about

8:19

that. Yes. So I do

8:21

know a fair amount about mountain gawks.

8:23

So as I mentioned earlier, you know, this concept

8:26

of converting this complicated

8:28

cryptographic wallet into a simple stock trading

8:31

system, it actually seems pretty

8:33

obvious. You know, it begs the question. Why

8:35

hasn't anyone thought of this before? And

8:38

the answer. Is that someone has

8:40

thought of this before. And that was such a disaster

8:43

that people were very,

8:46

very wary of trying it for

8:48

several years. And Coinbase had to do some

8:50

very hard work to rebuild the reputation

8:53

of cryptocurrency exchanges. And this

8:55

disastrous events was known

8:57

as the heist of Mt.

8:59

Gox. So not

9:02

Gox was the first huge. Cryptocurrency

9:04

exchange. I believe they only traded Bitcoin,

9:07

but there were this gigantic cryptocurrency

9:09

exchange at their peak. They were doing

9:11

70% of all Bitcoin

9:13

transactions. And in

9:15

2014, Mt.

9:18

Gox was hacked for $500 million

9:20

worth of Bitcoin. So, you

9:22

know, This had huge

9:25

ramifications on the entire crypto industry. I

9:27

think Bitcoin dropped by like 30%,

9:29

just because of this. People were like,

9:32

this is a system like Bitcoin, even going to work,

9:34

forget cryptocurrency exchanges. People were saying,

9:36

can we even trust Bitcoin? If things like

9:38

this can happen or people are going to be sophisticated

9:40

enough to be able to trade Bitcoin? You know,

9:43

if I get my credit card

9:45

hacked, That's whatever,

9:47

you know, there's all these fraud prevention mechanisms.

9:50

The bank will let me know. They'll put it on hold.

9:52

But with private keys, there's no

9:55

intermediary. This is like one of the premises

9:57

of Bitcoin. There's no trusted

9:59

third party. It's completely trustless. You only

10:02

need one person to approve it. So

10:04

this made Bitcoin seem far, far more dangerous.

10:06

So the high, the highest amount Gox, first

10:09

of all, reduced a lot of people's confidence in Bitcoin,

10:11

but. 10 X or a hundred

10:13

X or reduce people's confidence, two currency

10:16

exchanges. So Coinbase

10:20

had to do a lot of work to prove

10:22

that they were very, very cryptographically

10:24

strong, that they were falling a lot of great

10:27

security practices, but they had a lot of

10:29

smart people who ranked security that

10:31

if something bad happened, it would be only isolated

10:33

to small, small areas. That

10:35

was. The major innovation of Coinbase

10:38

was not to make a stock system.

10:40

The major innovation of Coinbase was to make

10:42

a very, very secure system.

10:44

So would you say then that Coinbase

10:46

is impenetrable? I only ask this because

10:49

one of the sort of underlying issues with

10:51

investing in cryptocurrency and bankrupt, a currency on an exchange

10:54

versus just, you know, putting cash into

10:56

a bank account is that your cash is FDAC

10:58

insured. You're the money are

11:00

the coins that you hold in Coinbase is

11:03

not insured. So if

11:05

it isn't impenetrable, then we're all at risk

11:07

of having our money stolen the same way the money

11:09

Mt. Gox was stolen. Right. How do you

11:12

trust you? Trust you trust the security measures

11:14

and everything that Coinbase has done since this

11:16

highest enough to put your crypto

11:19

in there so you've actually asked two

11:21

different questions. One of the questions is, is

11:23

Coinbase impenetrable. The second one is,

11:25

do I trust them enough to put my money into it? Yeah.

11:28

The answer to the first question is no, nothing is

11:30

impenetrable and it thinks we're only

11:32

impenetrable as far as we know.

11:34

So the entire basis of

11:36

security on the web is based off of this concept

11:38

of cryptography and. Most

11:40

of the cryptographic systems that we use

11:43

like elliptic curve, cryptography, and RSA encryption.

11:45

These haven't been broken yet and

11:48

they haven't been broken in decades, which is why we

11:50

have a great deal of confidence in them. But

11:52

I can't imagine that anyone would

11:54

say that they're completely impenetrable.

