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Updated: Nov 22, 2022

Coinbase Global, Inc. (COIN) $98.91 had a 35 point jump since May 11, 2022, on short covering and noise that Bitcoin will rally above $35,000. Both are wrong: the shorts should have stayed short, and Bitcoin is worth $15.00 or less. As for COIN – Chapter 11 is the Company’s future and a fifty cents stock as a collector’s item.

What G-101 reported …

On November 26, 2021, G-101 Algorithm pulled the plug on Coinbase Global, Inc. (COIN) ($301.30) claiming in part, “COIN above $300 is like believing the moon is made of cotton candy. If you own it sell it, if you want to buy it don’t, but if you’re one of those – STOP THE STEAL TRUMPERS- buy it now and get rich while the Donald takes you to the promised land. (We received over 200 “nasty notes” claiming in part, “Trump is right, and COIN is worth $1000 a share to prove the truth. )

No politics here, just plain common sense on the belief that if something looks wrong it must be wrong. G-101 doesn’t know bullshit from shinola because it is not human just a subjective probability algorithm that applies fundamental truths to financial questions not alternative claptraps. Its assessment starts by determining a public company’s business model on the simple fact – if the business model is faulty the likelihood of success is zero. COIN provides financial infrastructure and technology for the cryptoeconomy in the United States and internationally by offers the primary financial account in the cryptoeconomy for retailers; a marketplace with a pool of liquidity for transacting in crypto assets for institutions; and technology and services that enable ecosystem partners to build crypto-based applications and securely accept crypto assets as payment.

What this means – Coinbase Global Inc. is simply a piece of software based on a soft commodity that’s also a piece of software that has no value except in the eye of the beholder.

Before G-101 gave its assessment, here are the facts: On April 13, 2021, Coinbase closes at $328.28 per share in Nasdaq debut, valuing crypto exchange at $85.8 billion. KEY POINTS (1) Coinbase’s market cap exceeded $100 billion after its debut Wednesday morning on the Nasdaq, though the stock fell later in the day. (2) Coinbase has soared in value in the past year alongside bitcoin and Ethereum, which account for most of the volume on the site. (3) Goldman Sachs was the underwriter. Coinbase shares closed at $328.28 giving the cryptocurrency exchange an initial market cap of $85.8 billion on a fully diluted basis. The shares opened at $381 and quickly shot up as high as $429.54, before dropping back below the debut price and reaching a low of around $310. The price was still well above the reference price of $250 set Tuesday night, though no shares changed hands at that price. Skirting the traditional IPO process, Coinbase listed its stock directly, allowing employees and existing shareholders to sell shares immediately at a market-based price. In pursuing a direct listing, Coinbase followed tech companies like Spotify, Slack, Palantir and Roblox, which helped standardize the process. (All these stocks are currently below their offering price and suggested to be the case by G-101.) Excluding options and restricted stock units, Coinbase closed the day with a market cap of about $62 billion; and value so out of whack that just maybe the moon is made from cotton candy?

Founded in 2012 as a way to simplify the purchase of bitcoin, Coinbase has emerged as the most popular crypto exchange in the U.S. and soared in value alongside digital currencies bitcoin and Ethereum. The service now has 56 million users (all investors classified as “users” lost money hold paper), up from forty-three million at the end of 2020 and thirty-two million the year before that. Most transactions on Coinbase involve the purchase of bitcoin or Ethereum.

….. this year 2022.

Brian Armstrong (owns 39.6 million shares excluding 9.29 million in options at $23.46), the chief executive of the largest cryptocurrency exchange in the United States, traveled across the world to make an announcement in early April: Coinbase was bringing crypto to India. In an auditorium in Bangalore, Mr. Armstrong, wearing a type of loose buttoned shirt popular in India, said Coinbase planned to set up a hub of 1,000 employees there by the end of 2022. The company was investing in Indian start-ups and allowing local customers to buy and sell digital currencies on its exchange. For Coinbase, it was a chance to transform the finance sector into a country of more than one billion people and lure new customers from across Asia. NOT TO BE. A week later, Coinbase got some unwelcome news. A government-backed group issued a statement suggesting that the company would be unable to use a crucial payments platform — a system that was supposed to allow Coinbase customers to convert their rupees into virtual currencies like Bitcoin and Ether. Not long after its grand opening, Coinbase halted much of its trading service in India. Coinbase’s fumbled start in India, a largely untapped market for crypto, was emblematic of failures that have unsettled employees and sent the company’s stock price spiraling. In June, Coinbase laid off 18 percent of its staff.

For years, Coinbase has aspired to become the Google of crypto, as some employees put it, a world-changing business with global reach and a wide range of products. Instead, the company is at risk of squandering its head start, as nimbler competitors like FTX and Binance continue expanding despite the downturn, according to interviews with crypto experts and twenty-three current and former Coinbase employees.

“It’s become a bit of a chaotic situation for them,” said Dan Dolev, an analyst at the financial firm Mizuho who tracks Coinbase. “It’s the perfect storm.”

Some insiders attribute Coinbase’s problems partly to strategic missteps by executives Mr. Armstrong tapped to turn the company into a crypto juggernaut. As crypto prices surged, Coinbase hired thousands of new employees, which led to overspending and bloating.

Some recruits came from Silicon Valley titans like Google and Meta, including top executives. Now employees say the company is unrecognizable from the one that dominated the early years of crypto, with some leaders who lack deep experience in the industry.

