MoffettNathanson’s Lisa Ellis On Coinbase

The “Google of the crypto economy” and Netscape 2.0. are just two of the many powerful analogies the Coinbase initial public offering (IPO) garnered on its April 14 debut with a closing stock price of $328.28 and an $85.8 billion market cap. It’s been a bit of a roller coaster ride ever since. A week ago today, Coinbase opened at $337 a share. It ended the week at $294, following a precipitous drop in the price of bitcoin.

It’s a stock – and a roller coaster ride that Lisa Ellis, partner and senior equity analyst at MoffettNathanson LLC has been closely following. As a recognized expert in payments at large and crypto in particular, Ellis has been choosy about her investments within the space, but is bullish on Coinbase. She told PYMNTS CEO Karen Webster that she views Coinbase as enabling crypto as a technology, and as such is an important on-ramp to the crypto economy at large.

Her target price: $600.

“We’re very transparent with Coinbase,” she told Webster. “[Coinbase] is not for the faint of heart. It’s really a stock that we view as a long-term holder in tech. You just have to have a strong stomach.”

A strong stomach and a good head for the fundamentals of crypto as a technology. At the moment, however, its stock rises and falls based on crypto, the speculative asset. Therein lies both the debate over its long-term value and the evolution of crypto as a technology.

“Cryptocurrencies — as a technology — have a number of use cases that have emerged over the last five or six years, encompassing everything from asset identification and tracking to decentralized finance and loan collateralization to bitcoin as a form of ‘gold 2.0,’ ” she said. “I think of [Coinbase] as on a path to becoming like Microsoft Azure for blockchain technologies.” Giving a nod to services for building, testing, launching and ultimately managing applications and services through the use of Microsoft-managed data centers.

Cryptos’ Existential Question: Currency Or Speculative Asset 

Ellis’ Azure comparison aside, there’s still debate about crypto as a currency or as a technology, particularly when it comes to marquee names like bitcoin. The current Coinbase business model makes money on the buying and selling of speculative assets, including bitcoin which has a market cap of roughly half (or more depending on the day) of all other altcoins. Cryptocurrency, Webster said, is either a currency or a speculative asset — currencies can’t be both, particularly when one considers its value swings can be as much as $260 billion in a single day like what happened Friday (April 23). If currency values stabilize, investors will stop trading. If they don’t, it seems tough to peg volatile cryptos as a currency that people will use as part of their everyday spend.

“I’d say people don’t think of Bitcoin as functioning in both of those roles,” maintained Ellis, “in the same way that gold does not function in both those roles.  For the time being, and for a long time in the rearview mirror, bitcoin has been the version of blockchain and crypto technology that is more oriented, and has been specifically designed, to be a store of value, with a fixed supply.” (There are 21 million of them are available to be mined).

Separately, she said, there are blockchains with design parameters that are testing cryptocurrency technology as a method of payment — notably, alternatives to fiat in countries where traditional cash and coin values are unstable.

For Coinbase, the triggers that will be tailwinds to the growth that ultimately justify the price target are tied to the core brokerage business — where individuals want to keep crypto in their portfolios and will need the Coinbase on-ramp to do so. The platform will help the software developers and others in banks and merchant operations create applications around different blockchains.

As she told Webster: “Cryptocurrency technology is not just ‘one’ thing — it’s like six or seven things now. And over time we’ll probably see 20 or 30 different technologies,” indicating what might be a robust outlook for Coinbase.

The Infrastructure Play

Coinbase, she said, has been building the infrastructure to make those technologies usable — importantly, by a broader developer ecosystem tied to application developers, who can, in turn, provide the tailwind for still new cases. In terms of building a moat, Coinbase, she maintained, has strong crypto technology, strong regulatory compliance and licensing and a strong consumer name.

“Having a household name brand,” she said, “is unique among crypto companies.”

That said, there are competitive threats. There are three pillars that today, have helped Coinbase build and maintain its moat: licensing, consumers and a consumer brand, and its exchange. Traditional brokerages or even some large tech upstarts don’t have the licensing in place or may find regulatory hurdle daunting. But an acquisition of a Kraken or Gemini by a brokerage with a large consumer base could threaten Coinbase’s dominance by competing on price and the diversity of revenue flows.

At the same time, Ellis said, Coinbase could conceivably take a different competitive approach, striving to become the “Coinbase Inside” enabling brokerage and exchange capabilities for other firms. That would entail working with the existing brokerages and connecting into their offering, rather than individual brokerages partnering with or acquiring other firms to have their own capability.

For now, the story of its early days and Coinbase as a crypto-economy enabling platform is still being written. For any investor, including Ellis, the long-term proof will be in the applications that Coinbase, the platform, spawns.

“I think you really have to see this platform business start to take off,” she said. “That will give us the confidence about the long-term valuation for Coinbase.”



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