11:56

The idea is just that you put out cryptography

11:59

out there. And you make it public. You

12:01

make sure that everybody knows how it works and

12:03

if no one is able to break it, then you're far

12:05

more confident about that. Then some secret algorithm

12:08

that, that you just hope that by,

12:10

because it's so obscure, no one will crack it. That's actually

12:12

the whole premise of cryptography is you

12:15

want to make it public. And the one thing which survives

12:17

the public the longest is the most trustworthy. Now

12:19

the other question is, is

12:21

the risk worth the benefit?

12:24

And that is something which I personally

12:27

believe yes, for the amount of money I put

12:29

in. I'm not putting my life savings into it, but

12:31

the amount of money that I put into Coinbase, I feel

12:33

that the risk is worth the benefit. That makes sense.

12:35

So now I have some questions for

12:38

you on the, on the valuation and finance

12:40

side, the first question, which is probably pretty obvious

12:42

is Coinbase IPO at a

12:44

hundred billion dollars. What

12:46

do you think of this valuation? So maybe we

12:48

should just put a disclaimer out there and say this isn't investment

12:51

advice. Not that. And

12:53

not cryptography advice either. Yeah.

12:56

Yeah. And don't even take the, whatever we

12:58

mentioned earlier, the cold open as investment

13:00

advice either to put money into things that seem we

13:02

will fail. Wow. What do you stop listening

13:05

after the cold? Open it and then put their money in. Are

13:07

we liable? If they put their money

13:09

in and they made money, then I expect 20%. If

13:11

they lost money that you

13:13

don't feel listened to the rest of the episode, you should. It was

13:16

exactly. So to your question on Coinbase,

13:18

having a a hundred billion dollar valuation on IPO, making

13:20

any sense, I think there are a number of factors.

13:23

If I had to put it, I put it in two buckets, the

13:25

bucket that makes it make sense. And

13:27

that bucket is this. Coinbase

13:30

has made more money in Q1 of 2020. That is

13:32

all of 2019. They made $1.8

13:35

billion in revenue and just Q1

13:37

at three months and all 2019,

13:39

they made $1.3 billion. They're also

13:41

profitable, which is a significant thing for

13:43

a fast growing startup that enters

13:45

the capital markets. You don't see that often, but actually

13:48

this is also a signal to their competitors,

13:50

which I'll come to later. The other thing

13:53

that sort of supports this valuation is that

13:55

all these institutions are leaning into

13:57

crypto. You've probably heard of Elon Musk buying

13:59

Bitcoin. He actually used Coinbase to

14:01

buy the Bitcoin. They broker the transaction. Other

14:03

institutions are going directly to Coinbase. So not going

14:05

to some of the lesser known exchanges.

14:08

Coinbase has institutional backing, which

14:10

in many cases means everything. When you

14:12

have something new and the big players are all backing

14:15

one particular player, maybe

14:17

it makes sense to invest in that in the winner, take

14:19

all player. The other thing that is maybe

14:21

not being talked to. About as much,

14:23

but should be, I think is the total

14:25

addressable market for crypto hu

14:28

in five or 10 years is likely to participate

14:31

in the crypto market who is not participating now.

14:33

Some people have suggested that it's everybody with

14:35

a smartphone. So that's 3.5 billion

14:37

people. I feel a little silly. I think

14:39

it might be more like everyone who sells stock. I

14:41

think that's a better fit. Well, you're treating, so,

14:44

okay. That, that brings up another sort of a

14:46

point of contention. Should you treat currency

14:49

the way asset equities are treated,

14:51

which is not everybody. Exactly what you said, which is

14:53

not everybody participates in equity markets, but

14:55

literally everybody participates in currency.

14:58

Because it's a way, okay, this, this,

15:00

this is a whole can of worms that we're opening up.

15:03

We'll cover it. It'd probably a different episode,

15:05

but the long story short is that you should think

15:07

of Bitcoin more like gold than you should think

15:09

about it. Like the U S dollar. So it's not,

15:12

it's called a cryptocurrency, but you should think about it more like an asset,

15:14

like gold. Dang. I actually

15:16

completely disagree with you. I don't think you should treat it

15:18

as gold or as a us dollar. I think it's somewhere

15:20

in between. This is where a different episode we'll get

15:22

to it some other time. And so I think that's the bucket

15:24

that supports the valuation, immense

15:27

growth, big players adjusting to it.