Despite its early start, Coinbase has never had a strong hold over the international market, which is dominated by Binance. The company went into India despite widespread uncertainty about how the government would react, an approach that industry experts considered unwise.

Then, in the spring, Coinbase unveiled its most-hyped product of the year, a marketplace for nonfungible tokens, the digital collectibles known as NFTs. But the marketplace failed to draw much interest and was criticized by NFT aficionados.

Not all of Coinbase’s recent struggles are of its own making. The steep decline in crypto prices has led to a drop in trading, which accounts for the vast majority of the company’s revenue. As the largest crypto company on the public market, Coinbase withstands the worst of the broader industry’s problems, with its stock price fluctuating in parallel with Bitcoin and other volatile cryptocurrencies. (The company got a boost this week when it announced a partnership with BlackRock, the world’s largest asset manager. Its stock was up almost 5 percent at the close of trading on Thursday.)

Mr. Armstrong declined to be interviewed. But five of his top executives defended the company’s performance. In a series of interviews, they said Coinbase was developing an array of crypto products, some of which may take time to catch on, and emphasized that the company had weathered past downturns.

Emilie Choi, the chief operating officer, said Coinbase’s business model — in which trading fees keep the company running while other projects develop — resembled the approach of major tech companies like Meta, which relies on ad dollars to fund longer-term bets. (Not true: COIN does not have a stable, hard commodity. Therefore, its business model lacks depth.)

“The way that we operate is the way we’re always going to operate,” Ms. Choi said. “A long-term focus on the future.” (She never defined “future”.)

Let’s take a deeper dive into the India situation: The fanfare of Coinbase’s launch struck others in the crypto industry as foolish. In private discussions with the industry, Indian regulators had suggested that they were cautious about appearing to openly endorse crypto, according to someone involved in the talks, and would prefer for companies to take a more measured approach.

Coinbase “overestimated the government’s potential support,” said Prasanto Roy, a technology policy consultant in India. “It went overboard.”

In an interview, Nana Murugesan, a Coinbase executive who oversees international expansion, said the company had gone into India despite the uncertainty because it wanted to clarify the country’s regulatory posture.

“Action produces information,” Mr. Murugesan said. “We want to learn from this information and drive our decision making and next steps.”

Over the years, Coinbase has tried to expand in other ways, creating a suite of products and services. Still, in the first quarter of 2022, nearly 90 percent of its revenue came from trading fees. Coinbase started work on the NFT marketplace last year, with a team that eventually grew to about 30 engineers, designers and other employees. Mr. Armstrong hyped the project, saying NFTs “could be as big or bigger” than Coinbase’s cryptocurrency business. But the development of the marketplace was a painful process, slowed down by disagreements about what the product should look like and what kinds of customers it should target, according to three people familiar with the situation. The project was spearheaded by Sanchan Saxena, a recent recruit from Airbnb, who envisioned an Instagram-style site built to showcase users’ NFT collections. Some employees who worked in the marketplace were skeptical that the idea would catch on, two of the people said, since NFT traders have often treated the items as vehicles for speculative bets rather than as digital art.

G-101 reviewed the underpinning of NFT platform envisioned by COIN, and found the application lacking and not a viable end product.

Coinbase hoped to unveil the marketplace in the first quarter of 2022, Mr. Saxena said in an interview. But it was delayed until late April. By that point, the broader NFT market had cratered: Sales were down more than 80 percent from the fall.

After its release, the marketplace got scathing reviews. In the last week of July, it generated about $24,000 a day in trades; its main competitor, OpenSea, which serves as a kind of eBay for NFTs, generated 600 times that amount.

Mr. Saxena said the Instagram-style approach was aimed at creating the type of crypto community that exists on sites like Twitter and Discord.

“We are still pursuing this product. We’re not going to throw in the towel,” he said. “We could have done a better job of explaining probably that, ‘hey, our focus is web3 social first and foremost.’”

In the 18 months before the crypto market crash, Coinbase’s staff more than quadrupled in size, to 6,100 from 1,250. (A spokesman said the company had “put a huge emphasis” on hiring employees with strong crypto backgrounds, especially in key product development roles.)

But as Coinbase grew, projects started to feel overstaffed, and the decision-making process slowed amid layers of bureaucracy, according to five people familiar with the company. Longtime employees were concerned that new hires felt “rudderless,” one person said, and joked that you could tell the length of someone’s tenure at Coinbase by the number of times the new recruits came to them asking for help.

Even the Super Bowl ad nearly didn’t come together: As the game approached, Coinbase hadn’t settled on an idea, and employees discussed the possibility of selling back the airtime, according to two people familiar with the matter. As for the Super Bowl ad is wasted $11 million.

The crypto market crashed in May, causing Coinbase’s stock price to fall about 60 percent. In the first quarter, Coinbase’s revenue dropped 27 percent from a year earlier, to $1.17 billion, even as its expenses more than doubled, to $1.72 billion. That month, Coinbase employees circulated a petition demanding the ouster of several top executives. Mr. Armstrong responded aggressively on Twitter, calling on disgruntled employees to quit. But at a staff meeting, he and other executives struck a more conciliatory note, saying that employees should keep faith in crypto, and that the company would emerge stronger from the tumult, according to two people who attended. A few days later, the company laid off 1,100 employees.

BOTTOM LINE: When in doubt, get out. As for COIN – Chapter 11 is the Company’s future and a fifty cents stock as a collector’s item.

“Oh yes, Alice, the moon is not made of cotton candy and Santa Claus doesn’t have his sled parked there.”


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