15:29

And also. Total

15:31

doesn't work. And they're also making a lot of money. Now, the

15:33

bucket that throw some concern in the

15:35

air is this crypto is inherently volatile.

15:38

We know this and I think in 2017, Bitcoin,

15:40

Pete, and then for a number of years it went, it,

15:42

it fell, it troughed, and then it was flat. And

15:44

during this time I remember reading a interview that

15:46

Brian Armstrong gave who's the CEO of Coinbase. And he said,

15:49

Coinbase is trying basically anything

15:51

to get that money, to get that, to get the crypto

15:53

market, you know, reignited and moving

15:55

again. And they just couldn't

15:57

do it. So what's to say, I

15:59

mean, right now crypto is doing really well and

16:01

Coinbase IPO at the peak, it seems like

16:05

who's to say that we won't enter another

16:07

crypto winter. I think that's one of the

16:09

threats against Coinbase

16:11

is IPO and their valuation and potentially

16:13

their valuation increasing. Do you do like,

16:16

did like fidelity and Robin hood

16:18

and stuff tank when, you

16:20

know, the markets went into recession? This

16:22

is a good question. What we know about the equity markets

16:24

is that people continue to trade maybe not

16:26

the same volume as in a bull market, but in a

16:28

bear market, they do continue to trade. And

16:30

so in that way, historically in bear

16:32

markets exchanges have always managed to make

16:35

money and stay in business, but.

16:37

A recent trend in exchanges overall

16:39

is that they don't charge fees anymore. And they're

16:42

more reliant on high volume trading.

16:45

If in the next bear market trading

16:47

decreases, I don't know what's

16:49

going to happen. It could actually, it could be very different

16:51

than what's happened historically. I can't speak to Coinbase,

16:53

which is that Coinbase charges incredibly high

16:55

fees, which is what I was mentioning earlier. It's one of the

16:57

reasons they're so profitable. I think

16:59

just basically set famously that your

17:02

margin is my opportunity. And

17:04

so when you see when all

17:06

the other, when all the other competitors see that

17:08

Coinbase is. You know, charging fat

17:10

fees is valued, really richly.

17:13

Their immediate reaction is let's charge, lower

17:15

fees, give better incentives for people

17:17

to come to our platform. Maybe we give

17:19

people bonuses to come to our platform and leave

17:21

Coinbase. And so I think that's actually what we can

17:23

expect in the future in

17:26

this particular competitive market. And

17:28

that's also something that could hurt their valuation. And actually

17:30

for us, I did want to ask you about this, which is it's

17:32

you, you mentioned earlier that Coinbase

17:34

has only 50 or so cryptos

17:37

trading on their platform. It seems that Columbia

17:39

has really high standards for which coins they allow

17:41

on their platform. They don't know how to doge on their

17:44

platform because it doesn't have any utility. Is

17:46

that to their benefit or is that against them?

17:48

And it's like a tick against them. I don't think that's

17:50

against them. I think that's a really related to their benefit.

17:53

It's a firewall, right? So like, if you're trying to make something

17:55

that gets the crypto enthusiasts on your platform,

17:58

then you know, you're going to make different

18:00

decisions on Coinbase did. But

18:03

what is the percentage of crypto enthusiasts

18:05

versus general people or following

18:08

CSN, BC and seeing.

18:10

Oh, Bitcoin shot up to a trillion

18:12

dollar valuation. You know, I

18:15

should maybe take some of my money from the stock market and

18:17

put into Bitcoin. Those types of people

18:19

should not be exposed to these

18:21

other kind of really esoteric

18:23

cryptocurrencies. It's just overwhelming.

18:26

It makes it less accessible. Surprisingly. I

18:28

think you've made some interesting arguments for

18:30

both in favor of Coinbase

18:32

and against Coinbase,

18:34

but let's dig into the financials a little bit.

18:36

When you kind of peek under the hood at the numbers, what are

18:38

they telling you? Yeah, I think that there's a, there's a much

18:41

larger story about Coinbase that people aren't talking about,

18:43

which is the way they've financially

18:45

engineered their business to get to the point

18:47

that they're at. When, when I found

18:50

out that. Brian Armstrong still owned

18:52

20% of the business. I was really

18:54

surprised. Wow. Typically when startups

18:57

go through like six, seven rounds of funding, which

18:59

is what Coinbase has done, they

19:01

lose out the value. They get diluted all

19:03

the original share owners get diluted. And

19:06

you know, you've probably heard stories about startup founders

19:08

to go IPO. They have like 5% of the company, which is

19:10

typical. Brian Armstrong for some reason has 20%

19:12

of the company. And I think this speaks to the

19:14

fact that they've been profitable for many, many years

19:17

and a lot of the share sales

19:19

and the funding rounds that they've done have actually

19:21

been reselling existing

19:24

funding rounds. Let me make that more simple. So

19:27

when you hear about the many funding rounds that Coinbase

19:29

has gone through, it's really just been an

19:31

existing shareholder who was there at the first round,

19:33

selling new shares

19:35

at a higher valuation in correspondence

19:38

with Coinbase. So Coinbase isn't

19:40

wasn't really, hasn't really been diluting all these

19:43

years. They've been relatively stable.

19:45

Year over year by making money and, you know, funding

19:47

their own business. That's one really

19:50

surprising and incredible thing. They're not VC

19:52

backed to the extent they're losing money every year. The

19:54

other thing that's really interesting is that

19:56

Coinbase direct listed so what is the direct listing

19:59

and what is the alternative. So typically

20:01

you hear about companies IPO, and what does it mean to IPO?

20:03

You have a certain traunch of shares

20:05

called treasury stock in your balance

20:08

sheet that you then sell

20:10

to the public. And so you generate

20:12

new cash into the balance sheet. So

20:14

that's to say you've raised cash from the

20:17

public markets. So, so

20:20

when you, when you're a startup, you

20:22

have a bunch of stock options. And

20:24

you distribute some of these stock options to

20:26

employees. So they'll come in to work for you, give some

20:28

of these to your investors. And

20:31

you're saying there's a third category of them, which are just

20:33

keeping their in order to sell to,

20:35

to raise money. Sometimes you just

20:38

keep it there. And sometimes you literally created

20:40

out of thin air and then you sell it. Which

20:42

would be diluting. Everyone should be diluting everybody a little

20:44

bit. You sell, you sell it and then so

20:46

you'd get a bunch of cash, right? So maybe you raise $200

20:49

million and now you have brand new cash to fund your business

20:51

and grow faster or do whatever you want with the cash.

20:54

When you direct list, it's the employees

20:57

and the VCs and the other investors and

20:59

other stakeholders in the business that sell their own

21:01

shares on day one. And those are

21:03

the shares entering the market. So the people getting

21:05

paid out isn't the company, but the actual employees

21:08

in the company, the investors in the company, the founders,

21:10

and so forth. So the company is not IPO

21:12

going to raise money, their IPO, going to give

21:15

everyone a happy payday. They're

21:17

entering the public markets to provide

21:19

a liquid liquidation event for

21:21

the founders, the employees, and the

21:24

other stakeholders in the business. Science behind direct

21:26

listing and like there's a lot of historical analysis

21:28

on whether direct listings are better than IPOs, but

21:31

what we've seen with the big direct listings,

21:33

which is like Slack has been a big one, I believe

21:35

Spotify was a direct listing. And now

21:37

Coinbase is the biggest direct, direct listing of all

21:39

time. Is typically

21:42

they fall and then they they're down

21:44

about 15 to 20% for many years before

21:46

they come back up, which is what we saw with the

21:48

big ones. And so there's an argument

21:50

to be made. Well, yes. You provided an immediate

21:52

liquidation event for employees

21:55

with the direct listing, but then in

21:57

the following two years, what's

21:59

the morale going to be like at the company when the stock is

22:01

down 15% from the IPO, right.

22:04

And so that's the argument against direct listings. I

22:07

see. Yeah. So, okay. I'll

22:09

also say I also just also throw a disclaimer

22:11

out there that IPOs are. Terrible in that

22:14

they provide a lot of people. Who've who haven't been with the

22:16

business very long to make a lot of

22:18

money in a very short amount of time. And so that's sort

22:20

of the argument against IPS and we can discuss it somewhat different.

22:23

Okay. Yeah. So I think here's

22:25

the big question that I still have a hundred billion dollars.

22:27

It's just a really big number to me. I don't really.

22:30

I don't know what that number feels like. It just sort

22:32

of just a huge number. I don't really understand it. You

22:34

know, if the number was a trillion dollars, the number

22:36

was a hundred billion dollars. The number it was $50 billion,

22:39

they would still feel like big numbers to me. So

22:41

why a hundred billion dollars? So

22:44

the founders and the, and the, you know, the stakeholders,

22:46

key stakeholders, they must have looked at their financials

22:48

and they ask themselves, which is the same

22:50

things that I brought up, which is what is our total addressable

22:52

market? How much money are we making now? Are we profitable?

22:55

And our equivalents in the technology

22:58

business, what are they being valued at? Currently?

23:01

So we have certain types of frauds in this market

23:03

that people have decided to value tech

23:05

companies that are compounding incredibly

23:07

fast at crazy multiples.

23:10

So let's go back to the original number, right? Coinbase

23:12

made $1.8 billion in revenue

23:14

in Q1 multiply by four. That's about.

23:17

$8,000,008 billion in revenue for

23:19

2020. They're growing.

23:22

I believe that like I believe they're growing at

23:24

150% growth rate. So

23:27

if you compound that over a few years, very

23:29

quickly, they justify

23:31

the a hundred billion dollar valuation. but of course

23:34

there's also the, the fear that

23:36

we enter another crypto winter, and not as many people

23:38

are trading crypto. And there isn't

23:41

the same sort of excitement that there

23:43

is now. And in that scenario,

23:45

of course, Coinbase wouldn't warrant a

23:47

hundred billion dollar valuation and could very well fall.

23:50

I mean, right now, I believe it's trading at an $80 billion

23:52

market cap. So I follow a little bit,

23:54

it's fallen a little bit. Yeah. Okay. Okay.

23:56

Great. So there's one other really interesting. So obviously

23:59

Coinbase is innovated in a number of ways. They they've

24:01

been profitable really early. They're the first

24:03

company in a new generation where dilution

24:06

is not the base case. They direct listed

24:08

the biggest direct listing of all time. And

24:11

this is a lesser known and lesser talked

24:13

about Wait in a way in which they've innovated,

24:15

which is they didn't do a road show. So

24:17

typically when a company is about to go public under the

24:19

public markets, even if it's a direct listing, they'll

24:22

go to a lot of the biggest funds on wall street,

24:24

the East coast and tell them, look,

24:26

these are the reasons that you should buy our stock when we

24:28

IPO. They'll market themselves,

24:30

they'll hire investment bankers and they'll go around

24:33

and basically put the word up. Coinbase

24:35

did not do this. And in fact, on IPO day,

24:37

typically what a CEO

24:39

would do is go to all the big media outlets

24:42

like CNBC Bloomberg, and get up

24:44

there and talk to everybody. They did not do

24:46

this instead. They

24:48

had each of their biggest investors

24:50

interview them on different, smaller,

24:52

lesser well-known media channels, like clubhouse

24:55

that chose not to talk to big media at all.

24:58

They assumed that the

25:00

I, well, I guess the assumption was that. The

25:03

word was already out. Everybody knew about Coinbase already.

25:05

There was enough energy and excitement about

25:07

the IPO that they didn't have to do this, and they

25:09

didn't have to give any more power and

25:11

authority to these established media

25:13

organizations that they have no control

25:15

over their messaging. And the media organization

25:18

organizations decentralize it decentralized

25:21

the narrative of their own company before

25:23

the direct listing, which I think is incredibly cool.

25:25

And I, I hope to see that more, but cool. Yeah.

25:28

Awesome. All right. So

25:30

I think that's everything that we want to speak on about

25:33

this topic. This is obviously a

25:35

huge, huge area. So there's

25:37

stuff that we could have touched on, but I think this is a good balance

25:39

between being informative as well

25:41

as not being 10 hours long. So

25:44

if you guys are intro into these types of episodes,

25:46

if you want to find out more about current events

25:48

or there's some topic that you just wish that we would speak about,

25:51

I can do some research to the technicalities

25:53

of it. I can write some code and figure out what's going on.

25:55

The songs can look at the financials. And

25:58

look at the books and see what's going on

26:00

from that perspective. So I

26:02

think you guys want to know about tech business. Just

26:05

hit us up on Twitter. You can find me at

26:07

F Z from Cupertino. and

26:09

you can find the song at next, the song.

26:12

So tweet at us say, Hey, I want to see an episode

26:14

about why Elon Musk bottle, that Bitcoin

26:16

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26:18

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